Engie partnered with the Swiss non-profit Energy Web, provider of the Energy Web Token (EWT) cryptocurrency, to create a decentralised crowdfunding platform where investors who deposit a certain amount of tokens for 12 months will receive a fixed 10% interest rate.
In only six days, the platform reached its investment target of 20,000 EWT, despite an initial pilot period set at two weeks.
The $100,000 worth of EWT has been transferred to Engie Energy Access, Engie’s subsidiary for off-grid solar solutions in Africa, by the Energy Web Foundation, where it will finance mini-grid solar systems in three targeted countries in Africa: Rwanda, Zambia, and Côte d’Ivoire.
Customer payments under a Pay-As-You-Go (PAYGO) model, which starts at $0.19 per day for a basic mini-grid solar instalment, will be recouped to pay the investors their fixed interest.
Appetite for crypto undiminished
Despite the current crypto crash, in which bitcoin collapsed from $47,454 in late March to $19,777 in mid-July, the appetite for innovative crypto and blockchain schemes does not appear to have been diminished. Engie is counting on cryptocurrency as an alternative way of financing its ambition to be a leading decentralised energy company in Africa.
“The platform is currently at a proof-of-concept stage whose aim was to evaluate and understand the appetite of the crypto investment community,” explains Stefan Zelazny head of software and IT at Engie Energy Access.
The French energy giant currently operates in nine countries across the continent and installed more than 43 MW of solar capacity in 2021, providing electricity to 7m people on the continent.
By 2025, thanks to blockchain technology, Engie Energy Access says it should be able to power 20m people in Africa.
Advantages of crypto
The advantage of using cryptocurrency rather than traditional investment, says Zelazny, is that “there is no middle layer, as the stake invested goes directly to an asset or a beneficiary on the ground”.
African households who receive solar mini grids financed by crypto assets won’t see any differences in how they access the service. They don’t have to pay for energy using cryptocurrencies as Engie is doing the conversion for them – they can also pay using mobile money since Engie has connected with several mobile money operators on the continent, says Zelazny.
Engie says the crowdfunding platform makes it easier to attract considerable investment in a short period of time, taking advantage of the speculative aspect of crypto and the large financial resources available in the cryptosphere.
Engie envisions cryptocurrency as an innovative tool to finance their activities in Africa, a continent where leveraging financial resources remains the main barrier to economic and social development.
However, the project is at a proof-of-concept stage, meaning that the 10% return for the stakeholders is guaranteed by the Energy Web Foundation, which supports the pilot phase.
“The project is not scalable in itself because it does not reflect the real cost of financing the risk on the ground,” says Zelazny.
It is rather unlikely that, at a bigger scale, Engie could guarantee a fixed rate of 10% for each of its crypto-investors, especially considering the major fluctuations in crypto valuations since its inception.
“The vision is to grow this concept to an industry-wide financing model that will directly connect investors with customers in need of finance,” says Zelazny.
“There we are working on solutions that prevent the exposure to cryptocurrency volatilities and are optimised for the local currencies on the ground while at the same time reducing the costs of finance massively,” he adds.
Growing interest sparks concerns
Crypto and blockchain technologies are being deployed in multiple contexts.
In 2018, the team behind the Cardano blockchain platform launched a pilot project to equip students in Ethiopia with digital identities and credentials. Cardano is training users at the Ethiopian Ministry of Education on the functionality and usage of the new blockchain-based ID platform.
Cardano developers hope to incorporate an Ethiopia-wide cryptocurrency payment network, before connecting the entire African continent with Cardano infrastructure.
The appetite of crypto investors in development projects in Africa is welcomed by some African leaders. Faustin-Archange Touadéra, the president of the Central African Republic, who has just launched the country’s controversial Sango Coin cryptocurrency, said that the international financial system is not working for Africa and that crypto-currencies will grant countries financial autonomy.
But other countries have been much more sceptical, with Nigeria barring its banks from enabling crypto transactions.
Crypto raises environmental fears
Critics have also raised fears about the environmental impacts of cryptocurrencies. In a paper published last February, academics Peter Howson and Alex de Vries argue that bitcoin alone “significantly exceeds the carbon emissions produced by the gold mining industry”.
“As of November 2021, bitcoin is using more energy than the whole of Thailand (around 190 TWh), the majority of which is generated from fossil fuels,” they warn.
Engie and Energy Web have tried to lessen the environmental footprint of their much smaller project by deploying a “proof of authority” process, a much more centralised model than those used for major cryptocurrencies.
This allows for low consumption of energy in comparison with “proof of work” and “proof of stake” models – two of the most prevalent mechanisms for cryptocurrencies – where multiple actors compete to generate each new block of transactions that will be included in the blockchain.
“Energy Web is not working with a proof of work consensus process but with a proof of authority process. That reduces the transaction costs massively and does not burn additional energy,” says Zelazny.
In the case of Engie’s operations in sub-Saharan Africa, “we are talking about essential needs of people,” says Zelazny, “so it is important for us that the network is stable, and it does not waste energy.”