Wind Farms: Tokenised “Spinning Assets”
By: Alexander Kuzmin
Tags: Token Sale, Investing, Physics, Blockchain, Energy

One possible solution is building generators that use high-temperature superconductors. Such generators promise to be half as heavy per power unit. Superconducting material is a brittle ceramic; it demands a high level of grain alignment. Only recently was this material able to be packed in a usable form, so it is advantageous to begin utilising it.

Coated conductors can transport thousands of amperes of current in a layer of YBCO only a few microns thick — around one hundred times thinner than a human hair.

One of the companies that develops new generators is EcoSwing.

Another potential breakthrough is rather economic in nature, although it requires a new engineering solution.

Electricity is not sold on free markets. A significant portion of energy goes to monopolists who often impose fixed deal parameters (price, volume). If the wind was weak during the reporting period, and the volume was not high enough, the energy producer needs to buy “missing” energy in the market, where the price (of course) disproportionately jumps up because all the neighbouring generators have exactly the same problem.

The situation could be radically improved by energy “warehouses” so one can produce when it is better to produce and sell when it is better to sell. For such a large-scale purpose, chemical batteries are inappropriate. They are expensive, they age too quickly, and they are not easy to dispose. It is quite possible that a physically primitive scheme might work better: move a mass up so gravity effectively converts electricity into potential energy. Here is an example of such solution:

Local energy storage will make revenues smoother and cash flows will become even more predictable. Interest rates with which renewable energy facilities are valued will decrease (lower risk). Discounted cash flows will increase. This will affect both corporate and official statistics. The latter, in its turn, will have political implications. Subsidies may give way to direct pollution taxing of fossil fuel burning plants. That will affect electricity prices. And, of course, the economic competitiveness of renewable power is affected by fossil fuel prices.

So, what happens to the fund when electricity prices go up or down? Surprisingly, the fund’s performance does not directly depend on that. It may seem counterintuitive, but stopping distance does not depend on vehicle mass. A huge dump truck may outperform a compact car in braking, provided correct tyres, because the greater mass increases inertia and friction to the same degree.

Similarly, the fund’s performance can be hedged against the volatility of electricity prices if we apply the following logic: the lower the prices, the less profit each wind turbine makes, the lower its fair value, the greater the discount the fund can buy it at, the more turbines the fund can own at the given moment. Of course, there will be some discrepancies caused by the structure of demand, availability of long-term power purchase agreements, and some fixed costs but, generally, the prospects of the business mostly depend not on the electricity market but on the relative risks, when compared with other industry sectors with similar IRRs.

Sensitivity analysis: how does electricity price affect IRR and the fund’s NAV 5 years from now?

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