It’s Hard to Fund Midsize Green Assets. This Tokenization Startup Wants to Change That

The U.S. renewable energy industry is in an odd position.

Large-scale projects, like SunZia, the southwestern wind turbine project that is expected to provide enough electricity to power three million homes, are funded with relative ease thanks to long-established relationships with financial giants. Meanwhile, small-scale installations such as solar panels on one’s rooftop are becoming cheaper to implement by the day.

But the consolidation of the energy sector is making it increasingly difficult for mid-sized projects to get the financing they need. These ventures, which are typically worth less than $100 million, are too pricey for regular people to pay for, yet too modest for financial heavyweights to take an interest in them.

That’s where Plural Energy steps in. The two-year-old tokenization firm enables mid-sized renewable energy projects to raise funds from investors on-chain, with the double-aim of dramatically expanding the number of people who can invest in renewable energy assets while also developing new kinds of financial products for the energy sector.

“Right now, the process of raising capital for solar is just unacceptable. We’re never going to hit our climate goals,” Adam Silver, co-founder and CEO of Plural Energy, told CoinDesk in an interview. “[We want] to make an easy button for capital raising for good climate assets.”

“By taking advantage of tokenization, we can essentially unlock all of the magic that happens in DeFi ecosystems, and bring it to an industry that’s desperately in need of financial innovation,” Silver added.

Investors can access four types of products through Plural Energy. The first is small-scale asset-backed instruments, like a project bundling 1,000 rooftop solar installations into a single security, which is then tokenized. The second category is development-stage renewables, and the third is operating renewables (for example pre-existing solar plants that seek to raise additional funds to expand).

The fourth category, Silver said, is the “weird stuff,” like a battery that uses artificial intelligence (AI) to trade, or the bitcoin (BTC) mine being built by Sangha Renewables on a West Texas solar plant operated by an energy company. “Things that are a little bit out of the ordinary for traditional infrastructure investors, but are really cool to everyone else,” Silver said.

So far, the majority of these projects have involved solar power in one form or another, but Plural has also looked into wind-based initiatives and even a hydropower deal.

Yet these projects didn’t make it past Plural’s due diligence. To date, a total of five deals, representing $40 million, have been given the green light to raise funds through the platform. Only 5% of the deals considered by Plural make it to the finish line, but that hasn’t discouraged demand for the platform, which currently has around $150 million, across a dozen assets, to bring on board in the coming months.

“When a renewable energy company comes to us, we put it through our broker-dealer due diligence process, and then we also do asset due diligence,” Silver said. “We make sure that it’s like an asset that really any one of us would feel comfortable investing in personally.”

While broker-dealers must ensure that investors aren’t getting scammed, they aren’t necessarily responsible for making sure that something is a good investment. Nevertheless, the Plural team insists on only presenting deals that it’s confident in, Silver said.

The first ever project greenlit by Plural took six months to complete the process from start to finish, from agreeing to tokenize with Plural to a live tokenized security offering. That timeline has now been brought down to six weeks.

Plural’s business model and technologies “open up capital markets to the most sensible pool of investors, streamline the fundraising process, and provide transparency to all parties,” Spencer Marr, president of Sangha Renewables, told CoinDesk.

Once they’ve been given the nod, issuers on Plural get to choose what types of securities they want to offer — like common equity, convertible notes with interest, or unsecured convertible notes. Each of these security instruments receives a unique token in the back-end. Investors then get to choose what kind of security they want, and receive the appropriate tokens for it.

But each deal comes with its own unique requirements. For example, one project gave retail investors the opportunity to invest as little as $500 in a portfolio of solar projects. In the case of Sangha’s bitcoin mine, however, the deal is only open for accredited investors, with a minimum investment of $50,000.

Plural is a registered transfer agent, meaning that it maintains the ownership documents, known as cap tables, of the projects financed through its platform. Under Plural’s system, each tokenized security gets its own on-chain cap table, the data from which is then cross-referenced with a Know-Your-Customer (KYC) database to generate an SEC-compliant cap table.

“The only way you can change who owns what [in the project] is by changing who owns what token. So the original source of action and movement is on-chain, and then it’s recorded in that off-chain database,” Silver said.

The code behind Plural’s transfer agent protocol is already open-source, he added, and the firm plans on publishing its transfer agent standard operating procedures as well. “We should not have a regulatory moat by having a transfer agent license,” Silver said. “That should not stand in the way between people accessing tokenization.”

Initially built on Base but now expanding to other EVM-compatible networks like Avalanche and Arbitrum, Plural offers a variety of payment options, including MetaMask, credit cards, ACH payments and wire transfers. While the company is mostly focused on U.S. investors, Silver said that Plural was mindful of international investors wanting exposure to the platform’s assets.

“Our first deal had Canadians and Europeans, but just because we had them doesn’t mean it’s good enough,” Silver said. “We have an opportunity to make a much cleaner and better investing experience for international investors that can perhaps simplify their regulatory burden in the U.S. and then also their tax burden.”

Blockchain technology doesn’t just allow Plural to access a broader array of investors; it also enables innovations in terms of the platform’s payment systems.

One area the eight-person team is focusing on is using smart contracts to simplify payment terms, or how a given project splits its proceeds. For example, waterfall distribution schedules can see the project forward 98% of dividends to investors up to a threshold, and then evenly split the rest between investor and issuer.

“With smart contracts, the headache of administering and calculating all of that just completely goes away,” Silver said. “Now our issuers make a single payment into Plural and then smart contracts automate all the distributions according to business rules.”

Even better, Plural’s smart contracts track the trading of these tokenized securities, meaning that if an investor holds the token for the first 10 days of a month, then sells it to someone else for the remaining 20 days, the first investor will receive a third of the dividend, while the second will receive two-thirds. “We’re able to get closer to that real-time finance and just remove all that administration,” Silver said.

That opens up the possibility of Plural-issued tokens being used in the broader crypto economy, especially in decentralized finance (DeFi). Investors could eventually post their tokenized securities as collateral the same way on-chain market participants already use ether (ETH), stablecoins and various other cryptocurrencies. “It’s just a more usable product if you can borrow against it,” Silver said.

Assets tokenized by Plural could also end up being traded on decentralized exchanges, which would help bring them liquidity. “I don’t think it’s going to be easy, but I do think that figuring out how to take those liquidity principles and bring them into Plural is huge, and might be coming, hopefully sometime soon.”

Down the line, Plural’s assets could even end up spawning their own derivatives, and even split the generated interest from the tokenized security the same way DeFi protocol Pendle does.