My name is Andrey. I work at DTEK - the largest private investor in the energy sector in Ukraine.
Company background: pre-war up to 1 GW of installed capacity of wind and solar power stations in Ukraine, currently ongoing renewable projects in Europe, 3,5 million retail energy customers, over 2 bcm of natural gas produced in Ukraine, an energy service company helping industrial clients reach energy efficiency.
We are currently exploring the possibilities to finance new renewable projects and energy efficiency projects from alternative sources. Our last successful fundraising was a 325 EUR green bond that helped us build 450 MW of solar in one of the Ukrainian regions.
With this post, I want to ask for community help to better understand the possibilities and details of financing an energy efficiency project (or a couple of them) in Ukraine. The business model is built around energy savings activities where our company is the contractor that provides equipment and shares a portion (usually 25-35%) of the savings from such activities. For example, one of our industrial clients wants to save on energy spending by installing LED lighting in his facility. To do this he signs a contract with our company and pays us the 25-35% difference from the saved expenses and we invest in the equipment and the client’s facility refurbishment.
In this precise example, the expected savings amount to approximately 3 mln EUR by 2031 with around 30% paid to our company on a monthly basis. The NPV of the project is positive, the discounted payback period is around 2 years and the contract assumes fixed rates and a predictable cash flow.
In light of this opportunity we have several questions we need clarification on:
How does the deal look like in the “real world”? Are there contracts between the Asset originator (DTEK), Issuer (who should it be if we are talking about future contract proceeds as collateral), Centrifuge, and Tinlake? Do these contracts mirror the smart contracts?
What are the legal requirements for an SPV in this case?
What would be the smart contracts’ legal terms? Is there a mechanism for amending the terms if needed?
How is the valuation of the RWA commenced before it becomes collateral? Who are the third parties that could perform such an evaluation?
Is there any standard form of reporting about the Pools financials?
How often of the interest expected to be paid back?
How does the repayment mechanism work? Will we need to buy DAI back for repayment?
What is the KYC procedure for investors? How is AML compliance assured?
What risks does the up-pegging of DAI hold for such long-term projects (2-4 years)? Can we mitigate this?
Thank you in advance for engaging. I`m ready to answer questions regarding our case.
Andrey
Andrey, great to see you here in the forums! These are great questions, a good way to get answers from our community, and will serve as a benefit to have the answers available to others in our community.
Having spent time in the Maker recently, I can help answer some of those questions.
Any debt issued by Maker will be denominated in DAI, and will need to be repaid in DAI. Tinlake pools that recieve direct funding from Maker facilitates these repayments automatically.
Theoretically, pools can be denominated in other assets with some work. Maker repayments would become more complicated however, so for Tinlake pools receiving Maker funding, it’s not a viable option.
The market for DAI is quite large, so an issuer typically will work with an exchange agent to get from DAI to fiat, for a fee. It could be managed by the issuer themselves if desired.
These days, DAI price volatility is mostly a short-term event and typically occurs within a tight range. Volatility above the peg has been effectively mitigated since the inclusion of the PSM so Maker’s ability to sufficiently maintain liquidity there is the relevant observation.
Hi @Andrey_Bondar, tried to put together top level replies to your questions. I think a pool around what you are pitching could be really cool.
How long would asset maturity be? Long assets are difficult to fund because investments are tied up for much longer. But perhaps based on above it could me many loans maturing along the 30% monthly repayment. Essentially an asset matures per month with the expected repayment which could be used to allow investors more flexibility with entering and exiting the pool.
Thanks for your good questions. This is Eli, General Counsel for Centrifuge. I will try to respond to a few more:
Yes, there will need to be contracts between the asset originator and the issuer SPV. There will be “true sale” contracts transferring ownership of the assets from the asset originator to the issuer SPV. These transactions are purely off-chain in the real world and are not mirrored on-chain.
The Protocol does not have specific legal requirements for the SPV, but investors will generally expect that these are bankruptcy-remote i.e., they have no business other than purchase of assets and issuance of the tokens.
Smart contracts are not legally enforceable agreements. They have no legal terms. Smart contracts are self-executing code, i.e., programs stored on a blockchain that run when predetermined conditions are met.
This depends on the type of asset. This is generally done by the asset originators who know the class of asset well, although they may also engage third parties with expertise in the asset class.
This is the process that is having success in helping the community organize, debate, and understand potential opportunities to realize our mission of bringing credit on chain.
The second is the Credit Group Poll: Formation of Credit Group – this group should be activated in 2023 as we see more POPs occur, and need to begin to put trust and leave responsibility for reporting in this group.
Ultimately, the POPs and potential RWA servicers should be able to put the community at ease by bringing a host of your own legal, underwriting, and service providers into your process to provide a well-rounded view of your opportunity and the work that has been done.
This pool sounds like it could be a really interesting opportunity to do something good for the people of Ukraine and tbh a pretty decent financial plus as well. Would the timeline and result of the war delay and or impact such a pool, I read about the energy infrastructure of Ukraine being nearly destroyed, which is awful but also an opportunity to rebuild a newer, better, and more efficient national energy infrastructure.
Would the pool also be able to tap into money from the rebuilding of Ukraine funds that are being set up among western nations?
Thank you @sirj for your replies, these and others in this thread are very helpful.
The beauty of energy efficiency projects is that the effect can be capitalized immediately as new, more efficient, equipment is installed. Typically it takes 1-4 months for a large-scale project to install all equipment.