Journalist, Nicky Redl, sits down with Transcendence CEO, Qiao Han, to discuss the role blockchain technology will play in future renewable energy projects.
What are the benefits of using blockchain technology?
The key benefit of blockchain is to be able to facilitate a transaction outside of normal processing hours. Say, for example, I wanted to transfer money on a weekend, I wouldn’t be able to do that using any normal bank.
An example would be a recent project we have been working on. An investor wanted to transfer AUD 100 million. We were under a lot of pressure to facilitate that transaction before 4 p.m. that day, because that was the last window for the real-time gross settlement to occur. And it was on a Friday.
The second thing as to why we use blockchain is because of the transparent nature of the system and the integrity of the system, in that people within the community know that there won’t be a party in control of the records and the ledger. They are more comfort in being able to potentially put up more risk toward a particular deal, in exchange for a bigger reward.
And that is what Transcendence is trying to achieve – being able to create a sustainable method of doing transactions by rewarding participants much more than what the would have been rewarded using normal currency.
How do you determine the number of tokens released per project and how is their market value controlled with a platform like yours that is constantly expanding?
In terms of how many tokens will be issued for a new project, the determination of that process would go through an independent investment committee which we will appoint. Whenever any new tokens are issued, the investment committee would have to go through a very stringent process of assessing the bankability of these assets to ensure that token holders who own a share in these projects that come up will get a sustainable return over a long period of time as opposed to just a couple of years.
When a project is up for fundraising stage, which is the third stage of our six-stage process of our Transcendence Network, the value of the tokens are automatically sized against anticipated future revenues with an interest rate increase buffer for potential interest rate increases of up to 3 %, as well as for a 2 % economic downturn. So there is a good 5 % buffer for any expected returns for any project that we onboard to our platform for our investors.
And how do royalties work?
Royalties work in a way where you have token holders who own TSD tokens and periodically, depending on the performance of the ecosystem of assets, the TSD token holders would also be issued IFR tokens.
IFR tokens are not transactable, they are not exchange tradable, but they are redeemable for services that could be rendered by the ecosystem, or cash. So say for example, there were ten assets in the system and they were all producing money, net profit, then what would happen is that all that cash money would be stored in a bank account and that would act as collateral against the IFR tokens.
And the IFR token holder is then able to surrender a minimum threshold amount of IFR tokens in order to redeem for cash or they could redeem their IRF tokens to, for example, take a train ride, consume energy from the network, or any such services that are related to infrastructure assets.
Can you only invest using cryptocurrency on your platform?
You can use real cash as well, we have that option made available for our private investors. There is a minimum amount that is specified in our White Paper for it to be a viable transaction for us to process.
This is a new way of investing that we are trying to facilitate in the movement toward cryptocurrency and away from fiat currency. And it is something that we think will allow us to bring on board more traditional investors that are looking for a more stable and long-term objective than purely speculative investors who might have, for example, made a lot of money during the crypto boom earlier this year. There will always be a blend of all sorts of investors that you cannot control, but we are being as accommodative as possible to traditional investors.
How do you guard against the massive volatility that cryptocurrencies like bitcoin are subject to?
Any funding we receive is immediately liquidated either at a secondary market or through a network of brokers who convert any cryptocurrency directly into cash. The reason that this is important is because we need to deploy the cash to either build assets or to fund assets that are already in operation.
Unlike bitcoin, ethereum and other cryptocurrencies that seem to only focus on the utilisation purposes of transacting the coins themselves, the key thing about our offering is that it is asset backed, so it will initially be seeded with assets that have a relationship with the token platform, and these assets are of extremely high quality and are either already generating revenue or are about to generate revenue.
That is the biggest difference between our offering and many other offerings in the market. That also sets a benchmark and expectation for a token as well, and that expectation drives a long-term price, or a long-term view on the fundamental value of the currency.
What makes you trust blockchain technology so much that you base your entire platform on it, given that the technology is still relatively new?
I guess that a fairly fundamental question, as in why do we use a bank to do an IPO and why do we use Microsoft office for documents. Why do we use service providers that are already quite reputable in the market as opposed to those who are not.
I guess for us it is because we have assessed the importance and the quality of the blockchain technology. It is definitely a risk in the technology itself that we are taking and that our investors are effectively taking along with us.
But we believe it is something that is very easy to learn how it works, but difficult to break from a hacking perspective. And that has been the consensus of this technology for some time now.
Where do you want to take the Transcendence platform in the future?
The platform is really trying to empower communities and developers in taking on more of an active role during any infrastructure development process. Where this platform could go is hard to say.
The platform is a market place where projects are being constantly exhibited for investment or stakeholder participation. And the platform will draw upon our collective experience in developing infrastructure assets to guide stakeholders into being able to determine what the risk spectrum would look like for their project offering. And that way these stakeholders would be able to make a clearer judgement as to how much risk they are taking when they are actually doing the project and other investors will get a clearer view on what the overall risks are.
With any kind of social engagement process, there will be money that will have to be invested by developers. What we have seen to be very successful is to go not only through councillors but also set up store fronts, a physical presence in town halls, to explain what our development has been about.
What we want to do with Transcendence though is to take that one step further by providing developers with a network of interested parties.
What role do you think will blockchain technology play in the renewable energy sector?
The renewable sector has predominantly been controlled by a small group of institutional investors and more recently some emerging developers. And the reason for that is that developing renewables is actually quite complicated, the process involves a lot of stakeholders, and sometimes the risks that you take outweigh the returns.
So that is happening is that there is a gap in the market that sits between your typical rooftop panels that are in the order of, say, 2 to 5 megawatts (MW) and a minimum utility sized power plant, which is say, for example, 20 or 30 MW. The thing here is that renewable energy is actually a decentralised technology itself. It is more beneficial for communities to develop a greater number of smaller assets in that in between range than for a handful of people to focus on larger power plants.
What we are trying to do using this platform is to minimise the transaction costs of doing these power plants that are in that awkward size between the sort of 5 to 20 MW to be able to open up those opportunities for those smaller communities to get the benefit of renewable energy, which is more economic than fossil fuel technologies, rather than waiting around for bigger developers to squeeze a large amount of energy into a smaller network, which has caused a lot of constraints and intermittent issues within the network.
We want to promote more responsible developments and promote community champions to do their own developments. But noting that the community may not be adequately funded, we are providing a market place for them to advertise their projects so that people who have large sums of money or TSD tokens can bond against those projects to support those medium-sized projects.
Transcendence CEO, Qiao Han
How would an interested community get involved with Transcendence?
We would start by engaging with the community, getting them to onboard onto our platform for them to advertise what they want to do. And through that advertisement process we would tell them what the risk spectrum is for each project for each parameter for them to form a view themselves on how much ownership they would like to have over these assets versus how much cash or investment they would like to seek from external parties, and how much support they would give and how willing they would be to collaborate with not just local but also international stakeholders, for example.
How small could projects like that be?
It could be as small as 2 to 5 MW, because we are trying to standardise the contracts to build these things. And it is only through a standardised process that is accepted by contractors, banks and investors as well as the community that are we then able to accelerate that development.
And from when will that start?
Next year. We are currently still focusing on the fundraising stage for this platform which we aim to conclude by Q3 next year, but during this process we will have many trial programs that we will be developing that allow us to test trial the platform for smaller projects where we would invest money ourselves first. And then we would open up the platform to the community once communities have had a go at how this platform works, because it will be a big change in habit as opposed to a change in objective. It’s a fairly big onboarding process, so it takes some time for people to learn how to use it.
Could you tell me more about job creation at solar farms?
During the construction phase of a solar farm or a coal-fired power plant, there are always a lot of jobs being created. For a coal-fired power station, you have to build a mine, and you have to build a power plant. For a solar farm, you are just building the solar farm and that is the bulk of the jobs that would be created.
For Sunraysia, you are looking at up to 400 jobs over a 14 month period, whereas doing the operational phase, you only need up to five people.
For the fossil fuel generators you are going to need several dozens or even hundreds of people, depending on how big and how complex of a generator you are talking about.
So definitely from a jobs perspective, it’s a different profile. However, you have more opportunities for reoccurring jobs.
[Because solar farms are smaller and you need more of them to generate the same electricity as one coal-fired power station] you create several times more jobs upfront than the jobs you would have created by building just one coal fired power station.
And this will be over a much longer period of time with a lot more knowledge sharing than just concentration of intellectual property and skills within one project. That has been consistently demonstrated in countries all over the world.
You won’t have the same long-term security of jobs, but you’ll be able to find those jobs over a longer period of time.
Do you find it easy to recruit the skilled workers you need to build your solar projects?
We have an EPC contractor appointed who goes out and does that. They do a combination of labour hire as well as bringing on board professional engineers to manage those projects.
There has in the past been a lack of skilled staff who have the experience to manage these projects, and that has caused delays in a lot of solar farms over the last few years.
We see that there is definitely scope to form some kind of solar installation academy or for EPC companies to spend a lot more time training staff up. That would help a lot in this transition phase.
How has this been dealt with in the past, have been brought in from overseas to deal with the skills shortage?
In the past, because this technology was quite new to Australia, a lot of the experts were coming from Europe, the US, China, to try and build these things.
What’s happening now is that this knowledge base can be passed on and propagated to more locals. And the local Australian consultancy and engineering firms are now picking that up very quickly and are able to train up their own staff and educate new trainees and graduate engineers who would like to get involved.
It’s all about knowledge sharing and we are strong advocates for knowledge sharing.