I-RECs, P-RECs, D-RECs, R-RECs - revenue opportunities for mini-grid companies

Speaker 1: 0:09

Solar mini-grids have turned from small pilots to an electrification wave. We were there when mini-grid regulation was established, when financial transactions were closed. We saw new technology thrive and companies fail. This is where we tell the stories. This is where we discuss the future. The mini-grid business Powered by Innsis.

Speaker 2: 0:35

Hello everyone, this is Nico. Welcome to our episode on IRAX, prax, drax, rrax revenue opportunities for mini-grid companies. Let me also welcome my guests Linda Wamune from Energy Peace Partners, running the PRAX scheme, stuti Dube from the DRAC organization and Dr Nicola Selby from Renovia Solar Africa, running the RRAX scheme. Linda is a passionate renewable energy enthusiast and off-grid energy practitioner with close to 20 years experience in design and implementation of clean energy programs for communities in several parts of Africa. Currently, working at Energy Peace Partners, she is leading efforts to promote the adoption of the Peace Renewable Energy Credit, prac, an innovative climate finance instrument to advance the deployment of more renewable energy projects across fragile states in Africa and beyond.

Speaker 2: 1:36

Stuti Dube is the executive director of the non-profit behind DRAX. She has more than 19 years of professional experience across corporate and non-profit sectors and an executive MBA from EHC Paris with a specialization in energy and climate. Dr Nicola Selby is the vice president of engineering at Renovia Solar Africa, a solar mini-grid company with operations in Kenya, nigeria and Ethiopia. He holds a PhD in electrical engineering and computer science from MIT, has worked previously with NASA's Jet Propulsion Laboratory and Sandia National Laboratories, and is a member of the Forbes 30 under 30 class of 2023. Nice to have you all here today.

Speaker 3: 2:25

Pleasure to be on Long time fan, first time caller of the podcast.

Speaker 2: 2:31

Thank you, thank you. I've been planning for this session for a long time and I'm happy to finally record it with you. As I know, this episode is in high demand by various mini-grid CEOs and other stakeholders in the sector. Initially, I wanted to call this episode Odd One Out IREX, prex, drex, rrex, trex. Now, as RREX do not have anything in common with the dinosaurs, let us define what RREX are all about. Who wants to start?

Speaker 3: 2:59

So the way I like to think about it is broadly speaking, the global voluntary carbon market contains two different classes of carbon assets. There's carbon credits and renewable energy credits. Each carbon credit corresponds to one ton of carbon dioxide equivalent that was not released into the atmosphere, kind of like a certificate for not doing something bad. And a renewable energy credit, or RREX, is the flipside of that coin. Instead of not doing something bad, you get a RREX for doing something good. Each RREX corresponds to one megawatt hour of renewable generated energy.

Speaker 3: 3:27

Just like Linda said, different buyers often want different classes of assets, and we've seen that carbon assets tend to be a little bit more popular than RREX, but both certainly have their place in the market. Irex is specifically branded subclass of RREX. That has a kind of stamp of approval on it from the International Tracking Standard Foundation. They're a nonprofit who wrote a standard for what they believe should count as a quote unquote like true RREX the theory being that they could increase the sale price of RREX in the global voluntary carbon market by doing some much needed quality control. They did an excellent job at the quality control part. Furthermore, like RREX, they don't charge renewable energy producers to use their platform, which is really nice, but unlike RREX, they do charge buyers some hefty fees.

Speaker 2: 4:16

Okay. So RREX, from a mini-grid operators perspective, are a potential revenue source for renewable energy that they generate and then distribute to their electricity customers in rural villages in Africa or wherever in the world. So now these RREX are being generated, as you already said, through electricity generation, but then there is also an offtake side. Who are the buyers of RREX and how do these pay?

Speaker 4: 4:51

Stuti. Thanks, nikhil. From our experience we have seen a lot of interest from corporations. So the typical avenue is that RREX are a very, very good instrument for their scope to requirement. One of the things that we have also tried position for is RREX for scope three, so value chain. So corporates would be my first buyer set. It could also be utilities in a broader scheme, so utility companies they buy RREX for their regulatory mandates and it could also be individual customers. But it's a very huge market and it would really depend who really wants to buy the RREX. But everyone is welcome to buy it. That's how I would put it, and in our case corporate buyers are the critical target set.

Speaker 2: 5:42

Can you explain quickly what scope one, scope two, scope three means?

Speaker 4: 5:47

Sure. So scope one in this context, I will just talk about corporates. So corporates are producing carbon or there is carbon emission from their direct operations, that is, in context to the services and goods they produce or provide. Scope two is related to the electricity that they consume directly in their operations. And scope three is everything else, that is, supply chain on three A side and their consumers on three B side.

Speaker 2: 6:18

Okay, understood. So you said corporates. Does that also hold true for RREX and PREX?

Speaker 4: 6:25

I would comment on DREX. So DREX and also PREX, linda, I'll just vouch for all of us here. So PREX, drex, they are based essentially IREX, right, they are IREX with a specialized label, so it is applicable to us. But I would let Nick comment on RREX here.

Speaker 5: 6:49

I wanted to add something before you comment, nick, to add on to what you've said. Stuti, and these buyers yes, they are corporations with public sustainability goals and most of them usually have set targets for their clean energy procurement, and that is to support with their accounting, supporting with their electricity based emissions, as they have their own goals towards net zero or aim to get to zero. And they buy this voluntary RREX and we call them unbundled, and that is where the category of our types of RREX for, and they procure this unbundled RREX mostly to support their accounting, but in addition to that, they have other motivations, including impact. So it's not only about how much electricity they have consumed, but they also have additional motivations that could be to do with social impact, uplifting those that are being left behind in this energy transition, and so that's another key point that I wanted to.

Speaker 4: 7:51

Thank you for that, linda.

Speaker 2: 7:52

Nick, do you want to come in now and talk about RX?

Speaker 3: 7:55

Yeah, sure thing. There's kind of one thing that I would add a little bit to the scope discussion, and that is the kind of the genesis of it. Right, there's this meta organization of large companies called the RE100 that is trying to set a standard for companies to dictate how to offset their carbon footprint by dividing their emissions into three scopes. And, long story short, corporations interested in offsetting their so-called scope two emissions by REX, whereas corporations interested in offsetting their scopes one in three emissions by carbon credits. Also, most companies interested in buying REX often have operations in the same geographies from which those REX are purchased. Unlike for carbon credits, there seems to be a growing consensus that companies should only be allowed to offset their non-renewable energy consumption by buying REX that originated from the same geographies in which they consumed non-renewably sourced energy.

Speaker 2: 8:43

Oh, interesting. Okay, why is that? Because emissions are global right. Why should they origin from the same geographies?

Speaker 3: 8:51

Yeah, I 100% agree with that intuition, nico. And for what it's worth, like everything else in the voluntary carbon market, this is driven by buyers, right? So this is one organization the RE100, that has kind of put forward this theory that corporations should break up their emissions into scopes one, two and three, and REX should only be allowed to offset non-renewably sourced energy consumption from the same geography in which that consumption happened. By no means do companies have to follow that right. Like this is kind of the beauty of the voluntary market.

Speaker 2: 9:21

RE100,. Who stands behind that organization?

Speaker 5: 9:24

There are many. I mean, it's a whole list that I've signed up onto that the Google and the Microsofts and all the big brands and multinationals. We know all of a majority of them have signed on to that. But I would also tend to disagree with you, nico, on that.

Speaker 5: 9:39

Yes, it makes sense to have those market boundaries if you're using the REX to account towards your electricity-based emissions for your consumption. But if your motivation of buying the REX and like we increasingly see in, is not really for accounting purposes, then I don't think this market boundary should apply. Why? Because in some of these countries where we work, these big corporations do not have any presence and therefore, ideally, would not be procuring REX from those countries, but because we need to promote and increase investment in renewable energy in these geographies. I think there's an argument that in countries where they do not have to procure REX for accounting purposes, their other motivations can still apply and therefore they would still buy the REX, not necessarily for accounting, but supporting, like I said, impact and additionality and additional creation of renewable energy in these geographies, because climate change is a global problem and so, regardless of where you are, there will be some effects.

Speaker 2: 10:44

Yes, and allocating the emissions to the geographies would also cause a disadvantage to African players, wouldn't it? Because there's relatively little industry in Africa compared to the US or to Asia or Europe, and therefore the offtake and the demand for REX would be lower, wouldn't it?

Speaker 5: 11:02

I agree with you, nikko, and therefore there's that argument that we need to have other motivations for renewable energy credit procurement other than accounting for emissions.

Speaker 4: 11:12

When we talk about scope 1, 2 and 3, it comes under GHG protocol. So GHG protocol dictates how scope 1, 2 and 3 can be targeted and how it can be claimed for companies for their net zero targets. Now RE100, which is a global initiative by CDP, carbon Disclosure Project and Climate Group, started this global initiative to bring a lot of corporates and they have a good number of more than 400, something that's the last one I remember. They have a lot of corporates who have agreed to reach their goals of 100% renewable energy electricity through REX or improving their own electricity consumption in their processes and also beyond their immediate consumption, which is in their value chain and for their consumers. So, if you go and look at it, apple has actually achieved their goals already, which was set for 2025, I guess Now with this in line when you talk about REX.

Speaker 4: 12:22

So we have to understand that all these claims that are there, they commit countries to the Paris Agreement under NDCs. Duplicacy is a very serious problem in something that has already claimed by someone cannot be claimed by someone else. So all the REX that we are talking about if a corporate is buying an REX, they are claiming it for their scope 2 and scope 3, probably then the same unit cannot be claimed by the country or the geography that was created in. So, while the geographic constraint is something that we would ideally not want to have, because we really want to expedite the process, but it is a very typical accounting problem that we are looking at.

Speaker 2: 13:09

Okay, and how does the sales process work Now? If somebody has generated a megawatt hour of renewable electricity and created a REX may it be a DREC or a PREX then how do you find buyers for this? I understand that you use the IREX scheme for the PREX and the DRECs, and then is IREX somehow involved also in the trade later on, or is that completely independent?

Speaker 4: 13:39

IREX is the standard which is facilitating the trading of REX. They do not directly get involved in it trading of IREX but they do not get involved in it. They have identified different players, different role for each of these players. So there would be issuers, there would be market participants, there would be registrants, there would be project developers. So you have this whole ecosystem where each entity has their role to play and if you follow the process, what you avoid essentially is the duplicacy of the claim.

Speaker 5: 14:15

I realize I have not defined what a PREX is, so please allow me to do that, please go ahead. And so for energy peace partners, we developed this label, we call it the peace label, which we label on an IREX, and so a PREX is an IREX, and that means that we rely on the ITRAC Foundation standard. They developed this standard called IREX and we rely on that one, and so we label an IREX. We give it the peace label. And why we do that is because of a number of factors.

Speaker 5: 14:51

As an organization, we are a non-profit and we believe that renewable energy can play a very important role in promoting peace in some of the world's most fragile countries, and by fragile I mean countries that have been or are at conflict risk, very, very climate vulnerable, and in most cases they experienced the highest levels of energy poverty globally.

Speaker 5: 15:15

And therefore we have a niche and have selected specific geographies where we can have this PREX label applied to renewable energy projects that are being built or are generating from those countries. So it's not a universal label, regardless of where the REC is generated from. And that is what differentiates us from other players, for example, like the direct, because we focus on specific geographies. And the whole idea is because of the limited investment in renewable energy that is going to these places. We seek to get a premium pricing out of a PREX and the volumes are low, and so it only makes sense that the prices is fairly high, so that the absolute amount that a project developer gets is meaningful and can make some change and advance continued development of renewable energy in this location.

Speaker 2: 16:08

Can you tell our audience which countries you're active in?

Speaker 5: 16:11

About 27 countries globally, a majority of which are in sub-Saharan Africa, countries such as the DRC, ethiopia, south Sudan, somalia, chad, mali and so on. Nigeria let me not forget about Nigeria, but yeah. So we carried out a very extensive research and were able to narrow down to this number of countries. Outside of the continent, we have countries like Haiti, myanmar, so you know where similar challenges are being experienced, but not within the continent, countries like Yemen as well. Your question was how do we find buyers? Like Tutti said, we also work with market intermediaries. That's one way of finding buyers, and because it's not an instrument they have been familiar with. Usually these market intermediaries they sign contracts with the corporations and are able to help them procure different types of certificates that are able to offset their emissions, and so REX are one of them. They are used to IREX or GEOs. That's what they have known for many years, but now that we have the P-REX, we realize that we have to do more work in terms of getting them to, first of all, being aware that there is something called a P-REX, and it's actually an IREX with a special label, and you know the volumes are low. So we do a lot of education and outreach with these market intermediaries to be able to get their sales teams and consultants to become familiar with the P-REX and being able to put that in front of their clients. So that's one of the ways. Another way that we do it is also engaging directly with these buyers, because these corporates usually they have their sustainability teams or departments or divisions within the corporations and so reaching out to these people and also making them aware of the existence of this instrument called a P-REX and why it exists and the motivations why they should be buying them. And so once they are aware, they are also able to put that in front of their intermediaries.

Speaker 5: 18:10

Another thing that I would like to add is, as EPP, we play a dual role.

Speaker 5: 18:14

Currently, I would say we are an issuer of IREX in some countries and also the exclusive issuer of the P-REX label anywhere, and we realize that an issuer is only one player in that ecosystem. But in our case we realize that playing that role of an issuer only in the context of the countries where we're operating and even in Africa, if you get developers to issue RECs from their projects and there's nobody that knows about them and is buying them, it doesn't add much value to them, I would say it's almost pointless. And so, as an early player, we have taken on another role where we are facilitating these transactions and being able to find markets for the P-REX that we are issuing, and so we are playing this role of bringing together the developers who are selling the P-REX and the buyers of these P-REX, bringing them together and making sure that those transactions are happening. We see that as a good way of growing awareness and growing this market, which we believe has a lot of potential.

Speaker 2: 19:23

These intermediaries that you've been talking about? What percentage of the total amount paid by the buyers do they consume for their services? Do we know?

Speaker 5: 19:38

I don't know, because for us I would say our pricing range for the P-REX and what we have seen is that the developer gets In the range. We try to target pricing in the range of 30 to 50, and we are seeing an average of about $40, 45 per pere. This is net of what this broker's charge Because this contract, the way they are drawn, is that what we know is what is getting to the developer. They are known. For us is what they are making. So we don't know, but my estimate is probably a percentage. It could be 20%. I'm not confident and I cannot quote any numbers as far as the intermediaries and how much they are making from this transaction. I see.

Speaker 2: 20:34

Ok, now coming back to this question, how does it work then? How do you sell the Rex? Do you approach the Googles and the Metas and the Apples directly and ask them hey, I've got some special Rex here that does not only work as a regular iRec, but we even deliver something on top. Do you want to purchase this? Or how does it work? I'm just imagining that you may pick the phone and call the large companies and say I have something to offer. Or is there a digital platform somewhere where you say hey, this is my Rex. Who wants to have it? Who wants to purchase it?

Speaker 4: 21:13

I would say that there are different ways to do it. I would only comment on how we do it. We work with market intermediaries, and these market intermediaries would reach out to the prospective corporate buyers and understand their requirement where it really fits well and to what extent these high impact Rex aligns with their sustainability goals. So one of the things that we have to understand which is what Linda would indicate also later and probably Nick would also agree is that while we have these limitations, the high impact that is associated with the special Rex that we are talking about, that could be of interest for corporate buyers, but we have to position it in that way. So in our case, these market intermediaries do the job and on the nonprofit level, we have a flagship program and we have thematic programs where the organization promotes the directs and we educate our corporate buyers, like how these high impact projects could, something that should be included in their sustainability actions, and that's how we do it.

Speaker 2: 22:26

Thank you, Sturtee Nick, how are our Rex now different compared to what we just heard?

Speaker 3: 22:35

I would love to follow on and provide some data behind the question of how much all of the middlemen get in the marketplace. There is actually a good amount of data on this that came out relatively recently. Power Africa released a report last year that showed between all the verifiers and certifiers, marketplaces, portfolio managers, registries basically all of the middlemen in the carbon markets today, only 30% of the revenues from carbon assets are actually making it back to the project developers and the community spacer and thank you for laughing. That is truly unacceptable, and our Rex is proud to boast that our imminent sale will channel 93% of the total revenue directly to the solar developers who actually did the work to generate the assets.

Speaker 3: 23:21

See, Renuvia is, first and foremost, a mini-grid developer. We entered the carbon market space two years ago after searching for a way to make some extra revenue for our mini-grid projects. The profit margins for mini-grids are quite slim and relatively small amounts of money can mean massive impacts for the communities we serve. So the prospect of selling tokenized environmental benefits of our systems was extremely attractive to us, as it is for many developers. We started having meetings with everyone we could get in contact with, including Energy Peace Partners, South Pole, who founded D-Rex Vera and the then named IREC Foundation, as well as a few others. None of them were particularly interested in working with us at the time.

Speaker 3: 24:00

It was a combination of us not working in their particular geographies. Our projects were too small. Our largest mini-grid was 541 kilowatt peak and, honestly, nobody could explain to us how their verification processes worked. In order to work with them, we would have to front large costs to fly them to visit all of our sites, sometimes install specialized monitoring equipment. Basically just, it didn't make sense financially for us to give most or all of the revenues from the carbon assets to the verifiers, and that was when we realized that we could do it ourselves.

Speaker 3: 24:39

We had developed a monitoring and reporting platform that used the monitoring equipment that we and other mini-grid developers had already installed in our mini-grid sites to precisely report the quantity of renewable energy production to our mini-grid project investors. And, using that reporting tool as a base, we leveraged our more than a decade of experience in the global solar industry to create a transparent and straightforward standard document for credit verification that we publish on our website. Our REC platform is of by and for mini-grid developers. We are not limited by geography or size. Anyone can buy and sell RECs and carbon credits on our platform for free.

Speaker 5: 25:20

We rely on the I-Track Standard Foundation, like Suti said, and the contracts that we sign. First of all, the developers have to declare that they are not signing up on any other scheme, including carbon credits, to avoid that risk of double counting. And then the registry, which is managed by another independent party. The evident registry is accessible to anybody who wants to verify and confirm that no two certificates can be issued from the same project. I don't know about your certificates, nick, because you say there are four developers and anyone can sign on.

Speaker 5: 25:53

But my question is especially for African developers. They're not very familiar with the concept of how REC markets work. You, as a renewee, have the advantage that you have a current company that is already in the US and you already have access to a number of clients that can buy your RECs. Now, for another developer, a local developer, how would they benefit? Because one they don't have that exposure. They don't know, and that's how we have found ourselves in this role of also facilitating transactions, because they just don't know where to start from, how. If this is all blockchain-based and they can come log into whatever and get RECs from for their systems, what next for them? How will that translate to money for them?

Speaker 3: 26:36

In addition to African mini-grids, renewvious Parent Company also does commercial solar in the US, and that gives us access to a massive pool of huge companies desperate to reduce their carbon footprints. We've had clients approach us to develop solar entire solar installations, with the exclusive intention of using it to offset their emissions. They barely even care about the electricity savings. This is definitely a seller's market and I don't see that changing.

Speaker 2: 27:03

All right, interesting Now. Linda earlier said that PREX and DREX are based on the IREX scheme. To make sure that double accounting doesn't occur, Is there any mechanism that you apply to avoid double accounting? Or could I just go to Linda and then go to you and basically say my mega-word hour twice?

Speaker 3: 27:28

No, no, the full answer to how we verify every stage of a carbon access lifecycle can be found in our standard, which, like I said, is available on our website. But the summary is that verification can be broadly understood in two parts verification of generation and verification of transaction. Because Renewvious has been EPCing solar projects for well over a decade now, we are experts in using monitoring equipment to verify renewable energy generation, and our software plugs directly into the APIs of commercial off the shelf remote monitoring equipment that most mini-grid developers already have installed in their projects to calculate renewable energy generation. The second phase is verification of transaction. So for that we leverage blockchain technology to ensure that no one can, for example, buy credits, retire them and then turn them around and sell them for a profit. I'd be perhaps a little too excited to go into the technical details of how all those algorithms work, if you want, but suffice to say that every transaction on the blockchain is transparent and immutable. So we've baked in security against this kind of double counting at the fundamental mathematical level.

Speaker 2: 28:34

I see Linda Stutte. What do you think about that? Are you looking into our Rx register before you approach a new developer?

Speaker 4: 28:43

We don't have to Because the itrax standard foundation ensures that there is no double counting and it is all the active countries that we are talking about. It is integrated at the country level. So the role of the issuers, the role of the standard foundation, is very strictly to ensure that everything is so well integrated that there is no double counting.

Speaker 2: 29:05

Yeah, but our x are not integrated, are they?

Speaker 4: 29:09

I think Nick would be better place to comment on that, because even if they are not integrated for in some mechanism, they would be integrated at the country level. So they technically they cannot be double counting.

Speaker 2: 29:22

Nick, do you want to respond to that? Yeah?

Speaker 3: 29:24

I'll just say quickly the easiest way to do this, nico, is actually to make it a legal barrier rather than a technical barrier. Right, like you said, our Rex is not part of the IREC standard. We are not quite as interested in the geographic limitations and fees associated with the platform for understanding an interplay between our Rex, p Rex and D Rex and, you know, any other carbon asset player in the marketplace. I think it's better to think of this as a legal barrier. For example, p Rex could force everybody on their platform to sign a contract saying that they won't act in bad faith, they won't try to double count, and that contract, being legal, enforceable, could obviously really help prevent double counting.

Speaker 2: 30:03

And the money is that paid in US dollars or are you using cryptocurrencies, as you're using blockchain anyway?

Speaker 3: 30:10

We're using USD. I love that question, though, if you really want to sell your carbon assets for, like, bitcoin or something you're certainly welcome to, the blockchain is not going to prevent you from doing that, obviously, but no, we currently are doing all of our sales in USD.

Speaker 2: 30:25

Okay, yeah, please go ahead today.

Speaker 4: 30:27

Because, sorry, I have a couple of questions on it here. I'm really curious. So, nick, when we say our Rex so D Rex is distributed, rex so Rex would be renew the Rex.

Speaker 3: 30:38

I mean, if you want them to be renew the Rex, that's fine. It could also be like regenerative financing, it could be like revolutionary, or it's just like a good letter, you know.

Speaker 4: 30:48

Okay, okay, that's, that's interesting. So what is the underlying asset? So when we talk about Rex, in our case, these are energy attribute certificates, right, and you have mentioned carbon. You mentioned Rex as well. So where do you sit? Is it carbon in energy boat, or how is it?

Speaker 3: 31:09

Yeah, that's a really good question. So our Rex, as assets on our platform, are representative of exactly the same type of renewable energy credits that you're talking about. A single RREC corresponds to one megawatt hour of renewably generated energy on our platform. In addition to those wrecks, we also have a variety of different types of carbon credits. Developers can choose if they want to use a formula developed by the United Nations framework to combat climate change or UNFCCC To convert their renewable energy consumption into carbon reduction for carbon credits on our platform.

Speaker 4: 31:39

Linda did mention the range for P Rex, so what would be the range for Rex?

Speaker 3: 31:45

The sale that we're about to make puts the price of our Rex at about thirty three dollars per megawatt hour.

Speaker 2: 31:51

Okay, just to repeat, linda, what did you say before? You said regular I Rex something like thirty five right dollars.

Speaker 5: 32:00

No, no, no, no, no, no, no. In Europe you can get, I believe, in the range of five dollars, seven if you're lucky.

Speaker 2: 32:11

Three to five, I see, per megawatt hour, and I think you said you have a top up. That then takes it to what level.

Speaker 5: 32:18

So, because of the label that we have, we have seen transactions in the range of thirty to fifty and are settling at about I would say forty to forty five, as the average price are certificate.

Speaker 2: 32:30

I see. And then, nick, you said you are in the range of thirty three.

Speaker 3: 32:34

Yeah, the imminent sale that we're about to make is for thirty three dollars per megawatt hour, of which the project developers will keep ninety three percent of the revenue.

Speaker 5: 32:43

The what, what, one. Thing. I see and Linda.

Speaker 2: 32:47

The prices you were talking about is the net price for the developer, right yeah and, as I said, we as an issue are.

Speaker 5: 32:57

We take two dollars per certificate and that takes care of both the I rec registration and our fee. So this is something we're doing for almost nothing, because the benefit is designed to be maximum for the developer to get a student.

Speaker 2: 33:11

can you tell our audience quickly what range D Rex sold at?

Speaker 4: 33:17

Just with the historical figures, what we have seen is between twenty five to thirty five dollars. That's the range we have seen so far may I add comments?

Speaker 5: 33:26

What I would like to add? One general comment, and I believe this cuts across the board the red market, especially in the context of Africa, is very new, and so we do not have enough historical data to confidently say that this is the price of a wreck from renewables in Africa. You know, that's why we are trying to promote you know this special labels to be able to SQ it on the higher side because of the benefits that can be. A crew and direct market itself is projected to grow by twenty thirty. The projections are that it may be a one hundred billion dollar market, and so we would like to, of course, get as much benefit as we can. But I would add a rider to this figure that we're giving you that this is. It's a market that it's just beginning to grow, and so it may be that in a couple of years we will have reached some equilibrium that, regardless of the label or whatever, the prices may be the same, if they may be higher or have settled within a certain range.

Speaker 2: 34:21

Yeah, and, as Nick said, it's probably a seller's market at the moment. But well, with growing renewable capacity in Africa, that may actually change. Let's see. And then prices may be under pressure. And now, how do buyers of regs justify the higher prices that, of course? Well, a wreck from Africa comes at like it's a multiple, as you just said right, compared to a wreck from the US, for example. Do they use this wreck for marketing purposes, or why are they ready to pay more?

Speaker 3: 34:55

There's a really interesting market trend right now that places a premium on carbon assets that come with significant social and economic impacts for the communities from which they originate, and we've seen that investors are not happy with the state of the art in impact analysis.

Speaker 3: 35:10

We recently had a professional, reputable impact firm tell us that our mini grids got four point eight stars in reducing community vulnerability, which is nice to hear, I guess, but if you think about it, it doesn't mean anything to get to get a better handle on impact quantification, renovia recently completed the first ever comprehensive, peer reviewed socioeconomic impact analysis for mini grids in rural Africa. Basically, instead of telling project developers and investors that their mini grids and the carbon assets that they produce get four point eight stars, we can show that their investments affected, for example, a 17 percent increase in female employment and a quadrupling of the median community income. Furthermore, we can perform regression analyses to show that, for example, for every fifty thousand dollars invested, twenty more young girls will attend school. Being able to make these statistically significant claims with 95 percent competence intervals based on scientific, peer reviewed research adds massive value to the associated carbon asset, but also adds additional cost right.

Speaker 2: 36:12

Doing all this research is quite expensive, isn't it?

Speaker 3: 36:16

A little bit but, to be honest, at this point we've got it down to a science. We've been doing this for a few years now with our own mini grids. We have really great connections locally with surveyors. We have the math down to be extremely easily replicable. It's surprisingly affordable to do this, even in depth and highly scientific quantitative impact analysis.

Speaker 2: 36:35

Make sure that your P Rex also, after all, have an impact on the piece in a certain yes yes, we have.

Speaker 5: 36:47

Yes, we have, and because the label is an impact label and so measurement of that impact is critical in us continuing to talk about it and positioning it as such, and we have developed internally our own framework for measuring and, of course, given that the name of the label is a piece label, so we call it a piece framework and it is mirrored on the SDGs, but how they relate towards promoting peace in this geographies where we are sourcing them from, and so for every project we have a measurement for both the baseline data and after that's taken, and we have that research and currently we run it on a platform by another company that's doing it for us. But the measurement of the impact and how that contributes to peace is critical, and these are the core of what we do and how we can continue to talk about it.

Speaker 2: 37:37

Hmm, okay, now let me put what we have heard into perspective from a mini grid operators point of view. The mini grid operator charges between thirty dollars and per kilowatt hour and say sixty seventy dollars and per kilowatt hour to its rule customers. And now, by selling Rex, this revenue could be increased by between two point five dollars and per kilowatt hour and five dollars and per kilowatt hour, which is significant. Now the question is from a regulatory perspective, is this revenue be considered revenue for the mini grid company that, after all, will be used to reduce the electricity tariff, or is that actually additional margin for the mini grid company? Do you know?

Speaker 5: 38:32

I would say it depends that, yes, it can add to the margin of what the developer is making, and in some cases they use the amounts for offsetting some of their costs, or if they're offering it at set targets, because sometimes developers agree specific targets with the government with their license. What we are seeing is a number of developers use that as more to cover the expense side rather than reporting additional income, so it's more offsetting their costs. But the other aspect that would come into play is, again, government and what is considered income and whether that amount will be subject to tax, and so it depends on different countries. I know certainly countries like the DRC. Whoever companies that have sold their peer acts, such as Nuru, have paid tax because it's considered income by the government, and so there's also that risk that we are trying to raise money so that we're able to support these projects more. But there's also that element of even whatever they get, part of it still ends up being considered as part of income by the government-enhanced subject tax.

Speaker 2: 39:48

Nick, do you want to contribute?

Speaker 3: 39:50

Yeah, absolutely, nico. I'm really glad you asked this question. I many great developers know best what to do with the additional revenue they can make by selling these assets For Renovia. We like reinvesting our profits back into the communities we serve, you know, connecting additional customers, investing in productive use of energy projects, reducing tariffs to drive quantity demand at the price elasticity of demand of rural African customers. The extra money we get often serves as an investment that continues to grow over time, which also creates additional carbon assets, so it's a really great positive feedback loop.

Speaker 2: 40:24

Yeah, interesting angle to look at it to reinvest into the community without direct return, but indirect return, of course. And I would urge any regulator to not consider the income from rec sales as income for the mini-grid company, because that would immediately stop all mini-grid companies applying for recs, right, because they basically just increase the effort of reporting, registering and so on, while not having any benefit for the company, right? So therefore, regulators must be very careful, like the weeks in considering this additional income as income for the company in their tariff considerations.

Speaker 2: 41:12

Now we've just addressed this issue or aspect. Let me call it aspect of effort from the mini-grid operator side, like what is the effort that the mini-grid companies have to take? How is the registration process in each of your organizations and schemes and how is the reporting process? Who wants to start? So?

Speaker 4: 41:35

because we work under the purview of iTrack standard, whatever qualifications or the processes needed. There is our baseline, so that's where we start. But for a project to earn the direct label, it must meet some specific technical parameters. So there would be some by default parameters that have already been covered, but in our case, it should be able to demonstrate how it is addressing clean energy, then climate action, what is the financial viability, environmental and social impact. So we collect data on those aspects, because that is how we are able to demonstrate that directs can and should demand the extra premium that we are looking at. From a logistics point of view, the process is conducted online and the details and the guidelines will be available on our websites. Stuti, how do you collect the data.

Speaker 2: 42:29

Is that a digital data collection, or is there anything in like? Ok, I need to type in my data into an access spreadsheet or so? No, it's digital.

Speaker 4: 42:40

We have our own open source technology, which is what we use, so it is digital. But again, at the same time we have to understand that the iTrack processes do demand and for that reason even evident, do demand a lot of physical documents, so that has to also be supplied at the same time, because we work with the local government bodies as well, right, so we have to adhere to those regulations. So with the iTrack Standard Foundation, regulations are extremely, extremely critical. We have to abide by them.

Speaker 2: 43:15

Can you provide some examples of what physical documents need to be provided? We?

Speaker 4: 43:20

are talking about all the registration processes. The mini-grid or these SHS systems have to go through the licenses that they need to operate, so all these documents would come under the regulatory purview, I see.

Speaker 2: 43:35

Alinda, I guess that is the same on your end, isn't it?

Speaker 5: 43:38

Yes, it would be the same, because, the iTrack being an Eric, we have to adhere to the standards and reporting regulations that are required, and on top of that we have our own what we call peer qualification process, and that is where we look at the geography of where the project is located, the context in which the PIRX are being applied for, and that's at the very, very initial stage where we really want to see whether that particular project meets the selection criteria to become a PIRX.

Speaker 5: 44:12

On matters sizes of the project, in as much as the iTrack Standard now allows issuances down to the watt hour, we encourage larger projects mostly because of the effort that is required to apply for a PIRX, which is the equivalent of one megawatt hour.

Speaker 5: 44:30

So if it's a very small size then it would not translate to a lot of money, and so you look at the value of the effort that you're putting in and how much you will get and then weigh whether it is worth your time. And so it is that larger projects would benefit because they generate more PIRX and therefore more money, and would find it more beneficial for them. So that is on the project size. In terms of the actual process, we have partnered with Odyssey and all the applications are done online on the Odyssey platform and we review and communicate. But when Suti said, when it comes to the actual iRack registration processes, yes, they have licensed platform operators and now they have one recently, and so if there's a way of having all that done through the platform operator, it can become much easier. But because it's only just beginning, there's still a lot of manual processes.

Speaker 2: 45:22

When it comes to the iRack registration itself, I see Linda, I had one question earlier already which I would like to ask now. When you select a country like Nigeria, which is a large country, then there is in the north. There is some conflict and for that reason you list that country under your PIRX scheme. Is the whole country eligible for PIRX or is it just the north of the country where the conflict is?

Speaker 5: 45:51

happening. So currently and it's mostly just because we are starting off we have tended to focus more in the northern part of the country because that's where there's more conflict compared to the south. But that doesn't mean that even in the south there are some pockets and communities where you'd find some instability and therefore PIRX would be beneficial. So that doesn't rule out us considering those specific cases, I see.

Speaker 2: 46:18

Okay, Nick, what about you?

Speaker 3: 46:20

Yeah, so RRX are not limited by geography or size. Actually, one of the producers on our platform is a refugee owned company with just one mini-grid and they're making like a few hundred dollars from their carbon assets. They're pretty pumped about it and I love them a lot. Obviously, you'll make a lot more money with bigger projects, as many mini-grid developers have, but the verification process is still not too onerous For mini-grid companies. We have an onboarding process that you fill out a form basically saying that you want to participate in our platform and then you give our software read-only API access to your approved room of monitoring equipment. All the details behind that are available free online in our standard document.

Speaker 2: 47:00

Let's talk about the technology. For some time. I understand that each of you links two data loggers on site, correct? How does that data communication work? Nick just said there is an API that is specified and the mini-grid company needs to make sure that the data is reported to the blockchain. How is that happening in D-REX and P-REX?

Speaker 4: 47:27

As I mentioned earlier, we have our own open source technology platform. So the platform is responsible for validating meter reads using a proprietary algorithm which we receive through the POST API meter reads endpoint of the platform's API, so we again have an API. In turn, we also work with the likes of Odyssey, Prospect, etc. To get additional data. Now the system's objective is to validate and bundle verified data for transmission to IRIQ, evident via API, where the actual certificates are issued. So one of the things I would like to probably highlight here is what Linda was earlier saying, that on IRIQ you can register a device, even in the capacity of what are right, but each unit actually is of one megawatt hour. So one of the things which is a business case for us is aggregation and bundling of these small devices. So maybe a watt hour, kilowatt hour, where we aggregate and bundle them and we still issue the one megawatt hour that is needed for IRIQ.

Speaker 5: 48:33

I certainly know that the reality for a number of developers is that they also rely on manual readings, and so you know having to get somebody to physically go and get the data from the inverter. And maybe, nick, you might know better, but I've heard from some developers that this software sometimes fail and so they don't record the data as required. For us, the advantage of relying on the software in cases where that's not available, we also have ways of either having that data provided physically, like somebody literally going to that inverter and getting the readings and sending that through to us, and also we work with Odyssey, who have also partnered with a number of immigrant developers who have synchronized their systems with their platforms so that information is also available for cross-checking.

Speaker 2: 49:31

Now let's look into how the money is being disbursed to mini-grid companies. I understand that in some cases the projected revenue from REX can be disbursed upfront, as a capex subsidy, so to say and in some other cases the revenue comes in over time as the REX are being generated. Like how are you organizations handling that?

Speaker 3: 49:57

This is perhaps what excites me most about our platform, because we built our technology on smart contracts. We can create derivatives, including futures, for carbon assets on our platform. Say, you're a mini-grid company who needs an additional $100,000 to make a project work, we can help you sell a contract for the first 10 years of your carbon assets to a buyer at a slightly discounted rate to fill that $100,000 hole in your project right now. Yes, mini-grids should absolutely take advantage of the free money they can get from the image and impact their projects have already had on the environment, but in my opinion, the real money is in upfront payments for future credits.

Speaker 2: 50:35

All right, what about your schemes Linda and Stoty?

Speaker 5: 50:39

For REX also being able to raise capital to develop new projects. That's really what would be most beneficial for developers, and we have set up what we call the peer recalculation facility, and the whole idea is to have money that will be able to be disbursed to a developer upfront in exchange for future delivery of peer rec and that money would then go into supporting their carpets raises. I would say that's coming soon. It has been delayed, but we hope to have this rolled out over the next couple of months. We are advanced stages in getting this finalized.

Speaker 2: 51:11

Which, after all, increases the demand risk to a certain extent, doesn't it? Like in mini-grids, the demand resist the largest risk, right? If the demand doesn't develop as projected, then your revenue is significantly lower, while your costs are more or less fixed and you run into losses. So now, if you, for example, arrange for a future and already sell future electricity generation and after all, what you sell is the consumption right, because the generation capacity is there the question is do you have enough consumption to supply the electricity that you could potentially generate? Now, if you sell a future, then you increase your demand risk, because I believe that if you don't meet your obligations to deliver and to increase the consumption to a certain level, then you have to pay back the money that you receive for the recs, isn't it?

Speaker 3: 52:05

Worst case scenario if it turns out demand is different than you anticipated, especially bad from the carbon asset side, on the under predicting, if it turns out that your community doesn't consume as much as you thought you would. These kind of contracts, these future selling of credits, don't have to be numerically specific in the quantity of assets. It can be numerically specific in the quantity of time, right, that's why companies like having the discounted rate, because they are taking a risk when they're buying a futures contract. That's true for all commodities, you know.

Speaker 2: 52:33

What is the discount? How much is it?

Speaker 3: 52:35

It is entirely dependent upon the market. This is something my colleagues on this call alluded to earlier. There is not a clear price for any of these assets yet, and the prices are fluctuating, and the same is true of the discount rates for future sales right.

Speaker 2: 52:49

Yeah, the idea is at 10%, is it 30%, is it 50% or is it 5%?

Speaker 3: 52:55

Yeah, so we've been having conversations where the interest seems to be hovering around 20% discount rates.

Speaker 4: 53:00

So in our case, we have seen both, but, as Nick mentioned earlier, there's a lot of value with upfront payments, so we have seen projects where the payments were affronted. We also have seen where the payments are disposed as the wrecks are produced. One of the things that we are doing as an organization is we are collaborating with something called as pre-purchase facilities, which is where you get the upfront payment, and also with a lot of RBFs and DFIs to ensure that, while derex also acts as a de-risking tool, it enables the leverage that these DRE project developers would need for KPEX and for OPEX.

Speaker 2: 53:39

Okay, good, then let's wrap up this session. What does the future of wrecks in the mini-grid sector look like from your perspective?

Speaker 3: 53:49

We talked a good bit about how this is a seller's market. Right now, there's a lot of demand for the products that we are producing and, to be honest, I've seen study after study showing the demand for carbon assets will only continue to rise. A report by McKinsey shows that the voluntary carbon markets reaching $50 billion by 2030 and data research projects, the global carbon markets as a whole reaching almost $3 trillion by 2028. The share of that money that is going back to the people who are actually doing the work, the project developers and the communities they serve, in my opinion, is of utmost importance.

Speaker 5: 54:24

I mean, the future is definitely bright. Nick has just provided some statistics and metrics, and so we see growth in this sector, and especially considering how more companies are now looking to help their suppliers and customers to support clean energy in all the countries where they are located. And so that's the cross-border adjustment mechanism and the laws that have just come into place in Europe, and so that would force companies to use renewables, and if they don't have, then that means they will be forced to look for certificates to prove that. And so the potential for this market is bright, and the increased attention to scope three, specifically, will be huge. And then, on top of it, more and more companies are now prioritizing wider community, both economic and social impacts of their clean energy purchases and wanting to support new projects, and I think for us, that is where our biggest motivation lies, and as more and more companies adopt impact, looking at purchasing clean energy from an impact lens, then it means we have more work.

Speaker 4: 55:29

From our perspective, there's definitely a lot of demand, there's definitely a lot of supply, but with everything that is happening and with the regulations and the responsibility on making it more transparent and credible is concerned, I think there would be some initial frustration with all parties involved to adapt and adapt ourselves to be that transparent and to be able to demand the premium because of our credibility. So that's more of a logistical problem that I see. How do we equip ourselves with all these different regulations that are coming in and how do we adhere to that? But once we have ironed that out, I do see that there's a lot of value, and one of the things that we do as DREX I'm sorry is that we are trying to make it more and more inclusive, right. So the inclusivity also means that different kind of providers, mini-grade SHS they all can participate. So the future does look bright. We just have to work really hard to get there, though.

Speaker 2: 56:41

All right. Thanks a lot for those final statements. Thank you, stutis, thank you Linda, thank you, nick. That has been very informative for me. I learned a lot today and I hope our audience also did. And yeah, I'm looking forward to meeting you more often in the mini-grid space and really helping all the mini-grid companies accessing the wrecks of your respective organizations. Thanks a lot.

Speaker 4: 57:08

Thank you, thank you, nicko, thank you, nicko, and thank you, linda and Nick, for really helping me have this amazing conversation. Thanks everyone.

Speaker 3: 57:18

Likewise, it was a pleasure.

Speaker 5: 57:21

Thank you guys, Thank you Nick, Thank you Stutis, Bye.

Speaker 1: 57:25

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