Blockchain is the latest buzzword being thrown around in tech, but for all of the excitement, few people seem to actually know what it means.
The main reason that blockchain is so revolutionary is because it uses distributed ledgers rather than a central database in order to store information. In the case of BitCoin, the first proponent of blockchain, these ledgers contain a record of the cryptocurrency transactions.
“An incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value”
–Don and Alex Tapscott, authors of Blockchain Revolution
The “incorruptible” factor that the Tapscotts point to is possible because of the distributed nature of the records: while someone could hack into a single ledger, this would be detected by the rest of the network since the data wouldn’t match. Through a kind of self-auditing, the network reconciles every transaction every 10 minutes. A centralized databank, by comparison, is more susceptible to cyberattacks because if a hacker were able to gain control of the system, the entire record could be altered and compromised.
Another important factor of the blockchain mechanism is that it can be used for any valuable transaction, even those that aren’t inherently financial (which is why it is of interest to the energy industry). A lot of blockchain-based energy companies have been popping up recently, and many of them are looking to blockchain as a way to enable peer-to-peer energy transactions.
“The usage of block chain technology will revolutionize and accelerate the deployment of renewable energy. It allows for the democratization of green investment, allowing everyone to participate in funding green investment and contributing to a secure future.”
– Pierre Samaties, CEO of Innogy International Middle East
With this understanding of how blockchain works, we can look at Sun Exchange, a startup in South Africa, and how they are using blockchain to change the way that energy is funded.
Case Study: How, and Why, is Sun Exchange Incorporating Blockchain?
Sun Exchange is essentially a solar marketplace: people pay for solar systems around the world and these are then rented out to the consumers who really need them. Recently, Sun Exchange raised $1.6 million in seed funding to launch this platform, from partners including Network Society Ventures and three leading U.S.-based technology accelerators.
Sun Exchange is leveraging blockchain and Bitcoin to address one of the main barriers to affordable solar power in the developing world: the upfront financial cost. They do this by
- using crowdfunding to raise the capital for its projects and
- selling panels by the cell—dramatically reducing the cost of ownership for investors.
While Sun Exchange allows investors to use different payment methods, the Bitcoin option is particularly appealing. Here’s why: if you don’t live in the country where the project is located, transferring currency across borders is often expensive and time-consuming. By accepting Bitcoin (and the accompanying blockchain the currency uses), these projects can be easily funded by investors from around the world, and the earnings can also be transferred internationally.
The company also uses their own blockchain to track the ownership of each solar cell and their associated energy production and earnings. Both renters and investors can see a project’s energy performance and earning in real time. This ability to track performance throughout the life of the project makes investors more likely to fund projects around the globe, since a secure system is in place for them to monitor their assets.
Sun Exchange provides “solar energy projects with solutions benefitting from lower transaction expenses, speedy and transparent payments, real-time operating and financial disclosure, and cryptographic transactional verification without third party financial institutions.”
—Larry Temlock, Sun Exchange CFO and co-founder
Sun Exchange gives people who want to support solar a way to channel their resources into projects that can really make a difference. And the actual energy users benefit from this funding because Sun Exchange covers the capital costs and installs the panels, leaving the renters to pay for the energy generated (which is sold to them at a lower price than their local grid).
What Does This Mean for the Future of African Energy?
The Sun Exchange is just one example of how blockchain can alter the business models and operations of energy companies in Africa. Other companies, such a the Greeneum Network, are looking to use blockchain to develop a peer-to-peer energy trading platform, with pilots in Europe and the U.S. as well as Africa. While these new models are very exciting and hold a lot of promise, it is important for companies in this space to engage with the communities they are working in and their customers to ensure that they are providing them with the best solutions.
For example, the Sun Exchange crowdfunding platform may be a great way to kickstart these projects and give investors some returns, but there will surely be a point where the local renters will want to buy the systems from the investor and become the full owners of their own energy generation. Having a process in place to allow that ownership change to happen in the future will be critical to ensuring that Sun Exchange and companies like it don’t simply turn into a way for international entities to continue owning assets in African countries once the people in these regions want to take control of these value streams.
In other words, blockchain technology can serve as a tool for renewable energy development in Africa, but the business strategies of these companies must also include a way for locals to be involved, develop, and truly benefit from these assets in the long-run rather than simply treating them as a source of profit for international investors. This consideration is important for organizations in general, but it continues to hold true even with the promising developments in blockchain technology such as those that the Sun Exchange has leveraged.