Unergy is a protocol that aims to massively fund clean energy generation assets, with the goal of addressing the issue of climate change. It's been estimated that an additional annual investment of USD $1.7 trillion in climate-based initiatives is needed to combat it. Unergy is based on the belief that the creation of an economy based on the climate issue is the best way in which humanity can contribute and have the most impact on solving this problem.
The Unergy Protocol addresses this financing gap by creating a stable currency collateralized with a Reserve of clean energy-generating assets such as (but not limited to) solar and wind power plants. The energy yield of these Projects is monetized, and the revenue is used to invest in new clean energy-generating assets. The fractionalized ownership of the Reserve is represented by a token called uWatt, and the emission of new uWatts is dependent on the inclusion of new clean energy-generating assets into the Reserve.
The origination of new Projects is made through the emission of a token called pWatt, which is minted with the purpose of collecting the capital needed to originate a new specific Project. The total supply of pWatts of a Project is given by the nominal peak power of its clean energy-generating asset.
Thus, as pWatts are sold through Unergy's marketplace, the capital needed for originating the new Project is collected. Investors that provide early capital for this purpose are incentivized with a lower unit cost of the pWatt. When the Project starts to generate power, the protocol will automatically swap the pWatts for new uWatts. If swapped for uWatts, a Project (or a part of it) will become part of the Reserve and its income will be managed by the Protocol. On the other hand, if the pWatts were not swapped for uWatts, they will generate revenue that will be managed directly by their holder. In order for this to happen, the Wallet’s holder is required to sign a written agreement and to complete a KYB process.
The free cash flow of the Projects is used by the Protocol to originate new Projects represented by new pWatts which will eventually be incorporated into the reserve, and generating uWatts that will be distributed among all uWatt holders. As a participant in the protocol, you can either purchase uWatts, which represent a Reserve of clean energy-generating asset in operating Projects that will create more value over time, or purchase pWatts of particular Projects, contributing to the origination of new clean energy-generating assets and swapping them for uWatts whenever those projects begin to generate energy.
To account for the limited lifespan of the Projects, the protocol has a value-estimation algorithm that uses their expected future cash flow to calculate the depreciation of each individual asset. A fraction of the Reserve’s income is used to compensate for the asset depreciation by originating new clean energy assets or fractions of them to replace the old pWatts.
This ensures that the value of the uWatt token is always closely related to the unit cost of originating a new ready-to-operate clean energy Project. As a consequence of this, the uWatt is expected to naturally behave like a stable-currency, around which a new economy, centered on clean energy generating assets, could eventually grow.
Climate change is one of the most critical challenges of our times. As reported by NASA, the past nine years (as of 2023) have been the warmest years since modern recordkeeping began in 1880. To counteract this, according to the Paris agreement, we must reduce emissions by 45% by 2030 and reach net zero by 2050. Sadly, despite all the commitments made in governmental instances and other international scenarios, this goal still does not have the necessary effort or investment.
Energy is a limiting factor in human development and today the world needs to invest 2.4 trillion dollars every year in sustainability investments to avoid a climate disaster. Unfortunately, we are investing less than 30% of that value worldwide, and the investment gap increases in emerging countries because they need liquidity to fund green energy. Developed markets, on the other hand, have excess liquidity and simultaneously generate the majority of greenhouse emissions in the world.
Investing in clean energy can be a complex process for individuals due to the requirements in capital and physical space for these kinds of projects. On the other hand, industries can save up to 20% to 40% on their electricity costs by implementing solar energy, and there is still plenty of room for renewable energy sources in the grid, especially in emerging economies. The challenge is that the initial investment costs for renewable energy is usually higher compared to conventional energy sources, which may deter industries or nations from investing in these initiatives due to financial constraints or investment priorities.
This is also known as the energy trilemma, which means finding the balance between security, affordability, and sustainability in energy generation processes. Consequently, the development of clean energy generation Projects usually requires giving up one of these three components; and, therefore, in order to make clean energy generation processes secure and sustainable, a large investment capacity is required.
Environmentally Sustainable Energy
One way to reduce this 2.4 trillion dollar gap and help with the international goal of limiting global warming to 1.5°C by 2030 is by creating an economic system around clean energy and incentivizing retail investors from all over the world to participate in it. The latter is possible because not only do clean energy Projects make a great contribution to solving the climate issue, but they are also profitable.
Why will decentralized ownership solve the climate crisis?
A necessary step in order to solve the climate crisis, the world still needs the remaining 70% in sustainability-related investments to fill the climate investment gap. Unergy believes that one of the most effective ways to solve it is to empower people around the world and incentivize them to act on climate change by investing in sustainable assets with decentralized ownership. Empowering all people to invest and profit from clean energy could generate a lot more than US $1.7 trillion per year in clean energy assets. That, since the total wealth in the adult population is over to US $500 trillion and that the yearly net income adds up to $122 trillion. It is important to stand on the basis that for any individual to take part in climate action, the decentralization and democratization of clean energy is needed. This transition will only be possible if barriers of financing, technical expertise, and capital, are broken.
Decentralized ownership of clean energy assets brings new opportunities for trust, transparency and access. It also creates a pathway for more efficient capital allocation and fostering collaboration. This leverages Blockchain technology to facilitate scalable transactions and ownership of assets, efficiently integrating multiple participants into the energy transition.
4. Unergy Protocol
By eliminating intermediaries and barriers between stakeholders in the funding and operation of clean energy projects, Unergy creates a decentralized model based on a transparent and trustworthy system with automated mechanisms that guarantee the creation of projects and their management of revenue. This mechanism is referred to as the Unergy Protocol.
The Unergy Protocol is defined by a set of rules written on Smart Contracts that dictate the management of the Projects, the Reserve, and the interactions with all the participants of the protocol. It specifies the core aspects of the Protocol, such as:
4.1. The uWatt: A stable currency collateralized in clean energy
In 1921, American industrialist Henry Ford proposed the creation of an “energy currency” that could form the basis of a new monetary system. Recently there has been a movement towards a more decentralized global economy underpinned by a borderless currency, anchored in Blockchain technology and without central government influence. So far, popular crypto currencies have not seen wide adoption by mainstream consumers in the same way that Ford had imagined.
The Unergy Protocol implements the uWatt, a stablecoin that addresses the shortcomings of existing crypto currencies and, in line with Ford’s vision, is tied to the asset capacity to generate energy (power). Crucially, the coin is collateralized by real clean energy generation assets, giving it real-world, tangible value. Not only this but because the entire world relies on energy and soon-to-be clean energy, it is globally applicable, enabling wide adoption.
By increasing the usage and demand of the uWatt as a means of trading, individuals would be taking action on reverting the climate crisis we are facing today. We believe it can not only enable genuine climate action from everyday individuals but can also become the new standard for a global currency.
The uWatt is a token created to represent the fractionalized ownership over the Reserve of clean energy generating assets that is created to support the Unergy Protocol. New uWatts are only created when a new clean energy Project becomes operative and is added to the Reserve. In this event, uWatts are minted and distributed to the users that provided funding to this Project, allowing its origination.
The Protocol is designed so that the uWatt token holds certain properties similar to a currency, which is crucial for its massive adoption and fulfilling its purpose.
How are uWatt properties similar to money?
The uWatt will have some properties that allow it to be used as a currency, functioning similarly to money: it serves as a stable store of value, a unit of account and a medium of exchange. Additionally, the uWatt also has a self-sustaining revenue mechanism, which rewards uWatt holders with the production of energy of the assets inside the Reserve.
4.1.1. Store of value and stability
Clean energy assets naturally depreciate over time. However, the Unergy Protocol includes a depreciation control method that uses the Project Reserve’s periodic income to compensate for the loss of value of the assets that are part of the Reserve, increasing the amount of physical installed Watt-peaks within it (this procedure is explained in-depth in section 4.6). This gives the uWatt a stable behavior, hence it will serve as a store of value even in volatility scenarios.
4.1.2. A unit of account
As it is designed, the uWatt serves as a reference price of a new operating peak Watt of a standard Utility scale solar energy project, standardized to 1 MW in size, with ground mounting and equipped with solar tracking systems.
The average market price for one unit of Watt-peak in an operating Utility scale solar power plant is 0.9 USD / Wp, hence, the uWatt will naturally follow this price. This depends on many factors, such as the prices of a solar energy project with the standard conditions mentioned above, but also depending on the price of energy. This, because if the energy price becomes higher, the operating real Watt will have a higher cost of opportunity, hence raising the price of the uWatt.
uWatt reference value
The reference value for the uWatt will be calculated as the sum of the value of all the assets within the Reserve (as defined in section 4.6.1.), divided by the total supply of uWatts.
4.1.3. A medium of exchange
One of the main goals of the Unergy Protocol is to allow the uWatt to be widely accepted as a method of payment. To allow people access the uWatt easily, it is listed in decentralized exchanges such as Uniswap, Ubeswap and Curve. Also, Unergy aims to create partnerships to allow payments with the uWatt around the world.
4.1.4. Self-sustaining revenue mechanism
Money in banks generates revenue from lending that money to people. Money in Unergy protocol is used to invest in new solar energy projects that generate electricity that is sold and generates revenues that get distributed to all the uWatt holders. The Unergy Protocol will use the Project’s net income to originate new Projects and then, include them into the Reserve.
This means that the incomes of the solar energy assets will be used at first to compensate for the depreciation of the assets, maintaining the uWatt at the same value of a new physical Watt. After this, the income is used to originate new Projects that eventually will become new uWatts in the Reserve. When this happens, the new uWatts will be distributed proportionally to all the uWatt holders.
4.2. Project origination
It is the process by which new clean energy-generating assets are funded and eventually included into the Reserve. The origination of Projects can come from:
In either case, the Protocol issues Project tokens (pWatt) and the funds to develop or purchase the project are collected as pWatts are sold through the primary marketplace.
The Protocol uses a milestone-based approach to automate the disbursement of the funds according to the fulfillment of technical requirements and the submission of evidence of the development or acquisition of the project.
4.2.1. pWatt tokens
pWatt tokens are ERC-20 tokens that are issued in order to raise the financing needs of a new Project. When an opportunity to originate a new project appears, feasibility studies are conducted. New project opportunities can come from different sources, such as:
In any case, the financial and technical feasibility of the Project must be validated, and, in a later stage, a written agreement that confirms the availability of the land, a PPA contract signature, or any other form of binding agreement is required.
The financial and technical feasibility evaluation ensures that the expected profitability of the Projects meets the Unergy standards, and that the potential Project is well formulated and is competitive according to the market of Renewable Energy generation assets.
The amount of pWatts that are minted depends on the generation capacity installed in the renewable energy Project, which is referred to as the peak power (measured in Watts-peak). If, for example, a Project has a total capacity of 1 MWp (1 megawatt-peak, or 1 million Watts-peak), there will be 1,000,000 pWatts issued for this particular project.
The pWatts are different depending on the particular project for which they were issued. This is because every project has particular conditions or parameters such as the asset price, the energy sale tariff and radiation at the project site, among others. In other words, for every new project to be financed, a new ERC-20 contract will be deployed and the corresponding pWatt quantity is going to be minted once the project starts its funding stage. The pWatt will be the token that represents the origination of the physical assets installed in the renewable energy Project.
As will be explained in section 5.4.2, the possession of pWatts represents the rights of a participant to receive uWatt tokens when the Project is operational and starts to generate energy. These tokens finance the different solar energy projects in an early stage, so when these go into production, they are swapped for uWatts.
126.96.36.199. pWatt price over time
The Protocol will allow users to purchase pWatts in order to raise the funding needs that the Projects require for their origination. The reference price of the pWatt will be the total cost of the project (CAPEX) divided by the amount of pWatts to be issued (clarified in section 4.1.1.). Additionally, it will take into account:
Taking the above into account, the calculation for the pWatt price (P) is as follows:
Since the CAPEX of the Project will be defined in US dollars, initially, the pWatt price will be determined in a USD-pegged stable crypto currency. However, the Protocol supports the definition of the pWatt price in any crypto currency (by providing its respective contract address) for, in the future, allowing the Projects to be funded in, for example, uWatt tokens.
4.2.2. Project milestones
The resources raised by selling the pWatts are locked in the smart contracts of the Unergy Protocol. The milestone-based approach that is proposed, allows that the locked funds are disbursed to the Installer company according to the installation progress, in an objective and transparent manner.
The development progress of a project is measured according to a defined set of milestones. Every milestone that is accomplished unlocks a specific amount of funds to be transferred to the Installer company, allowing for the next milestones to be completed.
Upon the completion of a milestone, the installer company is required to submit the evidence of its completion. Once the evidence is successfully verified, the funds related to this milestone are automatically transferred to the Wallet of the installer company.
The milestones have been carefully designed, considering several years of experience in the design, construction, installation and operation of renewable Energy projects. They allow an installer company to perform the engineering, procurement and construction of the Project without struggling for capital, but at the same minimizing the risk for the capital providers (i.e. the pWatt holders).
188.8.131.52. Milestone validation
The mid and long-term vision of the Unergy Protocol is to incorporate a decentralized governance structure that allows participants of the Protocol to vote about, for example, the completion of the Project origination milestones. Participants that meet and validate their technical background in Electrical and/or Civil Engineering (or alike) will be able to vote about the progress of the milestones.
These participants are called Validators. The Protocol will incentivize Validators, so that they are rewarded for their contributions.
Decentralization of the decision-making in the Protocol is essential for the scale needed for accomplishing the purpose of Unergy. However, in the beginning, the Unergy Protocol developers will be in charge of the validation of the milestones, and as the Unergy community grows there will be a moment in which the transition to a decentralized governance structure will be made.
The traceability of the milestones is made with on-chain interactions. Along with the registration of a Project in the protocol, the list of associated milestones, and their respective weight, is defined, and this information will be publicly available before starting the funding process of a Project. The weight of a specific milestone will define the amount of funds to be disbursed to the installer company upon its completion.
When the Installer company wishes to submit a milestone for its review, they upload the evidence through the Unergy Platform and make a contract call marking their submission. The milestone enters in an “ON REVIEW” state, and the Unergy Platform notifies the Validators. Validators have a defined time window to review the evidence and vote whether or not the milestone should be marked as complete. If the validation process is positive, the milestone is marked as “SUCCESSFUL”, which triggers the transfer of the milestone funds to the Installer’s wallet.
If the validation process fails, the feedback from the Validators is sent to the Installer company and the milestone is reset to its initial state. The Installer company will be required to abide by the feedback from the Validators and submit new evidence accordingly.
In order to ensure the quality of the Projects that are developed, there are some technical guidelines to be followed for the evaluation of every milestone. These guidelines are shared in the Unergy Platform and could be subject to changes or adjustments according to the consensus between Validators.
The milestone validation process can be summarized in the following process diagram.
184.108.40.206. Proposed installation milestone structure
The following is a boilerplate list of the Milestones that were designed taking into account the proper development of a Solar Energy Project. It is important to take into consideration that the specific milestones associated with a Project could be slightly different depending on the scale and complexity of the Project to be developed and/or the demonstrated experience and background of the Installer company.
|1||First advance payment: preliminaries||10%|
|1.2||Contract compliance policy|
|1.3||Advance payment management policy|
|1.4||Salary, social benefits, and compensation insurance policy for on-site personnel|
|1.5||Non-contractual civil liability insurance policy|
|1.6||Machinery and equipment transportation insurance policy|
|1.7||All-risk insurance policy for the construction process|
|2||Second advance payment: detailed engineering and main procurement||20%|
|2.1||Detailed engineering (calculation reports, single-line diagram, physical arrangement, simulations and datasheets)|
|2.2||Supplier letter(s) or invoice(s) certifying advance payment for solar panels, with reference and quantity|
|2.3||Supplier letter(s) or invoice(s) certifying advance payment for inverters, with reference and quantity|
|2.4||Supplier letter(s) or invoice(s) certifying advance payment for structure, with reference and quantity|
|3||Third advance payment: on-site equipments and installation preparatives||20%|
|3.1||Photos of solar panels, inverters, and structure on-site|
|3.2||Payment of social security for on-site personnel|
|3.3||Certificate of height safety course completion for personnel|
|3.4||Certificate of the height safety supervisor|
|3.5||Photos of the energy generation measurement system|
|4||Fourth advance payment: installation of the system||30%|
|4.1||Evidence of occupational health and safety (OHS) training for on-site personnel|
|4.2||Photos of installed inverters|
|4.3||Photos of AC and DC connections|
|4.4||Photos of panel installation|
|4.5||Photos of installed panel support structure|
|4.6||Photos of the system connection point to the grid|
|4.7||Photos of DC and AC panels|
|4.8||Photo of energy meter for the photovoltaic system|
|4.9||Approval of partial installation from an Unergy validator|
|5||Fifth advance payment: Obtaining certifications and insurance policies for the system’s operation||10%|
|5.1||Installation quality and compliance certification|
|5.2||Asset quality insurance policy|
|5.3||Energy efficiency insurance policy|
|5.4||Completion of performance tests|
|5.5||Completion of communication systems stability test|
|5.6||Final approval from an Unergy validator|
|6||Final payment: System commissioning||10%|
|6.1||Grid-connection certificate from the Grid Operator|
|6.2||Photos and evidence of the system’s energy production|
A different set of milestones would be required for the case in which a pre-existing Project is acquired. In this case, technical, regulatory and financial validations should be performed.
4.3. The Swap
When all the milestones are completed, the Project is now ready to begin its operation. This marks the beginning of the productive lifetime of the clean energy-generating asset. Since pWatts were issued with the purpose of originating the asset and this objective is now fulfilled, depending on the profile of the pWatt holder, one of two things happen:
4.3.1. Distinguishing between retail and institutional investors
A pWatt holder that wishes to manage the Project income directly will be required to sign a legal agreement with Unergy’s, and pass a KYB process. After the validation process is completed successfully, the holder’s Wallet will be flagged as Institutional, to be treated accordingly within the Protocol.
4.3.2. Swapping pWatts into uWatts
When retail users are in possession of pWatts and the corresponding project completes all of its milestones, the Protocol automatically mints new uWatt tokens and swaps them for the holder’s pWatts. The amount of uWatts received for each pWatt is defined by the swap factor that is defined at the moment of the issuance of the pWatt tokens.
Usually, for Solar Power Plants this factor is close to 1.0, but it can vary depending on the specificalities of the Project, such as geographic location, electrical efficiency of the equipment used, mounting type (i.e. solar tracker or fixed), and whether it is a Self-Consumption or a Solar Farm Project which exposes the Project to a different type of risks.
The purpose of the swap factor is to allow different types of Projects to be included into the Reserve, and to incentivize participants to provide funding to different Projects regardless of the differences between one another.
The origination of projects is then the only way in which uWatt tokens can be created. In other words, the origination of Projects and their inclusion into the Reserve is the mechanism from which uWatts are created in the Unergy Protocol. The incentives for possessing uWatts will be detailed in section 4.5.4.
4.3.3. Swap factor
In order to determine the value of the Project at the moment it becomes operational, the Protocol now calculates the asset value according to section 4.6.1. The swap factor will be then calculated as:
Where uWattPrice0 stands for the reference value of the uWatt at the moment of the swap. The reference value of the uWatt is calculated as specified in section 4.1.2.
In the future, the swap factor could even be used as an “equivalence factor” between different types of energy generation technologies. For instance, a riverside hydraulic power plant can provide uninterrupted power for almost 24 hours a day (it is said to have a capacity factor close to 24), while a typical solar power plant has a capacity factor of around 4 or 5. This means that the swap factor of a pWatt coming from a riverside hydraulic power plant could be approximately 5 to 6 times greater than the one of a typical solar power plant.
4.3.4. pWatts belonging to institutional investors
When a Project starts operation, any Wallet that holds pWatts of this Project and is marked as institutional, won’t have their pWatts swapped into uWatts. The pWatt holders (that aren’t the Reserve) will receive their corresponding Project income directly, meaning that the income of the Project will be actively managed by said investor and won’t be automatically reinvested in other Projects (as described in section 4.5.).
The assets (or fractions of them) that are not turned into uWatts are not managed by the Unergy Protocol’s Reserve. This doesn’t affect at all the behavior of the Protocol, since the income of the Project will be also assigned proportionally between the Reserve and the institutional investor(s).
Also, the Protocol won’t allow pWatts to be freely tradeable after the Project started operations. The ERC-20 contract will now only allow to transfer them to specific addresses in the Protocol, in the case an institutional investor wishes to trade them for uWatts in the future.
4.4. Energy tokenization and generation tracking
Projects that are funded by the Unergy Protocol have smart energy meters that are capable of making on-chain periodic reports of energy generation, acting as oracles for keeping track of the Project yields. An energy token is deployed with the purpose of keeping track of the energy generation of every Project.
When energy reports are made, they trigger the minting of the same quantity of the Project’s energy tokens as the amount of energy (measured in Wh) that was generated since the last report.
These energy tokens are held by a smart contract in the Unergy Protocol. The accumulated tokens represent the amount of energy that has not yet been monetized for that Project. When a certain amount of energy is paid, the corresponding amount of energy tokens are burnt.
This mechanism brings transparency to the Unergy Protocol, allowing any user (and the Protocol itself) to keep track of the energy generated for every Project. These energy tokens are not meant for their direct use from the Protocol’s users, but rather used to quantify and keep track of the energy generation of the assets, inheriting all the properties from the ERC-1155 standard.
Given that the clean energy generated by the Projects generate a quantifiable positive environmental impact, Projects can emit Renewable Energy Certificates (RECs), which certify the generation of 1 megawatt-hour from a renewable energy source. The RECs allow a company or individual to claim that the electricity they consume is renewable. For this, the entity making such a claim must retire it, by burning the corresponding token.
Every time that the accumulated energy tokens of a given Project exceeds an amount that is multiple of 1,000,000, then a REC token is minted. The REC will hold certain metadata on-chain, such as the creation timestamp and the Project from which it was created.
All the RECs that are created by the Protocol will be put available in a Marketplace, where any participant, company or even a dApp could purchase the REC. Any income derived from the sale of the RECs will be owned by the Reserve and used to fund new Projects, as described in section 4.5.3.
4.5. Management of projects into the Reserve
As operative Projects generate revenue, which is usually collected on a monthly basis, this income will be transferred to the Reserve smart contract. Income within the Reserve is meant to be used to maintain the Projects operation and to originate more Projects.
Every month, the Protocol will determine how to spend the accumulated income. It is defined that the income will be allocated, in the first place, into the Reserve’s maintenance and operation fund; in the second place, to compensate for the Projects depreciation, and finally, to be used to fund new Projects that currently are in a “FUNDING” state. This last decision is carried out by a decentralized vote-based governance system. After the decision is determined, the funds will be transferred to and locked by the Project Milestones management contract, waiting for Milestones to be completed by the Installer company and hence, originating new projects.
pWatts acquired by the Reserve will be automatically distributed among all the uWatt holders. These pWatts, that are now in possession of the uWatt holders, will be swapped for new uWatts in the moment that the Project becomes operational, according to the process described in section 4.3.2.
4.5.1. Collecting Project income
Energy-generating assets must be represented by a legally established organization. For this reason, Projects are managed by one of Unergy’s subsidiary companies. In some jurisdictions, it is required that the Project representative is established as a Public Utility Company. This is often required, for example, if the Project is feeding energy directly into the electricity Grid.
The company who is representing the Project, will be in charge of billing the energy to the end energy consumer(s) and collecting the payments associated with those bills, in a recurring way. If the payments are collected in the form of fiat currency, Unergy will be responsible for making the on-ramp. In any case, funds will be transferred to the Reserve’s smart contract to put them in control of the Protocol. If energy consumers make late payments or accumulate energy bills, any interest charges will also be transferred to the Reserve.
4.5.2. Project maintenance and operation fund
A predefined percentage of the recurring income of every Project will be transferred to the Reserve’s maintenance and operation fund, whose purpose is to accumulate funds to be used specifically to pay for the operation of the Projects (e.g. for operation licenses and other expenses) and also to disburse the funds for the maintenance operations, such as cleaning of the solar modules, grass cutting, replacement of damaged or defective solar modules, fuses, and so on.
The disbursement of these funds to third parties is subject to the validation of maintenance milestones, in a similar manner that installation milestones are carried out (see section 4.2.2.).
4.5.3. Deciding over the accumulated revenue
uWatt holders are able to vote on how to distribute the accumulated revenue from the Reserve. They will decide on how much money, expressed in percentage over the accumulated income, will be assigned to each Project that is in a “FUNDING” state that has reached a 10% funding threshold coming from pWatt buyers (external capital providers).
Every month the votation will end on a predetermined date, and the accumulated funds will automatically be distributed to determined Projects by purchasing pWatts of those projects, in proportion to the number of votes that every Project obtained with respect to the total votes registered for that month. For this purpose, one uWatt will equal one vote. Any discounts applicable to the pWatt purchase will be valid for purchases made by the Reserve.
If, at the end of the voting period, there are not enough available pWatts of a Project that was chosen to be funded, the maximum possible number of pWatts will be acquired by the reserve and the rest of the funds that were meant to be assigned to that project will be assigned to the next Project in number of votes. This process will be repeated after all available funds have been assigned, or until there are no more available pWatts to purchase. In the latter case, funds will be kept in the Reserve and will be assigned in the next voting period.
4.5.4. Distribution of originated pWatts among uWatt holders
After the votation ends, the Reserve will acquire pWatts following the procedure described above. All the pWatts that are acquired and held by the Reserve. When the Projects associated with those pWatts become operational, these pWatts will be swapped for uWatts (according to section 4.3.2.) and will be distributed to uWatt holders, according to the percentage over the uWatt total supply that a participant owns.
This means that, over time, uWatt holders are going to be rewarded with more uWatts, hence, receiving benefits from the renewable energy produced by the assets that are part of the Reserve
4.6. Reserve depreciation control
Energy generation Projects have a limited lifespan and so, their value tends to decrease over time. However, It is important that the Reserve, which will serve as collateral for the uWatt, doesn’t get affected by this, and compensates for the lost value over time. By achieving this, it will allow the uWatt to have the unit of account property (a stable value), which is crucial to have to allow for its massification. For this reason, the Unergy Protocol is designed in such a way that the Reserve is able to regenerate itself, resulting in a stable unitary value despite being based in real world assets with limited lifespan.
Typically, a Solar Farm project has a lifetime of 30 years, while assets that are part of a Self-Consumption Project with a PPA typically have a life of 15 to 20 years, because one of the PPA contract clauses usually specifies that after this period of time the asset will be transferred to the energy consumer, and hence, losing all of its value from the perspective of the Project’s investors.
The Unergy Protocol specifies an asset valuation algorithm for the Projects that are owned by the Reserve, which estimates an asset’s value according to the expected future cash-flow the Project will generate. The Protocol uses, every month, the estimated asset value of every individual Project to compensate for any negative variation of its value (depreciation). This guarantees that the Total Value Locked (TVL) in the Reserve, on average, never decreases, despite the value of every individual asset within.
4.6.1. Asset value estimation
The current value of an asset that is managed by the Reserve is defined as the Net Present Value of its expected future cash flow, discounted at an opportunity rate equivalent to the CPI + 5% - 7%. The opportunity rate will ultimately depend on the type of Project (self-consumption Projects tend to have a slightly higher risk, hence having a higher opportunity rate) and the exact value ranges will be subject to community proposals through the Unergy Protocol governance system.
In order to calculate the value of an asset, an estimation of the energy price is needed. For a Solar Farm project that sells energy to the electricity Grid, a long-term energy price estimation should be made, since it is also dependent on the energy price in the spot market. For a Self-Consumption project, the tariff is agreed before the Project starts operation.
The Unergy Protocol keeps track of the CPI of different countries, in the form of Oracles with which the Procol interacts with. These values are used to calculate the value of every individual Project within the Reserve.
Energy price estimation
For every country in which the Reserve owns Projects, a consulting process with an independent third-party company with relevant experience in the Energy market will be contracted. This consulting process will result in a long-term estimation of the energy price. This estimation is going to be used to update the expected future cash flows of the Projects into the Reserve.
The consultancy results will be published in the Unergy Platform and they will be available in the form of an Oracle from which the Procol smart contracts retrieve the necessary information to update the Project expected cash flows.
4.6.2. Asset depreciation compensation
Unergy Protocol keeps track of the monthly reference value of the Projects, according to the input data described above. Negative variations of an asset’s value are treated as asset depreciation. The depreciation compensation mechanism ensures that the total value locked (TVL) by the Unergy’s Reserve, on average, never decreases, thus creating a soft-peg between the unit value of the uWatt and the cost of originating a new ready-to-operate Watt in a real world Project.
For this reason, every month, right before deciding over the accumulated income (described in section 4.5.3. and just after transferring a certain amount to the maintenance and operation fund, the Protocol uses a part of these resources to purchase a quantity of pWatts equivalent to the total asset depreciation within the Reserve for the given period. Since the pWatts that are being purchased are compensating for the depreciation of old pWatts into the Reserve, their purchase will not trigger a pWatt distribution among the uWatt holders (section 4.5.4.), but rather the ‘old’ pWatts will be burnt.
The effect that this process will have is that the total supply of uWatts will correspond to the value of the same amount of new ready-to-operate physical Watts. By doing this, the uWatt value (in the sense of Total Value Locked divided by uWatt total supply, as mentioned in section 4.1.2.) will have a strong bond with the value of the physical assets inside the Reserve, rather than a sole speculative value.
4.6.3. Avoiding over-compensation
To avoid over-compensation, the Protocol keeps track of the total compensation that has been made for every individual asset. The amount of new pWatts that are compensated over the lifetime of a Project, is limited to the same amount of pWatts of the Project itself.
The Protocol will keep track of the amount of pWatts originated by every Project due to compensation depreciation. Under normal circumstances, the sum of all negative value variations will equal the initial investment amount for originating the asset; and the last depreciation compensation event will occur in the last month of operation of the Project. However, strong or unexpected variations on energy prices or macroeconomic conditions could make the asset increase its value over time and make that the negative variations added up exceed the initial investment amount. For this reason, the depreciation compensation mechanism limits the total compensation amount of every project to the Project’s initial value.
5. Remarks on the Unergy Protocol
5.1. Types of Projects
The intention of the Unergy Protocol is to provide funding to all kinds of clean energy sources. However, initially Unergy will focus on grid-tie solar energy Projects because of their scalability and ease of installation in emerging markets. In the medium-term, other types of clean energy sources like riverside hydroelectric power, wind turbines, biomass, nuclear, among others, could be implemented.
Grid-tie solar energy projects can be classified in two types: Self-consumption and Solar Farms (Utility-scale Projects).
5.1.1. Self-consumption Projects (SC Projects)
A Self-consumption project refers to a Project that is installed in the facilities of the consumer organization, and that provides electricity targeting the internal energy consumption. This type of Project allows the organization to reduce the energy consumption from the grid, hence reducing their electricity costs. In some markets, the surplus energy (electricity that is generated by the Project but is not consumed by the organization) can be sold to the Utility Company or exchanged for energy consumption during the night, improving the financial performance of the Project.
However, solar energy Projects often require initial investments that exceed the liquidity of an organization. A solution to this problem that has been widely used is to sign a Power Purchase Agreement. In this case, the investment cost of the Project is made by a third party and the consumer organization agrees to purchase the energy generated by the Project.
Power Purchase Agreements (PPAs) are a type of contract where organizations agree to purchase the energy generated by an energy generation Project at a predefined tariff. These contracts are typically long-term, ranging from 15 to 30 years, and the energy tariff received under the PPA is usually lower than the standard grid tariff. The benefits of signing a PPA from the consumer’s side are, among others, the reduction of CO2 emissions, significant savings on energy bills, and avoiding high investment amounts that put their liquidity at risk.
It is a common practice that PPA’s that have a term of 20 years or more, include a clause that allows the transfer of the ownership of the asset to the consumer organization at the end of the contract term. In such a case, the total lifetime of the Project is not dictated by the useful life of the asset, but by the contract term. It is even possible that the consumer organization executes the purchase option of the asset, represented within the Protocol by an instant depreciation of the asset followed by a large income equal to the amount paid for it. Following the Protocol specification, this would trigger the origination of a new Project (refer to section 4.5. and section 4.6.).
The installation time of this kind of Project is, on average, about 3 to 6 months. However, in some jurisdictions this time is somewhat dependent on third parties, such as grid operators, in order to get the required permissions allowing for its connection to the grid.
5.1.2. Utility-scale solar energy Projects
Utility-scale Projects supply energy directly to the grid for selling the energy to a public utility company through the spot market or a bilateral contract. The Project term is defined by the total lifetime of the assets, that in the case of a solar energy Project can last up to 30 years. The tariff at which the energy is sold can vary depending on the conditions agreed with the utility company with which a bilateral contract was signed, or the energy spot market conditions.
Utility-scale Projects tend to be bigger in size than Self-Consumption Projects, and so their installation times.
However, In some countries, such as Colombia and Brazil, if the Project is structured to be within a certain range of installed power, it can have the benefits of a simplified connection process which shortens the installation and setup time to about 7~8 months.
Utility-scale Projects have a lower payment risk because the energy offtaker is a regulated utility company with high payment warranties.
Mini Solar Farms
In Colombia and Brazil, there exists a specific type of Project which will often be referred to as mini solar farms, which are Utility-scale Projects up to 1 MWp in Colombia and 3 MWp in Brazil, that sell energy to the grid, and is mounted on ground and equipped with a solar tracking system which enhances the energy production of the plant. The design of this type of plant can be standardized, and with a clear cost structure which also allows for a standardized financial model.
For this reason, the Mini Solar Farms are used as the standard solar energy Project to be funded through Unergy, hence having a swap factor especially close to 1.0 (see section 4.3.3.).
5.4. Nature of the Unergy Protocol tokens
uWatts are tokens that represent the fractionalized ownership of the Reserve of clean energy-generation assets represented by the pWatts that are placed in the Reserve once Projects have started operations. The main purpose of a uWatt is to serve as a stable store of value, a medium of exchange, and a unit of account; that is based on the energy production capacity of the operational Projects into the Unergy Protocol Reserve, represented by pWatts.
Thus, it can be said that the uWatt is a Currency Token, whose supply depends on the value stored in the Reserve, and that raises certain rights for its holders and certain obligations for Unergy.
When Unergy includes pWatts in the Reserve to issue uWatts, it acquires the obligation to ensure that the Incomes generated by the Projects represented by those pWatts are liquidated in some type of Stablecoin and handed over to the Protocol for the origination of new pWatts (from Projects under FUNDING stage) that will be then automatically placed in the Reserve (once said Projects enter in its operational stage) and swapped for uWatts. uWatts issued on the basis of the origination of pWatts autonomously carried out by the protocol with the Incomes generated by the projects, will be used to maintain the stable value of the Reserve with respect to the number of uWatts in circulation; and any number of pWatts that are generated in excess, once swapped for uWatts, will be distributed by the protocol among all current uWatt holders on a pro rata basis.
In addition to the above, the uWatt holders acquire the right to have their uWatts exchanged into eWatts. This can only happen after a process of identity validation and the signing of a traditional contract, and would entitle them to receive eWatts from a particular Project under development.
Correlatively, when Unergy issues uWatts it acquires two types of obligations: i) to ensure that the resources generated by the Projects representing the pWatts in the pool are delivered to the Protocol for administration; and ii) to commit in an unavoidable way that the uWatts it has issued or distributed can be used to acquire eWatts from a particular Project, after the validation process and the signature of a traditional contract with the uWatt holder that intends to redeem its tokens.
A Utility Token works similar to a prepaid access, providing users with the right to use a specific service or application in the future. Although pWatts are backed by the clean energy-generation assets that will be used in the construction and installation of Projects, their sole and exclusive function is to give their holders access to obtain uWatts or eWatts (depending on the case). They are Utility Tokens because their only usefulness is to serve as originators of the uWatts issued once the Projects start operating and generating energy.
Thus, it can be said that pWatts are a Utility Token, that have a fixed supply backed by the generation capacity of clean energy-generation assets and that raises certain rights for its holders and certain obligations for Unergy.
When a user purchases a pWatt, they acquire the unconditional right to receive uWatts, once the Project on which its issuance is based starts operations and energy generation. Correlatively, when Unergy issues and sells a pWatt, acquires the obligation to, once the respective Project has been financed by means of the Protocol and has entered into operation, issue the corresponding uWatts to the holder of these pWatts.
pWatts outside the Reserve
As explained in section 4.3.4., when a Project starts operation, there may be a portion of the pWatts that belong to Wallets marked as institutional, that are not included into the Reserve, but rather they remain held by these wallets. That is, the only way in which a pWatt can remain outside of the Reserve is for its holder to sign an investment agreement with an institutional investor for financing the corresponding Project (or a portion of it); and the Incomes generated by said Project are distributed to their holders in cash or cash equivalents.
Once a Project starts operating, any pWatt outside the Reserve will lose the ability to be transferred, and will be bound to the institutional investor’s Wallet. Thus, it can be said that pWatts at this stage turn into Investment Tokens, that have a fixed and limited supply and that raises certain rights for its holders and certain obligations for Unergy.
An Investment Token usually represents equity or debt in a given project or business initiative, for resources provided in cash or cash equivalents, which, when offered in a public and indeterminate manner, may be considered as securities. eWatts are created based on an investment made in debt or equity for a given Project, carried out by an institutional investor; which entitles the aforementioned institutional investor to receive a portion equivalent to its investment of the Income generated by said Project. Nevertheless, it is important to note that eWatts can never be publicly traded.
Although the pWatts of an operational Project that are not part of the Reserve are considered as Investment Tokens, it should be noted that they do not qualify as securities, since their offer is never made publicly and their issuance has always been directed to a particular individual with whom Unergy has signed a traditional agreement, who has to be an institutional investor.
When pWatts of a particular operational Project are owned by an institutional investor, said investor acquires the right to receive a portion of the Incomes periodically generated by the Project through the sale of energy, in a proportion equivalent to its initial investment in pWatts. Correlatively, Unergy acquires the obligation to pay the institutional investor who holds them, the Incomes periodically generated by the Project in a proportion equivalent to the institutional investor investment, and this payment must be made in cash or cash equivalents.
5.5. Incentives for funding new Projects
The Reserve has two mechanisms that allows it to increase its value over time:
The first mechanism not only replaces the lost value of the Reserve due to the asset depreciation, but also creates more value so that the value locked into the reserve grows at a ~10% rate (which is materialized in the disbursement of uWatts to every holder). However, this growth rate is not enough for fulfilling the purpose of Unergy, which aims to close the global funding gap on sustainability investments. For this reason, there should exist appropriate incentives for participants that provide external liquidity for including new Projects into the Reserve, so that it grows much faster than naturally is intended to.
As explained in section 4.3.2., pWatts are swapped for uWatts at the very moment they are marked as operational. As a participant of the Protocol that has purchased pWatts, one should expect that the value of the uWatts received in the swap process exceeds the value of the pWatts that were acquired in the first place. If this were not the case, it wouldn’t make sense to fund new Projects, since a participant of the Protocol would be losing money in the process.