Back in 2011, Nick Gogerty and Joseph Zitoli of the Thoughtful Capital Group wrote a proposal to back national currencies with electric power. They argued that electricity provides benefits to society, unlike gold, and retains monetary value better than government debt or mortgage-backed securities — the assets the US Federal Reserve Bank currently holds against dollars in circulation.
Naturally, central bankers and policymakers around the world ignored the academic paper. It’s difficult to convince large institutions to transform a system that seems to be working just fine — and most of the world’s major currencies are relatively stable.
So this year, Gogerty and an online volunteer community created an electricity-backed digital currency, in the vein of BitCoin, to incentivize solar energy generation. If we show a little faith in the value of sun power, this new online monetary system will increase the rate of investment in solar electricity.
SolarCoin is backed by two ‘proofs of work.’ The first is called a cryptographic proof of work, basically a problem that’s difficult for computers to solve but easy to check that they got it right.
I don’t pretend to understand digital cryptocurrencies, but the possible positive impact of SolarCoin shines brightly with or without computer science knowledge. All we need to know is that an algorithm provides proof of work to secure online transactions and prevent anyone from trying to spend the same SolarCoins twice.
What makes this currency a potential game-changer in the electric power sector is its second underlying asset: proof of solar electricity production through a third party-verified meter reading. One megawatt-hour (MWh) of generation earns one SolarCoin (SLR).
The SolarCoin Foundation created 98 billion SolarCoins to match the amount of solar electricity that the International Energy Agency predicts will be generated over the next 40 years. All but 0.5 percent of these SolarCoins will go to energy producers; the remaining 500 million will compensate the computer geeks and other volunteers who build and support the infrastructure behind the currency.
The peer-to-peer network of SolarCoin holders will build the currency’s transactional value upon the belief that solar-powered electricity is worth more to the world than its value in traditional energy markets. Ideally, it will work like electronic cash.
Get your coins
Up until last Saturday, March 8, all the virtual money was held in reserve. That day marked the first SolarCoin pilot grant, in which Arizonan Lisa Shock received 23.4 SolarCoins by providing verification of the 23.4 MWh her rooftop installation generated between 2011 and 2013.
The pilot program represents the first steps toward developing a global system for verifying electricity generation and granting SolarCoins in a communally transparent way that still respects individual privacy. Residential solar system owners and investors in larger projects can participate in the grant program and start receiving SolarCoins for their power production.
First, you need a receiving address for your e-money. Download a SolarCoin QT wallet at SolarCoin’s website to join the solar-backed currency community.
Then head here to claim your coins. You’ll need a scan or photo of two documents: a Proof of Use that contains the physical address and nameplate capacity of the generation facility; and a Proof of Work that verifies solar electricity generated and time period from the meter.
But wait. Why would anyone want SolarCoins? Are they worth anything?
All currencies, including US dollars and Euros, are valuable as long as a network of merchants, people, and other organizations deem them valuable. So for SolarCoins to gain real value, we need to begin treating them like money.
This is how BitCoin became valuable — it provided a secret way to do business on the internet, so people started trading it like cash. SolarCoins may soon be worth something because of the environmental and energy benefits they represent.
One MWh of electric power produced by photovoltaics releases no greenhouse gases other than the emissions from producing solar panels. By contrast, burning fossil fuels like natural gas or coal releases 1,500 pounds or more of carbon dioxide-equivalent emissions per MWh generated, again ignoring the upstream emissions from extracting, refining, and transporting the fuels.
In this way, SolarCoins help protect the climate by providing an additional reward for solar power producers. For this reward to be worth anything, i.e. if SolarCoins are going to be able to buy goods and services, then the currency must become popular. In the coming years, SolarCoin’s website reports that each coin should be worth $20 to $30.
A business or charity can begin accepting SolarCoins as payment by simply downloading a wallet and then displaying their unique address or QR code prominently on their website or a physical sign. Treating SolarCoins like cash will be a way to show that an organization agrees with the premise that the benefits solar power provide to society and the climate are even bigger than the price of electricity.
As more businesses accept SolarCoin as tender, more people will recognize the cryptocurrency as useful money. As demand for the currency increases, its value will rise and stabilize. Therefore, as the quantity and variety of goods and services that SolarCoins can buy expand; the incentive to generate solar power grows in tandem.
Adding SolarCoin as an extra reward for power producers will increase solar power production in two ways.
First, this extra benefit above and beyond the money earned from selling power to electric utilities or using it to offset energy bills will increase the number of potential solar projects that make economic sense. Solar energy will earn standard dollars and digital money, adding to the benefit side of the cost-benefit equation of any potential installation.
Second, solar projects get cheaper as we become more effective at making increasingly efficient panels, putting them up, and capturing the sun’s energy. SolarCoin makes more solar installations cost-effective which speeds up this ‘learning-by-doing’ process.
On the money
SolarCoin increases access to money, provides a hedge for solar investors against future decreases in the price of electricity, engenders trust, activates markets, reduces reliance on national currencies, and fosters cooperation among transacting agents.
Overall, SolarCoin is a brilliantly democratic idea to shift the economics of solar projects. If it’s successful — meaning that people and businesses treat SolarCoins like money — then the additional recompense for solar producers may speed the growth of solar electricity’s market share.
In the best-case scenario, the complete reserve of 97.5 billion SolarCoins will be distributed well before the expected 40-year time horizon thanks to accelerated investment in solar generation capacity.
SolarCoin is meant to complement standard currencies like the US dollar, yet the original proposition of Gogerty and Zitoli deserves our attention as well. Check back next week for a post about how and why to back a national currency with electricity.
Sam is an aspiring economist and writer. He currently works for Alameda County Sustainability through a Climate Corps Bay Area Fellowship, and his views are his own. Thinking is his hobby, learning his passion, and communication his life’s work. Sam graduated from Western Washington University with a degree in economics and environmental studies; now he’s preparing to go back to school to figure out how today’s schools of economic thought can be modified to take Earth into account. Above all, Sam enjoys running around outdoors.