Difficult to Fund Midsize Green Assets. This Tokenization Startup Wants To Change That

The US renewable energy industry is in a unique position.

Large-scale projects, such as SunZia, the southwest wind turbine project expected to generate enough electricity to power three million homes, are financed easily because of long-established relationships with financial giants. . Meanwhile, small installations like solar panels on someone’s rooftop are becoming cheaper to implement during the day.

But the consolidation of the energy sector makes it difficult for mid-sized projects to get the financing they need. These ventures, which typically cost less than $100 million, are too expensive for regular people to pay for, but too modest for financial heavyweights to take an interest in them.

That’s where Plural Energy comes in. The two-year-old tokenization company enables mid-sized renewable energy projects to raise funds from on-chain investors, with the dual goal of dramatically expanding the number of people which can invest in renewable energy assets while also developing new types of financial products for the energy sector.

“Right now, the process of raising capital for solar is unacceptable. We will never meet our climate goals,” Adam Silver, co-founder and CEO of Plural Energy, told CoinDesk in an interview “(We want to) create an easy button for raising capital for good climate assets.”

“By taking advantage of tokenization, we can unlock all the magic that happens in DeFi ecosystems, and bring it to an industry that desperately needs financial innovation,” added Silver.

Pitching to Plural Energy

Investors can access four types of products through Plural Energy. The first are small asset-backed instruments, such as a project that integrates 1,000 rooftop solar installations into a single security, which is then tokenized. The second category is renewables in the development stage, and the third is operating renewables (for example, existing solar plants seeking to raise additional funds for expansion).

A fourth category, Silver says, is the “weird stuff,” like a battery that uses artificial intelligence (AI) to trade, or the bitcoin (BTC) mine built by Sangha Renewables at a West Texas solar plant operated by an energy company. “Things that are a little weird for traditional infrastructure investors, but really cool for everyone,” Silver said.

So far, most of these projects have involved solar power in one form or another, but Plural has also looked at wind-based initiatives and even a hydropower deal.

But these projects haven’t gotten past Plural’s due diligence. To date, a total of five deals, representing $40 million, have been given the green light to raise funds through the platform. Only 5% of the deals Plural considers make it to the finish line, but that hasn’t discouraged demand for the platform, which currently has about $150 million, across a dozen assets, to bring to the coming month

“When a renewable energy company comes to us, we put it through our broker-dealer due diligence process, and then we also do asset due diligence,” Silver said. “We’re making sure it’s like an asset that any of us would really feel comfortable investing in personally.”

While broker-dealers must ensure that investors are not defrauded, they are not necessarily responsible for ensuring that something is a good investment. Still, the Plural team insists on only presenting deals it believes in, Silver said.

Plural’s first greenlit project took six months to complete the process from start to finish, from agreeing to tokenize with Plural to a live tokenized security offering. That timeline has now been lowered to six weeks.

Plural’s business model and technologies “open the capital markets to the smartest group of investors, streamline the fundraising process, and provide transparency to all parties,” Spencer Marr said. , president of Sangha Renewables, to CoinDesk.

Investing through Plural Energy

Once given the nod, Plural issuers can choose what types of securities they want to offer — such as common equity, interest-bearing convertible notes, or unsecured convertible notes. Each of these security instruments receives a unique token on the back-end. Investors can then choose what type of security they want, and receive the appropriate tokens for it.

But each deal has its own unique requirements. For example, one project gave retail investors the opportunity to invest as little as $500 in a portfolio of solar projects. In the case of Sangha’s bitcoin mine, however, the deal is only open to accredited investors, with a minimum investment of $50,000.

Plural is a registered transfer agent, meaning it maintains ownership documents, known as cap tables, of projects financed through its platform. Under Plural’s system, each tokenized security gets its own on-chain cap table, the data of which is then cross-referenced with a Know-Your-Customer (KYC) database to generate SEC-compliant cap table.

“The only way you can change who owns what (in the project) is by changing who owns what token. So the original source of action and movement is on-chain , and then it’s recorded in that off-chain database,” Silver said.

The code behind Plural’s transfer agent protocol is already open-source, he added, and the company plans to publish its transfer agent standard operating procedures as well. “We shouldn’t have a regulatory moat by having a transfer agent license,” Silver said. “That shouldn’t be a barrier between people accessing tokenization.”

Initially built on Base but now expanding to other EVM-compatible networks such as Avalanche and Arbitrum, Plural offers a variety of payment options, including MetaMask, credit cards, payments with ACH and wire transfers. While the company is mostly focused on US investors, Silver said Plural is thinking of international investors who want exposure to the platform’s assets.

“Our first deal was with Canadians and Europeans, but just because we have them doesn’t mean it’s good enough,” Silver said. “We have an opportunity to create a cleaner and more efficient investment experience for international investors that can simplify their US regulatory burden and subsequently their tax burden.”

Green energy tokens in DeFi

Blockchain technology not only allows Plural to access a wider range of investors; it also enables innovations in terms of platform payment systems.

One area the eight-person team is focusing on is using smart contracts to simplify payment terms, or how a particular project splits its proceeds. For example, waterfall distribution schedules would see the project pass 98% of dividends to investors up to a threshold, and then split the rest equally between the investor and issuer.

“With smart contracts, the headache of managing and calculating all of that is completely gone,” Silver said. “Now our issuers make a single payment to Plural and then smart contracts automate all distributions according to business rules.”

Even better, Plural’s smart contracts track the trading of these tokenized securities, meaning that if an investor holds the token for the first 10 days of a month, then sells it to someone else for the remaining 20 days , the first investor will receive the third. of the dividend, while the second will receive two-thirds. “We’re able to get closer to real-time finance and just remove all that administration,” Silver said.

That opens up the possibility of Plural-issued tokens being used in the broader crypto economy, especially decentralized finance (DeFi). Investors will eventually be able to post their tokenized securities as collateral in the same way that on-chain market participants already use ether (ETH), stablecoins and various cryptocurrencies. “It’s just a more usable product if you can borrow against it,” Silver said.

Assets tokenized by Plural can also be traded on decentralized exchanges, which will help bring them liquidity. “I don’t think it’s going to be easy, but I think figuring out how to take those liquidity principles and bring them to Plural is huge, and it could be coming, hopefully soon.”

On the other hand, Plural’s assets can even generate their own derivatives, and even split the generated interest from the tokenized security in the same way DeFi protocol Pendle doing.

“Either my children, or my grandchildren, or hopefully me — I really think we’re going to get to the point where it’s faster to move between cash and clean energy assets than it is to move between checking and savings accounts,” said Silver.