1 May 2019 Bookmark
Author: Leoncio Montemayor, Solarplaza
Estimated reading time: 20 minutes. Don't let it discourage you, though. It will be worth your while. Find a comfortable chair and get inspired by this story of vision and optimism.
The Sun Exchange is a micro-leasing marketplace enabling anyone in the world to own solar cells and lease them to be installed in sunny emerging markets. It recently launched the campaign for a 34.17 kW system for a community high school in Cape Town, which was fully funded in less than a day! With many more exciting projects ahead, such as a 73.24 kW system for another school in Cape Town, The Sun Exchange is leveraging blockchain technology and solar energy to power the world with sunshine. Leoncio sat down and cracked open a beer with Abraham Cambridge (founder & CEO) to learn more about The Sun Exchange and their plans to make solar energy accessible for all.
Leoncio: Hello Abe, thanks for taking the time for this interview. You've been in the solar field for quite some years now. I believe you started out in the utility-scale solar field in the UK in 2010? Can you tell us a bit more about the story behind the move to combine your solar energy experience with the up-and-coming blockchain field.
Abe: Yeah. Well, my involvement in the solar industry actually predates 2010. I was involved with pioneering utility-scale solar in Britain in 2010, but actually took my first step into the solar industry in 2008, still during the pre-feed-in-tariff era. My academic background lies in climate change science. While studying the impact of climate change, I became very alarmed. I started looking more and more into the ways in which we can mitigate and adapt to the issues of climate change. Everything pointed towards the energy sector. So I ended up doing my Master's Degree dissertation on the feasibility of solar and wind energy for embedded generation. I did a study to see how we could solar power a local hospital in Norfolk (UK) under the economic framework then available, considering the solar panel prices of that time. The results of my study were quite positive. I remember thinking “holy crap, this is nearly possible!” It was so exciting.
So I completed my dissertation a month and a half early, making it the only piece of work I ever finished early in my entire university career. I handed it in and then took on a job as a solar panel installer. I spent the summer of 2008 stripping a roof of concrete tiles and replacing them with solar tiles, which basically was the predecessor to the ‘new’ product that Elon Musk announced two years ago. Way before the hype, I was already installing them ten years ago. When the feed-in-tariff eventually kicked in, we were in a very good position because we already had our accreditation. We caught the wave of the feed-in-tariff perfectly and were able to develop large scale solar plants. When the subsidy program in the UK winded down, I made a big move, taking on a job at DNV GL in Cape Town (which is former GL Garrad Hassan). I was again working on utility-scale projects, but, once there, my eye was caught by the fact that there basically weren’t any solar panels on any of the rooftops. Apparently, embedded generation was not expanding as an industry segment because a lack of access to finance. Debt is very expensive in South Africa…
“My eye was caught by the fact that there basically weren’t any solar panels on any of the rooftops. Apparently, embedded generation was not expanding as an industry segment because a lack of access to finance. Debt is very expensive in South Africa…”
Then, where did blockchain enter the picture? Well, my interest in bitcoin and blockchain basically started at the same time as my interest in solar. Both technologies really entered the scene at about the same time, which I've always thought was quite interesting, since they're also actually quite parallel technology streams in terms of money and decentralization. In any case, when I got to South Africa, I needed to send money to the UK, to pay my bills back home. And while I was doing that, I was faced with all the difficulties of sending money across borders and being required to deal with multiple intermediaries and very old banking and legacy systems. Then, all of a sudden, I could start using bitcoin to send payments back home and I was able to make the same transactions in split seconds, at no additional cost. I was amazed. Not only could I make it happen in split seconds, but it continued to be at no cost for any amount, so I could even send microscopic payments back to England with no cost. It was remarkable when I first experienced sending money like this.
Abe pitching his dream to a fellow participant at Solarplaza's 'Solar/Diesel Africa' conference in (March 2015, Johannesburg )
Leoncio: When was this?
Abe: This was about July 2014. I sent less than $1 worth of bitcoin to a friend of mine in the UK and he sent it back to me. The whole process took about 20 minutes and I ended up with the exact same amount of money that I sent in the first place. I realized how very powerful this technology was. So then I kind of put two and two together. I thought “well, if we can now transact microscopic amounts internationally in a frictionless way and, if solar panels could be owned by anyone in the world, then you can basically connect an individual to a solar panel, and actually micro-lease them.” All that would be required, was a platform that could link up the people that want to own solar panels around the world and those that want to host them here in South Africa, with the leasing all being done through cryptocurrency to overcome the cross-border friction. That was kind of how the idea was born, this kind of connecting of the need for solar panels in South Africa and the fact that the returns on solar panels here without subsidy were like between a 10 and 15 percent IRR, depending on the specific site. It was like inventing solar-powered money or monetizing sunshine. Essentially, it amounts to the ability to convert photons to cryptocurrency in an efficient stream.
But I must point out, though, that foreign people can only earn in cryptocurrency. You are technically able to earn in South African currency (we give people the option of doing it), but of course - if you're overseas - you’ll have to convert it to bitcoin to get your money out. However, what we actually found is that even most of our customers in South Africa request to be paid out in cryptocurrency, rather than being paid in the local currency.
“We've realized that people want to own cryptocurrency because they understand it is the money of the future. It is money for the Internet. It's a global currency and therefore people want to own it.”
Leoncio: Why do you think that a big percentage is requesting crypto instead of the local currency. What’s the driver behind this?
Abe: I think in emerging markets, which is where The Sun Exchange is really filling this funding gap, smaller commercial projects are not happening because of a lack of access to finance and distrust in the national currency. But now we have the ability to transact in a currency that is global, politically agnostic and invulnerable to price fluctuations due to political influence, because it's just a peer-to-peer protocol. We've realized that people want to own cryptocurrency because they understand it is the money of the future. It is money for the Internet. It's a global currency and therefore people want to own it.
Leoncio: You were mentioning that you’ve been in this field (energy-blockchain) since 2014. As one of the first movers, it's now been five years since you started. So, how have things changed over the last five years? Talking from the blockchain side, it must have been crazy! I can imagine that in the 2014-2016 period there was not a whole lot of activity, but then you must have been suddenly seeing this huge peak starting in 2016. Everybody was trying to do energy blockchain ICOs and whatnot. By now, it seems like that has cooled down a little bit and The Sun Exchange is still there. So, how have all these developments changed your vision?
Abe: It didn’t change the vision at all. I actually dug up my initial white paper on The Sun Exchange, which I wrote in October 2014 and it is remarkable how aligned everything still is. But over the past 10 years, there have been about 10-20 projects doing solar blockchains. And all of them were creating their own token for their ecosystem, which is actually not needed. All that's required is transferring value and the only technology that's persevered through all of the hype cycles and other projects has been Bitcoin. We have remained true to the vision.
“Over the past 10 years, there have been about 10-20 projects doing solar blockchains. And all of them were creating their own token for their ecosystem. The only technology that's persevered through all of the hype cycles and other projects has been Bitcoin. We have remained true to the vision.”
Abe explaining his vision at Solarplaza's 'Blockchain2Energy Asia' conference (November 2018, Singapore)
Leoncio: I was just remembering your presentation at Blockchain2Energy Asia, where you talked about a paradigm shift. Can you elaborate a little bit on this?
Abe: Sure! I believe that, as a global civilization, we’re at this tipping point where the technology that we now have access to is transitioning from one state to another. And what I mean by that in real terms is that - to date, in monetary terms - we've been relying on central banks to print money when they want to create liquidity. Basically, that means that there’s an infinite source of money available. We've seen this with quantitative easing. We could assume there is an infinite money supply of fiat money and that basically means that the value of that is going to increasingly become less over time. Just look at how the value of the US dollar changed over the last century: since the abandonment of the Bretton Woods agreement and the gold standard, the US dollar just constantly lost value. And then, on the other side, the scarcer our fossil fuels become, the higher the price will go up. Summarized, it means that you're in this financial system that's based on an infinite money supply with increasingly invaluable money tied to a finite fossil fuel supply, which is increasingly becoming more costly over time.
Now, you can switch to a system that's basically the exact reverse. With blockchain and cryptocurrency you’ve got a finite money supply, because you've got a fixed and finite supply of cryptocurrency that's being mined, which is therefore only going to become more valuable over time. Then you can use that to finance an infinite energy source, i.e. solar, which will never run out, meaning it will only get cheaper the more we utilize it, since solar panel prices are always coming down. So, the more we harness it, the cheaper it will become to harness. And it won't run out. What's also really interesting about the current paradigm, is that you've got all these really complex systems of banks, intermediaries, central banks, clearing houses and on top of this another complex system of fossil fuel explorers, hydrologists, geologists, extractors, processing, shipping. All that complexity can now simply be eliminated by a few silicon chips. A silicon chip (solar cells) that can produce electricity, which can be sold for digital money. And that digital money could be used to finance a silicon chip (computing power) that produces money. With the money that's it producing, more silicon chips can be financed to make more money.
“That's really nothing short of a transition to an entirely new type of economy. You’ve basically eliminated the need to rely on fossil fuels and centralized banking because you can now create your own money and you can create your own energy. That's a remarkable transition.”
Leoncio: It's like a positive feedback loop.
Abe: Yeah, exactly. But it’s being held back by a number of hurdles. For example, there's this very common misconception with regards to the amount of energy that it takes to create a bitcoin. But if you were to use a quarter of the value of your bitcoin to finance solar power, you've already paid back the energy it took to create it. So, really it is a positive feedback loop where people just need to finance solar energy systems with cryptocurrency, thereby basically solving that problem altogether. And that's really nothing short of a transition to an entirely new type of economy. You’ve basically eliminated the need to rely on fossil fuels and centralized banking because you can now create your own money and you can create your own energy. That's a remarkable transition.
Leoncio: Let’s linger on that topic of mining for a while. Can you elaborate a bit more on those industry concerns regarding the giant amounts of energy that mining supposedly requires?
Abe: Sure. You can join a mining pool. Anybody can join a mining pool. You don't need to have your own entire mine. For starters, a lot of the bitcoin mines around the world are being run off surplus hydro and geothermal power and you could basically use bitcoin mining as a dump load. So rather than curtailing your wind turbine, you can now funnel that into a bitcoin mine. The cheapest form of energy is wasted energy, energy that would otherwise not be produced or used, but for which the hardware has already been paid. For example, renewable non-dispatchable energy systems can now be used to mine crypto. So that’s one very important thing to consider. The other is this chase for efficiency. Whoever can produce and mine bitcoin with the least amount of energy or the cheapest energy possible has a higher chance of becoming the main bitcoin mine. For example, you can go to places like South Africa or Saudi Arabia, where you can now generate solar energy at two cents per kilowatt hour. I think the cheapest price was actually confirmed in Mexico. They obviously had very cheap capital, but the fact remains that solar power now simply is the cheapest form of energy on Earth in places where there's lots of sun. So, ultimately, all the bitcoin miners will start concentrating in these areas where there's an abundance of sun with cheap free sunlight. And let's compare that to the existing status-quo... We're currently talking about a silicon-powered financial system powered by solar running on cryptocurrency mines and people say it uses a lot of energy. But let's look at the existing system, where you maintain gold reserves that have actually been mined out of the ground at some point, which is an incredibly energy-intensive process. That’s actually the entire reason why bitcoin mining is called mining. Subsequently, that gold has to be kept in stores around the world. The physical gold has to be shipped, put into extreme high-security vaults which have to be guarded. Then you’ve got these exuberant towers of glass and concrete, air-conditioned and filled with thousands of people that are driving there in order to run that system (aka ‘banks’). Just try to imagine the amount of energy that this whole system requires. And now we can basically achieve the same global abundance economy without people having to do anything.
Leoncio: True… Gold requires a lot of energy to mine, yet nobody's taking that into account.
Abe: One of the last things I did with DNV GL was performing a study on the energy intensiveness of gold mining. It was called Solar Powered Gold. I delved deeper into the actual embodied energy in gold and it's insane. Mind-blowing stuff, really. Like the fact that - in 2014 - the gold mining industry used 82.83 terawatt hours of electricity, which is enough electricity to meet the consumption of a typical United States home for 7.6 million years.
“Because the embodied carbon dioxide per kilowatt hour in South Africa is so high - since the electricity is predominantly sourced from coal power - we've basically just offset 14.12 million kilograms. It’s a really important project for us, because it amounts to a proper industrial project.”
The Sun Exchange project at the Stellenbosch Waldorf School - 15 kW - Cape Town, South Africa
Leoncio: Wow, that's insane! Alright, let’s get back to what you guys are doing. I just read that The Sun Exchange recently launched their biggest project ever, a 473 kW system in South Africa! What’s the story behind this project, how did it come about? And have you sold it all?
Abe: Yeah. That's been generating for two months now. In fact, I own about 80 solar cells in that project myself. I just got my Sun Exchange statement through this morning, telling me how much I've earned from it. I produced 16.05 kilowatt hours of electricity, earning me 0.00024191 bitcoin.
We don't do any installing. We simply work with solar installers who bring us projects that they want to have funded. They might have clients that don't want to capitalize their project themselves, but want to do a lease, for which we can make them an offer. The clients themselves then decides whether they want to go ahead with our lease offer or not. Because our platform allows for individuals around the world to own and lease the solar panels to us, the hurdle rates for expected returns are significantly lower than those of an institutional, fund which means we can be far more competitive on the lease offers. That's basically our core business model. On that particular project we actually partnered with a local renewable energy investment fund called Decentral, meaning that they also participated in the financing of that project. It was the first one where we've had an institutional fund come in and buy about half of the solar cells in that project. Now it’s one of the largest solar installations in the whole of Africa.
And because the embodied carbon dioxide per kilowatt hour in South Africa is so high - since the electricity is predominantly sourced from coal power - we've basically just offset 14.12 million kilograms. It’s a really important project for us, because it amounts to a proper industrial project.
Leoncio: How many customers do you currently have?
Abe: We’ve got 7,000 backers ready to go and 900 of them are actually already producing electricity at the moment. That’s mostly due to the fact that one of our main bottlenecks is identifying and onboarding projects at a decent rate. So that's what we're focusing on as a business right now; scaling up our project onboarding mechanisms. Getting the backers on the platform hasn’t been the issue.
“And we’re aiming to scale fast. Over the next five years, we expect to be operating in all regions of Africa, and will have set foot in Latin America and Southeast Asia as well. Anywhere where financing is hard we're going to go and solve that problem.”
Abe blowing the minds of financial heavyweights from Proparco, the European Commission, Climate Bonds Initiative and Voltiq at Solarplaza's 'Making Solar Bankable' conference (February 2018, Amsterdam)
Leoncio: What's next?
Abe: Right now, we've sold around 900 kilowatts of solar cells. Over the next year, we want to scale up and do 2.5 megawatts. This should be feasible, as we've got about 10 megawatts of projects in the pipeline, just here in South Africa. Obviously, not all of them are going to convert properly. Some of them are going to fall through, and it'll take about 12 to 18 months to actually convert. Still, we’re confident with our goal of reaching 2.5 megawatts this year. We're still primarily focusing on South Africa, but we’ve also started business development in other regions of Africa. East and West Africa are very interesting. Ghana, for example, has got some of the costliest power in the continent. We’re talking about 30 $ cents a kilowatt hour. So these are really hot markets for solar and these are regions that we can scale into. Scaling for us could be very much like how companies such as Uber and Airbnb scaled, which amounts to just setting up an office and then onboarding drivers. So yeah, we can scale this by starting up activities with a couple of people in each geography for a few months, so we can get an operation going. And we’re aiming to scale fast. Over the next five years, we expect to be operating in all regions of Africa, and will have set foot in Latin America and Southeast Asia as well. I think that countries like the Philippines and Thailand are going to be great areas for The Sun Exchange. Again, the countries are faced with the same challenges of lack of access to capital. Anywhere where financing is hard we're going to go and solve that problem.
In terms of the overall opportunity, just like access to easy capital is being taken for granted in developed markets, access to electricity is also being taken for granted. Right now, in Africa, there are 590 million people that don’t have access to electricity. That's amounts to 50% of the population that doesn’t have any power at all, while 780 million of the population rely on dirty and unsafe sources, such as from kerosene. So, already just in Africa, there's this huge energy access gap. Imagine how much investment is required to solve that! I mean, the IEA estimate reads that, to achieve universal energy access in sub-Saharan Africa by 2030, we basically require about 28 billion dollars per year on top of the current level of investment. That sounds like a scary number, until you look at the facts. Right now, 7 trillion dollars have been pledged to transition from fossil fuels to solar projects. Then you realize that the problem isn’t with the availability of capital or demand, but actually at the ways and platforms that connect money to project. Therefore, our goal is to connect project developers to our platform so they can get their projects funded.
“Right now, 7 trillion dollars have been pledged to transition from fossil fuels to solar projects. Then you realize that the problem isn’t with the availability of capital or demand, but actually at the ways and platforms that connect money to project.”
Leoncio: You’ve mostly worked on C&I, what about residential?
Abe: Residential is probably the most interesting part of all, but it has to be done properly. The true solution to that - in my view - has to be mini-grids. I don’t see small individual solar home systems, be it through lease or not, as a solution. It's a stopgap. The aspirational African home is not powered by a 20-watt solar panel and a small lead-acid battery. The aspirational African home has the same aspirations that we all have: they want to have a microwave, refrigerator, TV, music system, etc. and that requires a utility-grade electricity supply. By having a centralized solar plant in a mini-grid, you can scale up the solar plant in accordance to demand. So those are the kind of projects that we are actively pursuing. We've already entered an MOU with Powerhive in Kenya to work on their projects, but we welcome many great developers and operators to come to us for the very quick transactions to get projects off the ground or refinanced. At the end of the day, we're quite a flexible platform.
“The aspirational African home is not powered by a 20-watt solar panel and a small lead-acid battery. The aspirational African home has the same aspirations that we all have: they want to have a microwave, refrigerator, TV, music system, etc. and that requires a utility-grade electricity supply.”
Abe firing off tough questions at Solarplaza's 'Renewable Energy Crowdfunding Conference' (November 2015, London)
Leoncio: In Africa, there’s an influx of mobile payment systems, following the pay-as-you-go principle. It's becoming increasingly common to finance solar home systems that way. Is this something that you might also want to implement in the future for these types of installations?
Abe: Yeah. The average consumer in Africa is going to be using mobile phone money to pay for their meters. And so, mini-grid operators in this country - like Powerhive - are using M-PESA as the payment system. What’s great about it is the fact that people in Africa are basically already getting used to digital peer-to-peer money before the rest of the world. People in Britain still like to use hard currency because they don't trust cards. A hangover from a bygone era... But for the typical African it’s perfectly normal to just use mobile phone money to send credits back and forth.
Now, there's another area that we would really like to start integrating into our projects and that's installing cryptocurrency mining hardware into our solar power plants as dump loads. That way, you can actually convert surplus power into cryptocurrency that can either be distributed over a community or used to send back to the owners of the solar power plant. Basically, there's this opportunity here for further integration of cryptocurrency hardware into solar power plants across Africa and. Through that combination, we can accelerate the speed in which solar energy systems can be deployed, meaning this could actually be a major driving force for the elimination of energy poverty; the reduction of carbon emissions across Africa to meet climate targets; and the prevention deforestation. It's imperative that the solar industry accelerates in Africa. And we see these peer-to-peer money transactions as the way to do it.
It's imperative that the solar industry accelerates in Africa. And we see these peer-to-peer money transactions as the way to do it.
Leoncio: And what about storage systems? I mean: batteries, is there a way to implement them?
Abe: Yes, of course with mini-grids you have to have storage. With our grid-tied projects, we don't use storage at the moment though. We can retrofit, though. Load shedding is a problem, in South Africa in particular, which is basically what rolling blackouts are. When the grid goes down, our solar power plants go down as well. Some of our customers don't quite understand why that is required. Obviously, there are technical and safety reasons related to why that has to happen. But, ultimately, if these issues persist - which it looks like they will - then we might need to integrate storage systems into our projects by default. They’d allow for at least three hours of uninterruptible power when the grid goes down, because blackouts are on a time schedule. So they’re predictable. You can actually size the storage system around their demand for what that period of load shedding would be. Then there's the overall problem of energy utilities across Africa... They're not smart utilities... They are just used to producing hydro or coal and selling it to their grid and they're still generally publicly owned. So, the idea of buying private power from IPPs, especially dispatchable power from embedded generation levels for smart grid style systems, is still pipe-dream stuff for Africa. Still, ultimately it will probably happen faster than in Europe, because the needs are in place. I mean, if the utilities such as ESKOM are in financial crisis, which they are, then independent power producers will start producing electricity at cheaper rates than ESKOM can and ESKOM will want to buy that power from IPPs to sell on to their customers. So it kind of goes by necessity. I feel that smart grids will happen faster here.
“I see the Sun Exchange operating beyond five years across all regions of the Earth. Our goal has always been to enable our customers to own a solar panel on every corner of the planet.”
The Sun Exchange project at the CROW Wildlife Rehabilitation - 17 kW - Durban, South Africa
Leoncio: A very common term that people use in this context is ‘technology leapfrogging’. But what are the challenges and the opportunities that you see in the in the coming five years for the Sun Exchange? Do you have any bold predictions?
Abe: I see the Sun Exchange operating beyond five years across all regions of the Earth. Our goal has always been to enable our customers to own a solar panel on every corner of the planet. The sun need never set on their solar panels. There should never be a time of day when they can't be earning money from the sun. So that's kind of our goal and always has been since the day I launched the Sun Exchange on Indiegogo back in 2015.
Beyond that, we'd like to have new platform capabilities - such as secondary markets - so people could be trading their operating solar cells on a secondary marketplace. I'll stop in at the different geographies, but I really like to see different verticals being integrated into our platform. Because it doesn’t have to be just solar. We could potentially involve agriculture as well. People could be owning and growing crops through the platform. I'd like to see that as well! But what I would really like to achieve is to accelerate the percentage of solar adoption in the world. I mean, I think the current estimates dictate that about 15% of the world’s total energy supply will be provided through solar by 2030. I'd like to get it way beyond that. All that's required is just connecting people who have the willpower and have the ability to do so.
Leoncio: So: fill in the blank. Solar energy energy will represent _____% of the global electricity mix by 2030?. I think solar right now is less than 5% of the total electricity mix.
Abe: Alright, let's look back. So, 10 years ago, there was probably about 200 megawatts worldwide installed in 2009? I'd like to think that, if we've managed to achieve 5% in 10 years, that we could reach 50% percent in the next 10. But that’s a bit bullish. I'm not saying it can't, it’s possible, but I’ll hedge my bets and say 25%.
Leoncio: All right, perfect. And what would be the main challenge with regards to integrating solar into the grid I mean, if we're going to put thousands of gigawatts of solar, what's going to be the main challenge here?
Abe: I reckon it’ll relate to properly scaling storage. Otherwise we’re facing the challenge of smoothing out the peaks and morning and evening demand on the grid, and things like load shifting.
Leoncio: Thanks! Do you have any last comments or anything you'd like to say?
Abe: Not really. I’ll just take the opportunity to encourage everybody to go and sign up to the www.thesunexchange.com. Definitely take a look at our projects and get involved!
Leoncio: I will do that! Well, thanks a lot for this lovely chat. Really really appreciate it. I hope you have a nice day. It's a beautiful day over there. Cheers to that.
Abe: Yes, it is. Happy Friday.
Leoncio: Thank you!
To learn more aboutthe topic beyond this article,
join Unlocking Solar Capital Africa on 31 May, taking place in Kampala.