Trinity Morphy recently caught up with Ifeanyi Christwin, founder of Switch Electric and M3tering Protocol. In this two-part of the interview, they discuss clean electricity in Sub-Saharan Africa, bridging the supply gap with decentralisation, and ReFi's role in scaling these solutions.
Part 1 of this interview can be found here.
Trinity: A major challenge in traditional electricity distribution is unequal access, with some areas receiving more resources than others. How can decentralised electricity circulation address this divide and ensure equitable access to clean electricity technologies for all communities, regardless of socioeconomic background?
Christwin: We need to understand why this situation exists to answer this question. For any new functional grid, having as many customers as possible makes sense. You don't want to intentionally exclude customers from buying as much power as they want from the grid. The situation is not always straightforward, mainly because of distribution and transmission infrastructure costs. So, imagine an urban and a rural settlement with an area of 100 square miles. You will have more people in the metropolitan area than in the rural area because population densities affect these two living settings.
But the cost of providing distribution infrastructure—that's, the cables, the electric poles, the transformers—to cover this hundred-mile square would be the same because the same length of cable you need to pass in an urban area is the same length of cable you need to pass in a raw area. However, the revenue you generate from the rural area cannot match the revenue you generate in the urban area. So, sometimes, it never makes sense for these companies to spend that money in these rural areas or places where they don't have very dense populations. So you see, they exclude these areas from their infrastructure because of the marginal cost of adding those customers to the grid.
In a decentralised electricity infrastructure, you don't have the costs of distribution or transmission lines; you will not have to buy transformers to step up or down the electricity you transmit to the consumer. You're just installing the solar power system for the consumer. The cost of installing a 10kVA solar structure in a building in an urban area is the exact cost in a rural area. The difference will be the proximity to the market where you buy these things. If the metropolitan area is closer, transporting them there will cost you less. But aside from that, the cost of setting up these things is almost the same. Since there's no incentive per settlement for decentralised electricity producers to set up their infrastructure, this removes that barrier of inequality, meaning that regardless of where a potential consumer is situated, as long as they have the means to pay their utility bills, an electricity producer can set up the infrastructure. This is important because it ensures that electricity access is not limited by geographical location or population density.
Trinity: What partnerships are crucial to successfully implement decentralised electricity solutions on a larger scale than today?
Christwin: Many public partnerships are needed to make this possible. I envision the government using incentives like import tariffs for merchants importing the equipment required for the microgrid solutions. Businesses can benefit from tax rebates or tax subsidies by setting up this kind of micro-grid infrastructure, encouraging more people to enter this sector and contributing to a greener environment. It's a matter of supporting these private individuals through public incentives, a proven effective strategy. The government can play a crucial role in setting up these incentives, such as a carbon tax or renewable electricity certificate market. This means creating incentives for people to adopt renewable electricity sources, democratise the grid, and benefit from the incentives the government is putting in place. This approach can lead to the results we all aspire to see, including a significant reduction in carbon emissions and a more sustainable future.
Trinity: How can we effectively measure the success of decentralised electricity systems? What are the key direct metrics to consider, and are there any indirect social, economic, or environmental impacts that should also be factored into the evaluation?
Christwin: There are several ways to measure the impact of democratised electricity systems. One that comes to mind is comparing the reach of this democratised infrastructure to its centralised alternatives. For instance, using a point system, we can calculate the efficiency of traditional grid expansion to a decentralised electricity infrastructure in a remote location. Each gets a point for supplying electricity to this remote location. After a certain period, we analyse the data to see which provided more electricity.
Another approach is to compare the standard of living in remote communities before and after they were connected to the grid, or if they were even connected at all, and when they began using decentralised electricity infrastructure. The concept of electricity poverty is crucial here, as it highlights how electricity-poor individuals are less productive in society. Their lack of access to electricity forces them to rely on manual labour, preventing them from using advanced machinery or electronics to enhance their lives. In the 21st century, women in remote communities, due to electricity inaccessibility, spend countless hours gathering firewood, washing clothes by hand, and engaging in other inefficient practices. The question then arises, would their lives improve if we could provide them with solar infrastructure?
Another aspect to consider when evaluating the impact of decentralised electricity infrastructure is its environmental footprint. By comparing the harmfulness and effects of the electricity absorbed into the environment, we can better understand the system's overall impact. For instance, each unit of electricity produced by burning firewood releases more carbon into the atmosphere than one generated by solar panels. This comparison underscores the potential for positive environmental impact through the implementation of decentralised electricity systems, particularly when replacing electricity generated through dirty fuels.
Trinity: For decentralised electricity solutions to scale effectively in Africa, should the focus be on horizontal scaling, where open-source solutions are replicated across the region, or would a single dominant protocol working with various solar providers be more efficient?
Christwin: Because people are diverse and distributed, going horizontal rather than vertical makes more sense. There's no one-size-fits-all solution for utilising various electricity infrastructures. You want people to take the M3tering structure as a base framework, adapt and optimise it to their situation, and build it to adapt to their setting. M3tering doesn't have to be the face of democratised electricity infrastructure and enforce itself as the standard across all scenarios. You can't be talking about decentralisation and want to be the central protocol for a particular use case. M3tering is designed so that you can adopt it to meet electric vehicle situations, pro bono electricity infrastructure, etc. Whatever case you want to use M3tering for, you could re-iterate the original design to fit better the context of what you'll be using it for and then apply it there. That's the best way to scale decentralised electricity infrastructure.
Trinity: What are the key financial requirements for decentralised electricity solutions in Africa, and how can we overcome the specific hurdles associated with debt financing in this context?
Christwin: Debt financing is not a viable financing model for decentralised electricity solutions. There are many other ways to finance them. For instance, one of our partners uses retroactive public goods funding to finance its infrastructure. So you see, this infrastructure goes to low-income households that can't afford to pay for the electricity they consume.
Still, we can finance it by generating electricity attributes by, for instance, carbon credits or renewable electricity certificates that demonstrate the impact of these electricity projects packaging as a service and selling to high emitters that would like to mitigate some of the effects of the emissions. This also helps us finance infrastructure without requiring upfront payments from these low-income households.
There are also several other models that we could also go into. For instance, another viable model would be an exchange for different resources. The Goodless Compute, a Bitcoin mining company, engages with small generating facilities operating below capacity. It negotiates deals to purchase their underutilised capacity and compensates them with a share of the Bitcoin mined using their electricity.
Collaboratively, we must create economic incentives for communities to set up generating facilities like small dams, solar farms, etc. At least the resources exist, even if they are not economically viable for the location marked for the installation of the generation plants. You have the river there to generate the electricity, but the community is not wealthy enough to buy the electricity upfront.
Greenest Compute initially provides BTC earnings for producing electricity. As the community upgrades and utilises these electricity resources, it gradually hands over the produced electricity. Increased community electricity usage reduces electricity consumption at the BTC mine. Eventually, it assists in upgrading the system, constructing more plants at the location, and servicing its needs and those of the community that built the project. You could use several other models to finance this project when people need to be upfront with the electricity they consume.
Trinity: M3tering's current approach incentivises supply with their native token, while they charge end users in DAI. What are the potential benefits and drawbacks of this decision to use different tokens for incentives and payments?
Christwin: The two tokens are similar to each other. If you look into their tokenomics, you will see that the design of the DAI stablecoin ensures that the user doesn't worry about fluctuations in the token price they need to make payments. Meanwhile, electricity providers using M3tering receive payment using the native token bonded to the network's value. So, the worth of the native token is directly dependent on the DAI revenue accrued from all electricity users in the protocol. If the DAI revenue drops, the native asset dips and vice-versa. This incentivises electricity providers to ensure that their customers are making electricity purchases and are satisfied with them, attracting more consumers to purchase electricity via the protocol.
The native token operates as an ERC-4626 tokenised vault, where electricity providers deposit their DAI stablecoins. As a provider, when you deposit DAI into the vault, you receive the native token, which is minted from that vault. This minting process follows a bonding curve, where the more tokens providers mint, the more expensive it becomes to mint new ones. This dynamic ensures that the price of each token minted grows along the bonding curve. In other words, the more revenue (DAI) generated and deposited into the vault, the higher the cost of the native token will increase along the bonding curve.
Trinity: In my article about ReFi in Nigeria, I discussed the possibility of using excess profits from community-owned solar infrastructure to regenerate the community. Could tokenised incentive systems serve as a viable tool to encourage such community-driven renewable electricity projects? If so, how?
Christwin: The core idea of tokenisation is turning project value into tradable tokens on a blockchain, which unlocks liquidity for these assets. Imagine a scenario where the community solar project generates excess profits. Traditionally, these might be difficult to distribute or reinvest. However, with tokens, you create a platform for community members to freely trade them, injecting liquidity and value into the project.
As more people trade tokens, demand for them increases. This translates to additional value for the project necessary to regenerate the community. Think of it as creating a self-sustaining cycle. Increased demand for tokens (representing the success of the solar project) leads to more resources for the community to address local needs.
Trinity: A significant amount of data regarding electricity usage and potential user behaviour will be generated and collected through the Switch smart metres. How can this data be used to effectively combat climate change and accelerate the expansion of renewable electricity systems in the region?
Christwin: Data holds immense value in today's world. Africa has long been dubbed the "dark continent" due to the scarcity of data on its operations. Access to such data could unlock numerous entrepreneurial ideas and initiatives, offering insights that may not be immediately apparent. Even in the age of AI, the true potential of this data remains unknown until analysed and correlated over time by advanced algorithms. Thus, data plays an indispensable role in shaping the evolution of systems, providing insights into past operations and guiding future decisions.
One proposed use of data involves creating viability reports for investors interested in the region's climate solutions and electricity projects. Lack of transparency often deters potential investors, but offering clear insights into project outcomes and performance can bolster confidence, encouraging investment in electricity infrastructure for developing nations.
This transparency not only fosters confidence but also aids in understanding the viability of projects, paving the way for informed decision-making. Furthermore, data can be leveraged in various ways, such as assessing health risks and economic outlooks and detecting natural disasters. As we continue our project journey, the potential of the data will become increasingly evident.
Trinity: What's next for M3tering this year?
Christwin: This year, our primary objective is to advocate for increased interest and utilisation of M3tering to address ongoing electricity issues. We have been onboarding many partners who will participate in the protocol and begin to tackle this electricity challenge in different geographies in India, sub-Saharan Africa, and Latin America. We are onboarding many partners interested in electric vehicle infrastructure, solar cell service infrastructure, microgrid infrastructure, pet-spare electricity trading, renewable electricity carbon, and renewable electricity certificates on the chain. There are so many ideas for people who want to use M3tering in ways that enable more infrastructure to be developed and monetised.
The answers in this article are the personal opinions of Ifeanyi Christwin and do not necessarily reflect the views of Switch Electric and M3tering Protocol.