Introducing Zydeco, A Simple Token For Accelerating Solar Energy Development
A White Paper on Applying Smart Contracts, Blockchains and Distributed Ledgers to Share Solar and Solve the Climate Crisis
“Do you start with the words or the music?”
“I start with the contract.”
Said no songwriter, ever.
Everybody Wants Solar
Wherever you live and whoever you are, you’d probably prefer that your home, appliances, gadgets, car, office, church, school, hospital, restaurants, firehouse, police station, shops, bank and every other dwelling with modern conveniences were powered by clean, renewable solar energy.
It’s hard to imagine human beings choosing to burn fossil fuel feedstocks that poison the water with mercury, contribute to childhood asthma among other pulmonary diseases, and emit greenhouse gases that cause climate change if there was a convenient, affordable and cleaner option.
Not Everybody Can Get It
Not every property is suitable for on-site solar energy. Here are the primary factors that help determine the viability of solar for a particular place:
- Sunlight. Solar panels need to be placed where the sun shines. Some properties are sunny, while others are wooded or shaded by hills or neighboring structures.
- Savings. Utility rates vary greatly. Some of us only pay the electric company 7 or 8 cents a kilowatt hour (kWh) for our power, while others pay as much 35 cents. The levelized cost of solar energy (LCOE), accounting for variations in installed costs, financing terms, incentives and sunlight intensity can range from 4 cents to 17 cents a kWh. Where and when the cost of solar is equal to or less than that of legacy utility power, a state known as “grid parity,” solar capacity tends to increase.
- Regulations. The United States electricity market is a patchwork of many overlapping local markets controlled by jurisdictional authorities at the federal, state, county, municipal and utility service territory level. These jurisdictional authorities determine the rules for pricing solar against legacy power producers. Where there are strong net metering rules, owner-occupied homes and businesses can save money on electric utility bills by generating solar energy on-premises, “behind the meter.” In areas where virtual net metering is allowed, residential and commercial energy users can subscribe to lower-cost electricity produced by solar panels hosted on remote properties, an arrangement commonly known as community solar. In some areas, neither retail-rate net metering nor virtual net metering is available. In these places, solar energy production is discouraged through the pricing of solar electricity generated on-site by utility customers at wholesale, rather than retail, rates.
One challenge we faced at Geostellar, as a solar energy platform, was meeting a global demand for solar energy that met the unique requirements of each individual household in each independent locality.
Distributing Electrons As Information And Energy
On the surface, the solution seems simple. Put the solar panels where they can do the most good, by producing the most energy, saving the most money and reducing the most emissions. If only the utility grid worked like the internet!
On social media, people post articles, videos and photos, market services, share software and comment on each others lives. Intriguing and valuable information is rewarded with likes, shares and sometimes subscription, advertising or transaction revenue.
While the electrons and photons that carry information through the network is indistinguishable from the energy medium that powers our homes, businesses and communities, the rules we’ve set up to govern electricity distribution is simply not as highly evolved as the open internet.
Until now.
Field-testing a Universal Solution
In January of this year, a few of us from Geostellar set up a booth in the Innovation and Tech Today pavilion at the Consumer Electronics Show (CES) in Las Vegas to field-test a pre-paid long-distance shared solar card. We were joined by our partners at CREW (Clean Renewable Energy Worldwide), a member-owned co-operative that distributes residential, commercial and community solar.
iPads in hand, we demonstrated the potential value of a universal solar card. Las Vegas was the perfect site. Utility rates are high, there’s lots of sunshine and a regressive Public Utility Commission had killed the state-wide residential solar industry by eliminating retail rate net metering.
Our concept was that energy users who couldn’t benefit from rooftop solar through net metering, or community solar through virtual net metering, could reduce electricity costs by sponsoring solar installations in places where there was a huge disparity between the levelized cost of solar energy and the local utility rate.
One such place is Washington, DC. The local utility rate is about 13 cents a kWh, the LCOE is around 8 cents a kWh (based on availability of buildable area, construction costs and permitting process) and the price of Solar Renewable Energy Certificates is around 45 cents a kWh. That means a solar installation in DC can be paid off in two to four years through avoided costs of about 50 cents a kWh! After that time, the solar energy is practically free.
While the CES demonstration proved significant demand for pre-paid solar energy, certain aspects didn’t sit right. People aren’t used to pre-paying for electricity. They budget for their energy on a monthly basis. Sometimes it goes up, sometimes it goes down. Providing an upfront payment to receive a savings over 3 to 10 years would require a significant behavior change on the part of the customer.
It would also take a sophisticated billing and payment infrastructure to interface with different utilities around the country. Most importantly, it was difficult to foresee who might decide to regulate pre-paid, long-distance solar, such as the Federal Trade Commission, the Securities and Exchange Commission or the Consumer Financial Protection Board. We could test it out in certain states, but it didn’t seem worth the effort.
Then, just last month, the Nevada State Legislature voted to restore retail rate net metering for rooftop solar, re-invigorating the market. It was clear that we needed to develop a standardized, integrated solution for residential and commercial behind the meter solar, community solar in areas with virtual net metering, and long-distance shared solar for residents of areas without any viable local solar market at all.
The SunShot Solar in your Community Challenge
While still in Las Vegas for CES, I skipped a day on the show floor and worked on our application for the DOE SunShot program’s Solar in your Community Challenge, a $5 million prize competition that aims to expand solar electricity access to all Americans, especially underserved segments such as low- and moderate-income (LMI) households, state, local, and tribal governments, and nonprofit organizations. Our concept centered around developing community solar projects on schools, churches, medical clinics and firehouses, reducing their electricity costs and then selling the excess energy through virtual net metering to community subscribers for less than the cost of retail electricity.
We called our team Solar Club and included among our partners CREW, the Progressive National Baptist Convention (PNBC), Health Care Without Harm (HCWH), some schools, police stations and fire houses and pitched the program as solar for “Health, Education, Faith and Safety.”
We might as well have called it “Motherhood, Apple Pie and Cheverolet.” The next month we were awarded $15,000 in seed funding, a technical assistance voucher for $10,000, eligibility for $60,000 in support over the course of the Challenge and a shot at $1,000,000 in final prizes, including the Grand Prize of $500,000!
The 18-month performance period began on May 1st, 2017 and ends on Halloween of next year.
The Grand Prize will be awarded for successfully demonstrating a reproducible and scalable model for low income solar. The best way to demonstrate scalability is to scale it… really big. And the best way to show something is reproducible is to reproduce it!
The winning team will be selected from the contestants that develop the most solar energy capacity that serves over 20% lower and middle income (LMI) customers. Teams with over 50% LMI are eligible to receive a bonus cash prize, and and the DOE will show preference for teams that reach 100% LMI households or have 100% of the energy benefit nonprofits and governmental organizations.
Eligible solar capacity includes projects between 25 kilowatts (kW), a small commercial system serving 5 to 7 residential customers, and 5 Megawatts (MW), a small solar farm serving over a thousand residential customers.
With an eye toward winning the Grand Prize, we set out to design a system for a “reproducible and scalable model for low income solar.”
That’s where you come in. The program itself will do a lot of good by reducing greenhouse gas emissions and cutting electricity costs for LMI customers.
If we don’t win any prize money, we’ll still help many LMI energy users save money while reducing emissions. If do win, we’ll apply the funds to develop a sustainable solar energy and battery storage program on the Pine Ridge Indian Reservation in South Dakota, including free solar and storage capacity for homes and schools, job training and long-term maintenance and support. We need your involvement to make this a reality.
Let’s Win!
Building a New Industry on Trust
The key to developing a replicable, scalable shared solar model is to build it on trust. Developing solar energy capacity is a team sport, and players on high-performance teams trust each implicitly.
In most industries, trust is developed through marketing. We see the brands our parents bought, we grew up with ads on television or online and we see what our friends are purchasing, using and sharing on social media. We have pleasant associations with certain types of clothes, cars, cleaning supplies, foods, beverages and every other aspect of our lives. We maintain relationships with those brands that make us happy and avoid those that have disappointed us.
Solar energy is new. People don’t know how to judge the relative value of providers, how to assess quality, price or terms. They don’t know how to size a system, select equipment, an installer or the right financing plan. Seemingly powerful brands in the solar industry, such as SunEdison, Solar World, Sungevity and Suniva, have collapsed overnight.
In many ways, installing a solar energy system is surgery for your home. Recommendations for surgeons should come from a medical professional. The American Medical Association maintains a rigorous credentialing and monitoring system. A recommendation from a friend on a heart surgeon shouldn’t carry as much weight as a recommendation from your trusted family doctor.
Because of the urgency of solving the climate crisis, we don’t have time to wait for the evolution of institutional trust systems in solar energy the way our civilization did with real estate, medicine, law, banking, accounting and other professions. Realtors are certified and held to a standard by the National Association of Realtors. They have a logo that you probably recognize.
Realtors use a platform known as a Multiple Listing Service (MLS) to help you sell your home or find a home. MLS also has a recognizable identity.
Similarly, mortgage bankers, insurance agents, accountants and lawyers have professional credentialing organizations, associations and platforms to support their work. Online platforms such as Zillow in Real Estate, WebMD in medicine, Lending Tree in finance and Quickbooks or TurboTax in accounting augment the work of professionals rather than replace them.
Geostellar is a platform for the solar energy industry. We train and credential partnering organizations and independent representatives to offer solar energy solutions and represent their constituencies. This is separate and distinct from organizations such as the North American Board of Solar Energy Practitioners (NABSEP) that certifies installers. We believe that solar professionals should be able to offer solutions in their communities independent of installation, equipment and financing suppliers to ensure the solar energy plan best meets the unique needs of the customer.
Success for the solar industry will come when independent solar professionals can build successful careers representing friends, neighbors and associates in their communities.
On hospitality platforms such as Airbnb, host and guest ratings and reviews are enough to maintain a quality experience and trust in the service. One person’s experience with a stay and with the host is likely to be similar to another’s. Guests develop track records, and will likely be flagged for messiness, rudeness, noise and other violations.
It’s worked well enough to prove Silicon Valley venture capitalist Mark Andreessen wrong. He passed on an early round for the company, telling the New Yorker, “Airbnb? People staying in each other’s houses without there being a lot of axe murders?” The system developed to promote trust between participants on the platform was enough for Andreessen to invest in the Series B a few years later.
The same goes for Uber, Lyft and other transportation platforms. The driver and rider rating system keep the system reasonably safe for both.
Programmatic monitoring of metrics such as responsiveness also help on-demand providers maintain quality of service. Airbnb shows guests how quickly hosts typically respond to messages. Facebook shows users how quickly businesses respond to messages. More responsive providers simply get more business.
In solar, as in medicine, customer reviews are less important than they are in hospitality and transportation. High quality doctors with a poor bedside manner are more likely to be sued for malpractice than friendly, charismatic doctors that make mistakes.
Solar customers can be fooled by slick sales people making exaggerated claims and turned off by excellent, modest technicians who don’t present as well. Customers don’t often have the time or ability to check that contracting licenses are current and insurance coverage is active. They don’t know the financial health of equipment manufacturers, and finance companies could be out of compliance on loans.
An important rule of the platform economy is specialization and rigor. Providers should be highly competent, sales and marketing rules should be strictly enforced and customers have an equally important role maintaining a positive, supportive and engaged participation in making the whole thing work.
The platform dynamics should provide continual top-grading of all participants such that the service continually improves by attracting better, more responsive providers, more engaged customers and more inspired platform developers.
A solar energy platform takes many lessons from a search platform like Google, Amazon’s shopping platform, Facebook’s social, Airbnb’s hospitality and Uber’s transportation excellence. But there was still a big element missing. Solar wasn’t a simple transaction. It’s a series of very complicated commitments between various participants to secure a site, construct a solar generating facility, interconnect with the grid and sell the electricity.
Interestingly, the solution to meeting the SunShot Initiative’s Solar in Your Community Challenge did not come from one of these centralized online platforms. The key innovation that will accelerate solar development, expand capacity and improve access to the electricity generated came from a surprising source: cryptocurrencies.
A Smart Contract with America
You might be familiar with cryptocurrencies from a friend or relative who has speculated in bitcoin. Bitcoin is an open-source, peer-to-peer digital payment system that operates without a centralized intermediary, repository, administrator or record keeper. Unlike a bank, a company or a government that manages databases of transactions, maintains the identities of the participants and requires the trust of all involved, cryptocurrencies operate on a distributed ledger system that transmits records of transactions between all nodes on the network that are open to inspection.
The record of transactions are known as a blockchain.
Bitcoin primarily transfers monetary value encoded in tokens between participants on the blockchain, which maintains a record in the distributed ledger. As blockchain platforms have grown more sophisticated, more complex transactions are supported.
These complex transactions are known as Smart Contracts.
In order to meet the replicability and scalability requirements of the SunShot challenge, we wrote a Smart Contract for the Ethereum blockchain that passes a token specifically designed to accelerate solar development through incentivizing the right behaviors, also known as gamification. Over time, we expect to deploy additional Smart Contracts to govern each and every interaction between parties on the platform.
Introducing Zydeco, the Solar Power Token
Each blockchain has a token that is typically represented as a symbol accompanied by a three-letter abbreviation, such as the following.
- XBT (bitcoin) on the Bitcoin blockchain
- XRP on the Ripple network
- NXT on the NXT platform
- ETH (ether) on Ethereum
- XTZ (tezzies) on Tezos
Our token is ZYD, also known as a zydeco (or informally a zydecoin), on the Zydeco blockchain. Our informational website is at zyd.eco.
One ZYD represents a Watt of solar capacity. On August 8th, 2017 (8/8/17) Geostellar will be initiating it’s first ZYD campaign to accompany the launch of Geostellar 8.0, the latest version of our solar energy platform, which includes support for the token.
For the initial campaign, the price of a ZYD and the redemption amount will be based on Geostellar’s historical installed cost and solar development velocity, as well as our current development pipeline. For future campaigns, the results of each campaign will be factored into the forward ZYD pricing and redemption agreements through an “oracle,” or data feed into a blockchain from a centralized platform.
For our first campaign, the performance targets for Zydeco are as follows:
- Price of solar capacity to develop: $3.00 per Watt
- Total capacity to develop: 1 MW
- Target velocity for development campaign: 120 days
- Campaign Redemption Amount: $3.10 per Watt
Once the total capacity is in service, as indicated by the receipt of PTO (permission to operate) for the total capacity, the token holders can participate in the next available campaign, or they can redeem their tokens for cash.
While the oracle won’t be available for the initial campaign, over time the campaign metrics can be fed back into the blockchain to price each successive campaign, estimate the capacity and velocity and determine the redemption amount. In each case, the redemption amount will be fixed. The primary benefit to the token holder will be based on the development velocity. This will encourage each participant to contribute to a continually-accelerated velocity.
Cryptocurrencies should be designed like the currencies of sovereign nations, to reflect the overall health of the economy. In sovereign nations, the twin pillars of the economy are gross domestic product (GDP) and balance of trade (BOT).
On Zydeco, the pillars of the economy are installed cost per Watt of solar capacity and velocity of development. As long as costs continually fall in relation to power and rate of development accelerates, our platform, cryptocurrency and marketplace will remain healthy and contribute to the health of our planetary ecosystems.
For this reason, zydecoins are only available to participants in the development process. Those without a pre-existing formal role in solar development on the Geostellar platform who wish to purchase ZYD at the outset of a campaign can enroll as an affiliate under the distribution program, as described below.
Roles in the Development of Solar Energy Capacity
To understand the mechanism of the Smart Contract, the value of the token, and the purpose of the blockchain, and the health of the Zydeco economy, it is important to work through all the roles on our solar energy development platform and understand the relative significance of their efforts in increasing solar capacity and accelerating development.
While the roles are distinct roles, individual representing themselves or an organization on the platform can serve in multiple roles.
In addition to the functional roles, it is important to understand the value and costs of each participant in the context of the cost per Watt of solar energy capacity. The primary roles on the platform in bringing solar capacity online are as follows:
- Distributors are organizations and individuals who promote solar energy in their communities. Distribution costs, as outlined in our partnership plan, range from a high of 8% of the installed cost per Watt down to 1% of the installed cost, depending on the channel. For purposes of the initial campaign, we’ll assume an average of 6% is paid into the partnership plan, which would be $0.18 of the $3.00 per Watt of developed capacity.
- Hosts are property owners (residential, commercial, non-profit, municipal, agricultural, etc.) who choose to install solar panels to generate their own energy or to share with others. When solar panels are installed behind the meter, the host pays for or finances the solar energy system. For community solar, hosting fees are typically paid after the system is generating energy. In either case, we are are not including payments to hosts as part of the initial campaign costs.
- Off-takers are consumers of the energy generated by the solar panels. When installed behind-the-meter, the off-taker will also be a host, meaning that the property owner will consume the energy generated by the panels. In community solar, the off-taker will be a subscriber to the electricity generated. In either case, the economic relationship between the off-taker and the other participants on the platform comes after PTO, so payments to or from off-takers are not included in the cost per Watt (CPW).
- Suppliers are manufacturers of the solar energy equipment, locally licensed and qualified installers and companies that finance solar energy projects. The equipment, including solar panels, inverters, racking and balance of systems (BOS), is typically about half of the installed cost, which for the initial campaign would put the cost at $1.50 per Watt. Installation can range from $0.40/Watt to $0.90/Watt depending on the local labor rates, specific attributes of the site and other factors. For purposes of this analysis, we’ll assume an average of $0.70/W for installation labor in the initial campaign. Additionally, solar finance company sometimes include per Watt of installation dealer or platform fees in order to buy-down the annual percentage rate (APR). By loading the fees into the CPW, they are reduced 30% through the federal tax credit, and sometimes more through state or local rebates and credits. We’ll assume an average of 10%, or $0.30/W, dealer or platform fee.
- Sponsors are the purchasers of zydecoins. At the end of the campaign sponsors can redeem their tokens and receive a redemption gift. For the first campaign this will be $0.10/Watt. In many cases, sponsors will also be hosts, off-takers or distributors. For example, church members can purchase tokens to sponsor the development of a community solar installation on church property, lower the cost of electricity for the church and purchase the electricity generated to support church initiatives. The same can be done by the PTA for schools to develop solar as a fundraiser for sports teams, band uniforms or academic programs, health care system foundations to supporting medical programs or capital campaigns or municipalities, such as Ann Arbor, Michigan, to increase the local clean energy capacity.
- The Platform is Geostellar, which instantly and interactively tailors a solar energy plan to best meet the unique needs of each individual customer, as well as Zydeco, our distributed ledger, and Solar Club, our organization to coordinate for distributors, hosts, off-takers and suppliers. Developing, maintaining and supporting platforms requires software engineering, UX design, project management, sales, marketing, accounting, legal and many other important functions that benefit the entire community. The Platform receives in transaction fees whatever is left after campaign is complete and the solar capacity deployed. Based on the above estimated costs, the Platform would earn about $0.22/Watt, or 7%.
Several other cryptocurrencies, blockchains or smart contracts have been proposed or implemented to manage the exchange of generated electricity. To our knowledge, Zydeco is the first one designed to expand solar energy capacity and accelerate it’s development.
The tokens are only in play between the time a solar development campaign is conceived, and the time permission is received to operate. At PTO, final payments are made to the Platform by customers, financing companies or project development funds and then funds are paid to the Suppliers, Distributors and Sponsors. Ownership of the solar energy system is transferred from the Platform to the customer, host or fund, who enjoys the ongoing benefits from the consumption and/or sale of the solar electricity.
Here is a summary of the sources and uses of funds for the initial Zydeco campaign:
- +$3,000,000 in token sales for 1 MW of planned capacity
- -$1,500,000 for equipment (panels, inverters, racking and BOS)
- -$700,000 for installation labor
- -$300,000 in dealer and platform fees for residential solar loans
- -$180,000 for distributors (organizations and independent reps)
- -$220,000 for the platform (Geostellar, Zydeco & Solar Club)
- +$3,000,000 in payments from system owners on PTO
- - $3,100,000 paid to Sponsors on redemption of tokens
At the end of each campaign, the value will be zeroed out and a new campaign will be initiated. Reality, or course, will not be quite so neat and tidy. New campaigns will be initiated before previous campaigns are complete. Distributions to participants will vary based on the mix of residential, commercial and community-scale development, geographic distribution and other factors.
One thing that will remain consistent, is the redemption amount to the zydecoin holder in the Smart Contract. By continually executing as a high-performance team, the participants on the platform will continually accelerate development and draw more Sponsors into the program.
