Blockchain is generally viewed as an application for the more developed markets of the world. Applications in the energy sector have tended to focus on some form of energy trading, whether peer to peer, within communities or across borders or for a use case such as electric vehicle charging.
But as interest has grown, led principally by startups in the sector, blockchain has taken on a global character. And a 2016 survey by the German Energy Agency (dena) of local industry executives identified more than 110 potential use cases for blockchain in the energy sector, either in terms of providing a ‘platform’ or delivering a ‘process’.
Solar in South Africa
Nevertheless, in this early stage, blockchain applications within developing countries are few and far between. One of the first examples of blockchain crowdfunding is Bankymoon in South Africa, which has developed a platform on which donors can prepay electricity to schools in the country.
One of the most recent entrants, also in South Africa, is the Sun Exchange, which was formed to support the development of solar PV in these countries.
Founder Abe Cambridge, who transplanted himself from Britain to Cape Town to establish the company, explains of its background in an interview with Engerati: “Solar technology has now reduced to a price point where it can take on the developing world in terms of grid parity and speed of deployment.”
The focus of the Sun Exchange is on the commercial and industrial sectors (C&I), where there is a clear ‘funding gap’ for solar PV. Traditional funding from organisations such as the World Bank and NGOs tends to target either household level or utility scale projects.
The model is conceptually simple: to seek crowdfunding for solar PV installations for the C&I businesses, which are then built by the Sun Exchange and leased to the business and from which a return is provided to the original investors – all run on the blockchain.
“We primarily target projects up to $1m, which are outside the traditional investment market,” says Cambridge. “The company must have a reliable track record and be exposed to unreliable electricity supply or radically escalating electricity costs or in some cases require electrification.”
In South Africa, for example, electricity prices are increasing at around 10% per annum, which Cambridge comments is unsustainable for most businesses. “Our promise is energy at a price below that of grid.”
Projects also are technically validated by the Sun Exchange, beyond the work of the project developer, before being released for funding.
Blockchain crowdfunding investment platform
Cambridge says that 60 days is allocated for the crowd-sale in order to maintain “an edge of urgency,” after which, if not fully funded, the period could be extended or the project shelved. However, so far, all the projects have completed within that period.
The legal aspects of the project are covered in a master lease between the Sun Exchange and the end customer and then “the blockchain does its magic, intertwining all the micro-leases with the individual investors, whether they own one solar cell or one hundred cells, and transmitting their rental returns in ‘units’ in close to real time.”
The Sun Exchange’s platform utilises smart contracts built on the Ethereum blockchain platform, which is aimed to give both long term confidence to investors, with projects typically expected to have at least a 20-year lifetime, and financial transparency on the project’s development and performance.
“The blockchain has an ongoing record of who owns which cells and automatically collects prepaid funds from the plant’s account and transfers it to the owners’ digital wallets,” says Cambridge.
“This is only possible because of the blockchain and smart contracts. Also, with the smart contracts, the Sun Exchange is removed as the long-term intermediary so whether or not it is still around they will continue to run and run.”
The original buyers are able to purchase their investment in the currency of their choice or bitcoins and are likewise able to retain their returns in bitcoins or withdraw it in currency wherever they are in the world.
End users generally have a prepay meter, with which to purchase their electricity from the solar PV – similar to a standard utility prepay offering.
Buyers are also able to sell on their solar cell holdings, although a case hasn’t arisen yet, and the Sun Exchange intends in due course to build a secondary marketplace for this purpose.
Cambridge says that the approximately 250 investors in projects to date come from all around the world.
Some are buying as a means to diversify their portfolios but the greater proportion are investors who are used to trading in and have holdings in bitcoins.
“People are sitting on vast hoards of potential wealth in the form of digital currency but little to do with it. Bitcoin needs use cases and we are offering a way to use that wealth to generate a 20-year-plus income,” he says.
The minimum expected internal rate of return for a project to be undertaken is 10% in South African Rand terms. Cambridge says that to date the returns are in the range 12-15%, which translates to about 6-7% in dollar or sterling terms when currency variations are taken into account.
The Sun Exchange has initiated three projects so far in South Africa – for a wildlife rehabilitation centre in Durban, a tyre corporation in Rustenburg and a school in Stellenbosch.
Individually these have attracted from 30 to 105 investors acquiring an average from 40 to 115 solar cells.
The fourth project, and largest to date, for microgrid electrification of a village in rural Lesotho, has just been launched for the crowd-sale.
“We have started in South Africa but Africa in general and the entire developing world needs to move to solar power,” says Cambridge.
He adds: “I like to recall that bitcoin was originally mined on a silicon chip using energy and people are now converting that money into a silicon chip that generates energy. With the growth of renewables we are moving beyond a world of thermal generation and emissions and combining the innovation of digital currency and solar energy, we now have the financial system to back it.”