Sustainable investing is definitely becoming an ever bigger topic, not just on my blog, but globally. For me, there are multiple layers of motivation to invest in an eco-friendly manner.
One, my living produces way too much CO2. According to www.footprintcalculator.org, about 10 metric tonnes per year. The planet can sustain less than a third of that. By investing in sustainability I can buy time while I change my habits.
Second, sustainable investing has a tendency to be very long term. It ties capital and commits myself to saving for long term.
And thirdly, there is real, good business to be made. Sun Exchange has an expected internal return rate of over 10%.
Sun Exchange history
Sun Exchange was founded in 2014 by Abraham Cambridge (LinkedIn). Abe has an academic background in climate change science and has worked as a solar engineering consultant in South Africa.
Abe had noticed the absence of solar panels in South Africa, despite being one of the sunniest places on earth. He started digging into the reasons and found out that there was a lack of appropriate finance products for businesses and organisations to go solar, even if they would want to. Sun Exchange is the company that bridges that gap.
In May 2019, Sun Exchange had already completed 10 solar power plants and they now have more than 10,000 registered investors from over 140 countries. It's produced almost 1 GWh of energy and has more than half a million solar cells installed.
It's starting to be a fairly large operation.
It's starting to be a fairly large operation.
How Sun Exchange works
The basic idea behind Sun Exchange is simple:
- You buy solar cells - the flat panels that produce energy when the exposed to sunlight.
- You lease them out to a customer, whose rooftops they will be installed. These are schools, hospitals, churches etc typically. Installation takes a few weeks after the project is fully funded.
- The customer gets electricity from your solar cells and pays you for it. You just sit back.
- As the solar cell replaces electricity otherwise produced by fossil fuels, everyone saves on CO2 emissions.
Here, watch this:
You've got to admit that's pretty cool. I've always wanted solar panels on my own roof, but up here in Finland, it simply does not make any sense. Down in South Africa, definitely.
Electricity is in high demand in South Africa. In a decade, the cost of electricity has increased 350%! Electricity is needed for a lot of things in warm areas. Just air conditioning is a huge energy sink.
Currently, South Africa is heavily dependent on fossil energy sources, coal being the main one. Only recently, wind and solar have become financially cheapest options. Even nuclear isn't financially viable. The challenge is in scaling these technologies, but that's where Sun Exchange comes in.
Sun Exchange expected passive income is over 11%
Let's calculate the most recent project open: A 65.30 kW solar power plant to be installed on top of a Spar Supermarket in Warrenton, South Africa.
A single solar cell will cost you 87 ZAR. The cell is forecasted to produce 7.31 kWh per year. While the customer's lease for the first year is 1.13 ZAR / kWh, the owner of the cell gets 0.94 ZAR / kWh (78%). The rest goes for insurance (6%) and service fee (16%).
1 ZAR = 0.0596 EUR (On October 2nd 2019), so one cell costs a little over 5€.
The lease is increased by a whopping 7.5% every year. By the end, the lease will be 4 ZAR / kWh. Over the 20 years, you receive approximately 281 ZAR per cell, netting 194 ZAR. The estimated Internal Rate of Return would thus be close to 12%.
Here's what all that looks like:
Ok I didn't mention the bad part. Inflation rate has been forecasted to be around 5-5.5%. Adjusted for that, the Internal Rate of Return drops to around 7%.
But this scenario assumes that the lease (which would assume to follow electricity price) increases only slightly above inflation, which hasn't been the case recently.
Ok, all this money talk is taking the focus out of where it should be. Bottom line is: it is financially viable. 7% real returns in passive income is amazing. And that's not all. Check this out:
Sun Exchange solar cells offset CO2 emissions
Each solar cell is expected to offset 144.7 kg of CO2 during its 20 year lifespan. My lifestyle produces about 10 tonnes of CO2 in a year, which corresponds to about 70 solar cells.
That's 360€. With that amount annually, I can offset the CO2 my lifestyle produces. What would happen if from now on, every year, I would buy solar cells for 360€ every year and get the expected return for them? I'm going to account for inflation, so the amounts are all in today's money.
I gladly compensate for my CO2 emissions. I would do it even without expecting any returns. 360€ per year for doing away my 10 tonnes of CO2 is well worth it alone. That's 30€/mo, an hour of work. I will gladly pay that!
But I can get returns for that money? 7% real return? After 20 years, these cells produce a positive cash flow of 500€ per year, while helping to save the planet? What is there not to like?
Sign me up!
Sign me up!
How to buy solar cells on Sun Exchange
The process itself is pretty simple, especially if you have a credit card.
- Sign up to https://thesunexchange.com
- Once inside, navigate to the currently available projects. Choose one you want to invest in.
- Choose the number of solar cells you wish you buy.
- Choose whether you want your returns in ZAR or BTC.
- Optionally, choose if you want to donate part of your revenue to a selected cause
- Place the order. You can pay with credit card, Bitcoin or wire transfer.
Today (October 3rd 2019) a single solar cell costs a little over 5€ but do remember to check the daily currency rate.
BTC or ZAR?
You can buy solar cells with Bitcoin and you can get paid in them too. BTCs are nice if you believe they will appreciate in value. They might also be more convenient for you to transfer to your own wallet and cash out - maybe.
I chose to go with ZAR, but didn't really think too much about this. Looks like that to be able to pay out your balance in ZAR, you will need to hold a bank account in South Africa. I do not, so I had to ask the support to change my account from ZAR to BTC.
To use the BTC option, you need a wallet address. One of the easiest ways is to sign up to blockchain.com and I also have an account there. This way you can avoid the hassle of setting up a wallet on your computer. Blockchain also has a mobile app, so you can easily access your wallet. Also, the service lets you change BTC to USD or EUR.
To use the BTC option, you need a wallet address. One of the easiest ways is to sign up to blockchain.com and I also have an account there. This way you can avoid the hassle of setting up a wallet on your computer. Blockchain also has a mobile app, so you can easily access your wallet. Also, the service lets you change BTC to USD or EUR.
SUNEX token
There's also a SUNEX cryptocurrency token. This part baffles me to no end. Why does it exist?
I feel like there perhaps at some point was some grandiose idea around this, but something since then got lost on the way. Here's a video on the token, I hope you understand more of it than I do:
If I understand correctly, I earn these tokens as a reward point system and then it's somehow useful to me?
I usually don't give direct advice, but in this case, I imagine it's better to stay away from stuff you don't understand.
If you do understand this token business, let me know. π
I feel like there perhaps at some point was some grandiose idea around this, but something since then got lost on the way. Here's a video on the token, I hope you understand more of it than I do:
If I understand correctly, I earn these tokens as a reward point system and then it's somehow useful to me?
I usually don't give direct advice, but in this case, I imagine it's better to stay away from stuff you don't understand.
If you do understand this token business, let me know. π
Sun Exchange risks
I kind of want to avoid talking about risks, since
- It's obvious a lot of things can happen in 20 years, but
- Risks are beyond the point.
But I'll humor you. Let's look at the risks.
The largest risk is liquidity risk - for now. There's currently no aftermarket for solar cells, which would mean that you'd need to own the things for the next 20 years. What if you need the money before? How bad is this risk if you consider the solar cells as a way to offset CO2 with an upside of financial return?
Fortunately, liquidity will improve drastically as Sun Exchange has plans to create a secondary market for the cells.
Of course a lot of things can happen in 20 years. What if the cells get damaged? For that there's a fire, theft and damage insurance that covers the solar cells throughout the lease period and a 25-year power output guarantee on the cells. On top of that, Sun Exchange is collecting its own insurance fund in case the customer defaults and the solar cells need to be relocated. Up to 10% of the lease goes towards this fund.
What if the cost of electricity goes down? Unlikely. Historically, the cost of electricity in the region has outpaced inflation by over 4x.
Inflation is certainly a risk. Expected inflation at 5.5% is quite high, nothing like what we've grown used to in the Eurozone or in the states. Could inflation get out of hand? It sure could, but that brings with it so many problems that the South African Reserve Bank will most definitely put up a serious fight. Inflation has in fact gone down 3 years in a row now.
While I cannot stress enough that there certainly are risks in Sun Exchange, it has already raised $3.4M in 7 rounds and is targeting to hit sales revenue of $2.5M in 2019. It still won't be profitable yet this year, but the money it has now raised has the potential to take them to profitability.
The largest risk is liquidity risk - for now. There's currently no aftermarket for solar cells, which would mean that you'd need to own the things for the next 20 years. What if you need the money before? How bad is this risk if you consider the solar cells as a way to offset CO2 with an upside of financial return?
Fortunately, liquidity will improve drastically as Sun Exchange has plans to create a secondary market for the cells.
Of course a lot of things can happen in 20 years. What if the cells get damaged? For that there's a fire, theft and damage insurance that covers the solar cells throughout the lease period and a 25-year power output guarantee on the cells. On top of that, Sun Exchange is collecting its own insurance fund in case the customer defaults and the solar cells need to be relocated. Up to 10% of the lease goes towards this fund.
What if the cost of electricity goes down? Unlikely. Historically, the cost of electricity in the region has outpaced inflation by over 4x.
Inflation is certainly a risk. Expected inflation at 5.5% is quite high, nothing like what we've grown used to in the Eurozone or in the states. Could inflation get out of hand? It sure could, but that brings with it so many problems that the South African Reserve Bank will most definitely put up a serious fight. Inflation has in fact gone down 3 years in a row now.
While I cannot stress enough that there certainly are risks in Sun Exchange, it has already raised $3.4M in 7 rounds and is targeting to hit sales revenue of $2.5M in 2019. It still won't be profitable yet this year, but the money it has now raised has the potential to take them to profitability.
Why I like Sun Exchange
Sun Exchange is solving a very real problem. Clean energy is such a challenge everywhere and Sun Exchange is on a path to turn the whole world solar.
I love the combination of financial gain with positive environmental impact. Whenever I by a cell, it starts to generate awesome passive income. While my focus is more on the CO2 emissions it offsets, I do get a warm feeling of this investment having a strong chance of being highly net positive. Even break even would be a great result.
I am a big proponent of diversification and Sun Exchange is a fun component of that. Nevertheless, since liquidity is very low and so many things can change in 20 years, I'm probably not going to grow my stake extremely high.
I will however, likely invest enough to offset all of my CO2 in Sun Exchange every year, even if I am already offsetting them many times over elsewhere. In fact, I already offset almost 4x my annual CO2 footprint on Trine earlier this year.
Full disclosure
I already own 25 cells and planning to buy more. By the end of the year, I plan to own 70 solar cells, which will offset a total of 10 tonnes of CO2 in their lifetime. I plan to add 70 solar cells every year to my portfolio.
Despite the obvious high risk involved with such long term investments, I'm going to have to give Sun Exchange four stars ⭐⭐⭐⭐. Most of these stars come from the combination that the real returns are expected to be around 7% and additionally it helps solar power adoption and offsets CO2 emissions. Even with risk, it's just an awesome deal.
I will probably even increase the stars to five once Sun Exchange implements the after market they've already promised.
Do you want a free solar cell? π
If all this talking about passive income through making the planet better has created you an itching feeling that you would also like to own some solar cells, you're in LUCK!
If you sign up with my affiliate link and invest, we will both receive a free solar cell on top! π€
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