WePower’s concept to turn renewable energy into an asset class is smart, and evolving into a virtual utility provider is an even smarter move. So, in summary, this is a smart idea, but as with everything else, the devil is in the execution.
Right now, if you wade through WePower’s lengthy white paper, you can see some weaknesses in the proposition, and these are weaknesses that need to be addressed.
- Why has renewable been losing private investors since 2011?
The crux of WePower’s proposition is turning renewable energy into a tradable asset class so that:
a) Private Investors can invest, speculate, and make a profit.
b) Private Investors can help the planet by helping future clean energy projects get off the ground.
Shocker: that’s it in a nutshell! As if I needed a 47-page white paper to explain that!!!
So, here’s the million-dollar question: if this is such a good bet, why have private investors been cutting their clean energy investment since 2011? Why has venture capital funding for renewables fallen by 30% between 2011 and 2016?
There are a number of reasons, and I will try to summarize them.
Renewable isn’t scaling
Even if by 2040 all do what they promised at the Paris climate summit, the world will get just 2.4% of its energy from solar and wind.
Renewable isn’t cost-competitive
Lovins said in 1976 that “a wholly solar economy can be constructed in the USA with straightforward soft technologies that are now economic or nearly economic’’. That was 42 years ago and renewables still can’t compete on price. The International Energy Agency estimates that by 2040, renewables will be more expensive on average than any other energy source (oil, gas, nuclear, coal and hydro) both in the developed and developing worlds.
It’s a big black money hole
In 2016, the world spent about $106 billion on subsidies for solar and wind. By 2040, renewables are still going to need $84 billion in subsidies. Bloomberg warned in 2016 that if such support is phased out in the U.K by 2020, the renewable industry will “drop off a cliff.”
So, although we think that turning new renewable energy into an asset class could be a very smart move, we aren’t so confident about the longevity of the renewables out there right now.
- Why can’t I redeem energy from another country until Phase 3?
Up until Phase 3 of WePower’s roadmap, you will only be able to redeem energy if the token you hold is for a project in your own country. So even if you see a great deal in another country, there will be no point buying the token as you won’t be able to use that energy yourself.
In Phase 3, WePower becomes a “virtual utility provider.” This will then allow it to deliver energy produced in one market to another market. As a marketplace trader, you will be able to snatch good deals in one country and get that cheaper energy sent to you for use wherever you are.
This is probably the most killer feature of WePower’s platform as it opens up cross-border trading of tokens, like a proper asset class.
It’s clear why this full functionality can’t be delivered until Phase 3, but it remains somewhat surprising that WePower doesn’t give more details regarding the timeline for the roll-out of each phase. After all, this is its crown jewel.
- Are you sure my energy will arrive 4 to 6 months after I buy your tokens?
Throughout its white paper, WePower states it will take an average of 4 to 6 months after the token purchase to redeem/consume the energy.
Democrats on the U.S. Joint Economic Committee say the following in their 2016 report on clean energy: "Compared to other advanced industries, energy technologies typically require more capital and take longer to reach market."
WePower itself states in the white paper that “green energy has varying, not stable, energy supply profiles.’’
It appears to be common knowledge that energy technologies take longer to reach the market and when they do, supply levels aren’t stable (because its wind and sun). In such case, how can WePower guarantee that the energy will be ready for you to use in the 4 to 6 months window after you buy a token? And what happens to the average consumer who has bought tokens to get cheaper energy in winter and then the project turns out to be running late on delivery? Does the token holder resort to using the main grid and paying full winter market prices?
It seems then highly questionable that WePower can state your energy will arrive within the specified timeframe after you buy a token.
- What happens when a solar owner sells energy that doesn’t belong to them?
WePower says in the white paper that Spain and Italy will be key solar energy markets for it. The governments of both countries rolled out a huge promotion to landowners several years ago. It involved free or subsidized solar panels in exchange for exclusive supply to national grids over a number of years.
So, what happens when a solar power provider decides to re-sell energy promised to the government on WePower? Or what happens when a project owner simply disappears with funds raised from their token sale? In Italy, there have been multiple examples of groups obtaining government grants to set up wind farms and then disappearing with the proceeds. How about wind farms without any turbine engines because they’ve been ‘appropriated’ and sold by local criminals, leaving wind projects un-operational?
WePower doesn’t address these scenarios in the white paper.
- When does the due diligence happen and who conducts it?
WePower says the current industry model is too onerous for project owners to easily raise financing. Below are some of the steps project owners must complete before VCs consider backing them:
- Analyze the potential site energy production against other sites.
- Analyze regulation and compliance barriers to bringing the project online.
- Analyze and select equipment to best suit the business case.
- Analyze the best construction partner with the best practices.
- Analyze risks to the project
WePower wants to simplify this process. It states that “any individual can invest without going through the due dill process.”
That’s good for the project owner, but what about the average consumer WePower wants on its platform? That person doesn’t have the industry knowledge or skillset to know if a production site is unsuitable, what regulatory barriers exist in that market, or whether the project owner is spending too much on equipment.
According to the white paper, there will be a very small window for token auctions where consumer can buy renewable energy at exclusive discounted prices. So, not only do consumer lack the toolset to weigh up a project, but the timeframe for a decision is limited.
WePower goes on to state “we will ensure the risks for energy buyers are covered.’’ What does this mean? Will WePower have a standardized due diligence process for onboarding projects and will that be scored and visible to all investors? How will WePower protect inexperienced investors?
- Will wholesalers really be interested in buying up millions of individual tokens?
If a token holder can’t use the energy they brought in another country (until Phase 3, that is), then they have 2 choices: sell to another investor or sell to a wholesaler.
My question is this: wholesalers, by their very nature, sell in bulk, so would they buy millions of individual tokens? Does this seem viable?
- How can WePower guarantee my token never drops below book value?
We’ve already established that renewable energy is not in consistent supply. You have good years and bad years in solar and wind. We’ve also established that projects can be complex, taking longer to get to market. So when you buy a token before a project gets started, it’s reasonable to assume it won’t be producing energy in the 4 to 6 months timeframe WePower quotes.
This means the price you pay for the token at the start of a project might have a very different book value to the price at a later point. For example, a season of wind storms might produce an abundance of wind energy, which could make your wind token worth less than its book value. Similarly, some incredible new solution could come onto the market, making it easier and faster to harvest solar power. That could impact the book value of a token you might have been holding for over a year. It isn’t that long when you consider a project needs to find a site, secure materials, organize construction, test the plant, and so on.
Well then, is WePower going to contractually guarantee book value?
- Why does IRR go down over 4 years?
WePower lays out the IRR (initial rate of return) in the white paper over 4 years. The model it has built shows the IRR going down over this period from 20.5% to 4.8%, yet the cost of the token remains the same. If the IRR moves downward, surely the cost of the token must be linked to this?
- Why would a consumer pay more for “local” energy?
WePower says that by putting green certificates on the blockchain and being able to prove where the renewable energy originated, it can offer the benefit of paying “additional premiums for green energy that is generated locally.’’
First, who gets this benefit? Certainly not the end consumer.
Secondly, the whole premise of cutting your carbon footprint is the cost-saving on the transportation layer. So why would any consumer be willing to pay more for renewable energy simply because it was produced in their home country? This seems flawed thinking to me.
- You know letters aren’t worth the paper they’re printed on, right?
One of WePower’s headline grabs is that it has the support of the ministry of Lithuania, going as far as to insert a letter from the ministry into the white paper. However, upon reading the letter, you can summarize it as “project interesting, would be nice if it works, beneficial for everyone.”
In other words, the letter is about as generic as they get. It’s not a letter of intent (to partner). It contains no contractual or potential contractual terms and thus has no value right now in terms of future expansion prospects.
Frankly, including it in the white paper makes WePower look desperate.
- Can someone donate energy to me so I can finish reviewing this white paper?
WePower wins the award for the longest white paper ever written - 46 pages!
Did the length serve its purpose? Not really. WePower used the first 36 pages to tout its business case and its huge team.
What I found truly unimpressive about this white paper is the total lack of engineering and development roadmap details. This stuff was just glanced over in literally 4 paragraphs or so squeezed at the end.
Last time I checked, WePower is building a tech platform. A liquidity trading platform that totally depends on engineering, right? How can it skim over AI and machine learning when it purports those sit at the heart of handling complex congestion management?
Where is the architecture stack for the pilot? Without proof of tech understanding, the entire 46 pages amount to nothing more than a team of business people expounding on business theories.
Once again, the purpose of this post is not to bring any ICO down – this is just so that the founders can answer pressing questions in the interest of investors and participants.