I recently spoke with François Sonnet, co-founder of ElectriCChain, who advises companies in the solar industry on integrating blockchain technologies. His efforts inspired me to share some thoughts on why cryptocurrencies are potentially so disruptive, yet remain so limited in their current applications. This post discusses one ambitious cryptocurrency ecosystem that brings together FinTech, IoT, and SolarTech to address global energy needs by incentivising individual solar producers.
The BitCoin model: is this the future we want?
Digital currencies, like BitCoin, must be mined – the metaphor typically used to describe the minting of new coins. In classic economic terms, this controlled balance of supply and demand creates steady increase in value. In the case of BitCoin, volatile as its price may be, one can’t argue with its value creation thus far. However, beyond generating new coins, the mining activity adds transactions (blocks) to the shared database ledger (blockchain) to publicly confirm to the entire network that transactions have taken place. This avoids any attempts to re-spend coins that have already been spent in previous transactions. The computers used to mine coins also create a vast computational network to create tamper-resistant consensus of every transaction in the network.
The unfortunate consequences of this mining model are huge expenditures on hardware and, more critically, electricity to power the mining computers as well to keep these machines cool. Beyond this economically and ethically dubious use of energy and resources, this model leads to a single-minded focus on personal gain without creating broader economic and social value of any kind. At worst, it leads to unsafe, illegal operations that draw huge amounts of power from local grids often in areas least able to handle the power demand.
A new model for cryptocurrencies to incentivise shared value creation
In contrast, an emerging class of cryptocurrencies such as HealthCoin or EverGreenCoin are tying mining of their currency to positive behaviour, social change and shared value creation. There are literally dozens of these currencies popping up, though many will not survive. Certainly, being well-intentioned is not enough to create a sustainable economic platform. That’s why one example, SolarCoin, is so striking. It provides an individual financial incentive and a shared benefit for the many by directly correlating the production of energy to the mining of the currency.
In SolarCoin’s model, solar energy producers are rewarded for generating solar power – an approach to mining that provides shared economic and social value, rather than solely rewarding an individual in the pursuit of speculative profit. The core of SolarCoin is that you collect SolarCoins for the solar power you produce. In place of computationally-difficult and energy-intensive mining of a cryptocurrency, you are rewarded for increasing global solar production capacity. If you already produce solar energy, why wouldn’t you join? If you are thinking about installing solar panels, this could well provide the tipping point to jump in. And that is exactly the purpose of SolarCoin – to create a stimulus to grow the solar energy market on a global scale.
A potentially huge market in need of a jumpstart
Current global solar production comes from 7 million solar installations, which generate 450 Terawatt hours of energy yearly. This energy can cover the needs of 35 – 40 million people today, or about the population of Spain, Canada or California.
That number is up from 8-10 Terawatt hours in 2007 (a 50-fold increase in 10 years); the International Energy Agency (IEA) has a stated goal of increasing solar production to 3000 gigawatt peak of installed capacity yearly within a 15 – 20 year timeframe which would represent the ongoing consumer needs of 500 – 800 million people around the world. This growth is not going to come primarily from large commercial solar fields, but from private installations (however, large commercial producers and solar asset managers are certainly encouraged to join). SolarCoin is designed to incentivise people to install solar panels by rewarding every producer at a fixed rate of 1 SolarCoin for each Megawatt-hour of solar power produced.
The projected increase in value of the coin over the coming few years translates into reduced payback time for solar installations by 1 – 2 years. That’s 15 – 25% of total cost based on an 8-year path to ROI. Subsidies have been slashed in the US and the EU, and it has had a huge impact on local solar markets, with drastic effects on the financial model for solar installations. SolarCoin adds an incentive back into the system.
SolarCoin’s projected value increase is based on the same mechanism that drives all currencies, crypto or fiat; by managing the supply of new currency and making it transactible and thus usable to consumers. SolarCoin is already registered on a number of crypto currency exchanges; in fact, a Swiss Forex platform, Lykke, allows you to convert directly into Swiss Francs, Euros and USD.
Convergence of SolarTech, IoT and FinTech
Currently 300,000 megawatt-hours of solar energy have already been incentivised and certified using the SolarCoin blockchain. This certification capability is the IoT element that in combination with SolarTech and FinTech elements will create network effects to increase solar (and SolarCoin) production, make the coin useful, and create value-added applications for network data. These three elements create value in various ways:
1. Solartech – production of renewable energy, stimulating demand for more solar equipment and services, and creating solar energy jobs
2. IoT – production for data oriented-companies such as monitoring hardware/software companies, datalogger producers, and home electrical storage (batteries) appliances
3. FinTech – The cryptocurrency rewards distribution, and uses an online and mobile wallet for value storage, and blockchain to carry and certify transactions
The convergence of SolarTech, IoT and FinTech has spawned links across this entire “solar chain” of value – The SolarCoin Foundation manages the cryptocurrency; SolarChange, registers solar installations to the SolarCoin network as does SolCrypto in the Asia-Pacific region; and ElectriCChain, is focused on creating block chain apps in this ecosystem and assist solar monitoring and service companies.
Creating a consumer solar market
Today, there are 7 million solar producers globally; SolarCoin is being tested on 10,000 of them by registering these to the network, and this number is increasing rapidly. A first goal is to reach towards 1 million registered users to catalyse true network effects across the SolarTech, IoT and FinTech elements of the platform. The value proposition for solar producers (and potential future producers) is straightforward, but how one can participate is not as clear right now. In order to reach the scale they’re targeting, SolarCoin needs to turn what is now a fairly technical experience into a true consumer user experience. The installation and registration process, access to the SolarCoin wallet and use of cryptocurrency exchanges all are evolving quickly, but are fragmented and not consumer grade.
To participate, people first need to get comfortable with digital currency and value chain activities such as mining, storing, exchanging. Next, interested individuals must be able to connect these concepts to solar production and learn about the installation process, costs, payback timeframes, prices for reselling solar power, and their local laws governing this. Finally, once a consumer understands all the above, he/she needs to have trust in the system, or they will think, ‘This is too good to be true; where’s the catch?’
To push the consumer experience forward, Francois and colleagues across the solar value chain are currently working on the SolarCoin API so that solar installation owners can work with a simple one-click process; AI integration to dataloggers to enable prediction and better measurement of total solar energy production globally; integrating different blockchains for different data purposes such as smart contracts, interaction agreements between prosumers and local grids; and raising awareness through reputable institutions to sidestep negative associations to the use of cryptocurrencies. One such association is the International Renewable Energy Agency, which has recognised SolarCoin as a reward for solar power production.
If you are interested to learn more, contact Francois (f.sonnet (at) solarchange (dot) co), or let us know if you’d like a follow-up article to address key use cases and data applications.