Structuring Special Purpose Vehicles for Financing Renewable Generators on a Blockchain Marketplace

Olakunle Alao,Paul Cuffe

doi:10.1109/tia.2021.3135252

Olakunle Alao, Paul Cuffe

Open Access

https://doi.org/10.1109/tia.2021.3135252

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Abstract

Eighteen percent of the world’s population do not have access to electricity, impeding economic, social, and human development. The electricity access challenge can be attributed to the significant investment gap needed to finance new power projects, requiring new and innovative financing options. Independent Power Projects, funded, built, owned, and operated by the private sector and constituted via a special purpose vehicle—a legal entity whose sole purpose is implementing a power project—have become one of the fastest-growing sources of investment in the electricity sector. The limitations of traditional finance sources, including high credit, liquidity, margining, third-party, legal, and process risks, means that funds for these projects are expensive and raised only after a long and arduous process. The present article addresses these challenges by describing a novel decentralized autonomous organization, a blockchain-agnostic special purpose vehicle underpinned by a trio of autonomous mechanisms— <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">mobilization, collateralization</i> , and <italic xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">settlement</i> . These mechanisms enable seamless finance mobilization for the special purpose vehicle from a location-independent crowd, revenue collection from the electricity buyer in a risk-mitigated manner, and disbursal of eventual project revenues to investors.

Highlights

W ITH us$1 trillion of renewable electricity investment needed to meet the United Nation’s Sustainable Development Goals for secure, clean, and affordable energy, the main challenge posed to the electricity industry is the significant investment gap required to finance new renewable power projects [1]
2) Expected Returns: We propose that the smart contract allows investors to periodically initiate withdrawals in utility tokens corresponding to their due returns
The case study forming the basis of analysis in this paper are notional estimates derived from similar power projects in the case study region as in [3]

Summary

Introduction

W ITH us$1 trillion of renewable electricity investment needed to meet the United Nation’s Sustainable Development Goals (un sdgs) for secure, clean, and affordable energy, the main challenge posed to the electricity industry is the significant investment gap required to finance new renewable power projects [1]. Independent power projects, funded, built, owned, and operated by the private sector and constituted via a Special Purpose Vehicle (spv) – a legal entity whose sole purpose is implementing a power project [2] – have become one of the fastest-growing sources of investment in the electricity sector [3]. They have recently eased the burden on the public sector of financing large power projects. The limitations of traditional finance sources, including high credit, liquidity, margining, third-party, legal, and process risks, means that funds for these projects are expensive and raised only after a long and arduous process [2], [5]

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