tokenisation
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On 22nd May 2010 the first Bitcoin transaction occurred when Laszlo Hanyecz, a programmer from Florida, bought a $25 pizza with 10.000 Bitcoins.This proved to be a landmark investment marking a change in society’s perception of the block, which was first mined a year and a half earlier.

This article was originally published in Smart Energy International 5-2018.  You have access to our digital magazine here.

Blockchain as a distributed ledger provides transparency, security and irreversibility – and therefore most of all, trust – between two parties to transact without a third party involved. Clearly, the impact will be felt far beyond the finance sector; and the transforming energy landscape is ripe for new technology adoption.

Coupled with advances to the blockchain, generation of power is shifting from stable, centralised, but often polluting and unsustainable power sources towards clean, sustainable, but often decentralised and less constant power sources, such as wind and solar energy.

On top of the relative instability of the power supply come the increasing peaks in power demand. Microgrids are popping up in emerging markets without grid connection, increasing rural electrification opportunities; or to function as backup for the grid. This creates a need for green energy surpluses to be traded through certificates in trusted and transparent trading schemes.

As we now understand, Blockchain is one of those game changers with the potential to act as a catalyst in the energy transition. Emerging ways of using this technology to benefit the sector abound, and utilities need to keep an ear to the ground to ensure they can claim their place under the tokenisation sun.

Energy tokenisation, when applied to data security, is the process of substituting asensitive data element with a non-sensitive equivalent, referred to as a token that has no extrinsic or exploitable meaning or value.

The token is a reference (identifier that maps back to the sensitive data) through a tokenisation system. The mapping from original data to a token uses methods which render tokens infeasible to reverse in the absence of the tokenisation system; for example using tokens created from random numbers.

The tokenisation system must be secured and validated using security best practices applicable to sensitive data protection, secure storage, audit, authentication and authorisation. The tokenisation system provides data processing applications with the authority and interfaces to request tokens, or de-tokenise back to sensitive data.

Tokenisation also allows a market place to exist where anyone in the world can buy solar cells within solar projects and then lease them to commercial industrial solar projects through an established market platform. All lease payments are made using a cryptocurrency like Bitcoin, a universal financial system that allows microscopic level payments.

Using a blockchain based market place unlocks potential for tiny business models.

The rise of a new business model

Using this technology, individuals and organisations around the world are now buying solar cells and leasing them to schools and businesses in the sunniest places on earth, including Africa. This is proving to be a winning recipe for local business.

Sun Exchange

The Sun Exchange runs a solar micro-leasing marketplace, such as described above, and arranges a monthly lease rental collection and distribution for its users. Sun Exchange users have the option to transact in Bitcoin or local currency for both purchasing solar cells and receiving rental payments.

According to Abraham Cambridge, CEO of the Sun Exchange, the company is fully on the path to creating a digital token version of those solar cells, so they can become a tradable, yield bearing asset.

Sun Exchange has an existing utility token cryptocurrency, SUNEX, which includes an earn-as-you-use rewards programme encouraging clients to build socially impactful solar cell portfolios. The more SUNEX currency investors accumulate, the cheaper it becomes to buy solar panels.

Furthermore their SUNEX currency can be staked into a solar project insurance fund for emerging markets that provides default insurance for solar projects.

Sun Exchange, as well as many other startups, are making use of smart contracts, which automatically collects prepaid balances on solar projects via the blockchain and then issues them to the owners of the solar panels within the project in real time.

This ultimately removes Sun Exchange as the intermediary from collecting and transferring prepaid meter balances to the owners.

How can utilities cash in?

In terms of the Sun Exchange business model, the companies collect a margin on the value of each solar project that they host, and they charge the solar cell lessor a small service fee on the value of each kWh per project, so they have ‘skin in the game’ to make sure that the solar projects remain operational and performance optimised.

Utilities, as they are known worldwide, originated at a time when the only way to generate electricity was through centralised, fossil fuel generation. Twenty years ago it was unthinkable that people would be generating electricity within distribution systems.

Cambridge advises that the conventional model whereby utilities merely sell power to consumers is becoming antiquated, as bi-directional prosumers and consumers increase grid scope and complexity.

“The complexity lies in the fact that you have to validate electricity production while not burdening the utilities with additional costs for two sets of meters,” according to Cambridge.

Utilities need to ensure that their revenue streams aren’t being displaced by embedded generation. Utilities, as an entity, will persist as being completely off grid is an impractical ideal; off grid solutions will eventually get connected via energy storage or load balancing strategies.

The important aspect is understanding how to alternate the revenue collection or replace the revenue that the utility would collect through this process. This is where Sun Exchange uses the concept of toll fees on a solar contract.

In other words SunExchange facilitates ownership of a solar panel on a project on the other side of the world. The utility must ensure they collect revenue for maintaining the grid that the solar panel is attached to. By implementing a toll fee on a smart contract on the meter level, the cryptocurrency payment is autocorrected and a payment to the utility is processed.

Utilities need to embrace this innovation

Throughout the discussion with Cambridge, the message was clear; that utilities must ensure they collect revenue through novel methods. Bi-directional or net metering is a must although in many African countries this is still to be implemented.Cambridge states: “If you’re selling energy to your neighbours through a peer-topeer grid distribution system, it is vital that the utility be able to collect a fee for maintenance and expansion costs. With zero effort on the part of the utility, they can collect this revenue by embedding a toll fee on the smart contract”.

An example of how tokenisation is being effectively utilised is within East Africa, where the sector is building the grid up from scratch. Especially within the rural areas, the latest technology can now be installed from the start with the correct implementation standards. Sun Exchange launched in South Africa to answer the continent’s call for this kind of technology and standards.

Previously, infrastructure build was close to impossible due to limiting financial and supply chain systems.

Cryptocurrency now allows the remote ownership of panels which will accelerate the uptake of solar power. In East Africa where the grid is being built from the ground up, these systems will be built in, maximising its benefit, as opposed to retrofitting legacy infrastructure which is less effective.

Challenges to adoption

Cross border investing in this technology and development therein can be hindered by local regulatory frameworks and investment landscapes.

A lack of conformity can also present a challenge, especially in the metering space. Deciding what protocol to use and understanding whether a meter is accepted as a utility grade meter, for instance.

Conclusion

A great deal of criticism abounds for Blockchain technology due to its future forward characteristics and because people believe it will only start making a tangible impact far into the future. The truth is that Blockchain is making a difference now, powering technology that has a measurable impact. Utilities need to be ready to use the opportunities associated with energy tokenisation, ensuring new revenue streams and business models that keep up with innovation.

ABOUT ABRAHAM CAMBRIDGE

Abe Cambridge is a serial energy entrepreneur who has established businesses and projects around the world, leveraging solar energy to bring about major socioeconomic shifts. In 2010 he pioneered utility-scale solar in Britain and in 2012 one of his businesses, The Renewable Energy Co-operative, was nominated ‘International co-operative of the year’ in the UN’s Year of Co-operatives. He now lives in South Africa, where in 2014 he launched Sun Exchange, a solar micro-leasing marketplace that closes the funding gap for commercial- and community-scale solar in emerging markets, while streaming monetised sunshine all over the world. Sun Exchange was named Best Bitcoin & Blockchain Business in Africa two years in a row.