The following are some of the risks that may be involved but you should consider whether making this purchase is suitable for you in the light of your own personal circumstances and take professional advice as necessary.
Solar cell leases are long-term commitments and you should consider what is the right amount to spend given your own circumstances.
Where we have made estimates or projections of anticipated rentals, costs, or inflation these are based on our current beliefs and assumptions at the date of publication – we won’t necessarily update them. These statements may involve known or unknown risks, uncertainties and other important factors which could cause actual results, performance or achievements to differ from those we expect. In particular, while we believe that any predictions or forecasts we give are reasonable and based on reasonable assumptions supported by objective data, they may be affected by risks and other factors not set out in this article and therefore are not reliable indicators of future performance.
The Solar Cell Owners Agreement & Terms of Service in place between you, The Sun Exchange and the Bewind Trust are legally binding, however there is no guarantee that you will receive the whole or any part of the expected Lease Rental, or the return of your initial purchase money. In such an instance lost rentals may be sought through legal arbitration.
Supplier, partner or contractor on the system can be the subject of insolvency or restructuring procedures which may affect whether they can perform their obligations. This may also mean that, in relation to suppliers or contractors, it may not be possible to secure the same level of service at the same price resulting in greater costs.
Below you will find a list of the most common risks associated with owning and leasing solar cells. The list is not exhaustive. Please do your own research to familiarise yourself with all the potential risks.
Force majeure
There is always the possibility that an event could occur that is completely out of our control and completely unexpected. This includes events such as natural disasters or acts of terrorism.
General contractual risks
We are reliant for some services on third party providers. Whilst we are thorough in checking who we work with and in ensuring proper contractual arrangements are in place, we cannot guarantee that those providers will perform their contractual obligations adequately. Pursuing providers for breach of contract can result in delays and legal expenses. Any supplier or partner can undergo insolvency or restructuring procedures which may affect whether or not they can perform their obligations.
Withholding taxes
Any withholding taxes assessed payments will be deducted prior to payment to solar cell purchasers and lessors. Watergate Apartments and The Sun Exchange will not increase amounts paid in order to compensate Lessors.
Government Policy
The South African Government have set renewable energy targets under their Integrated Resource Plan which are favorable to solar energy. There may be changes in laws, regulation or government policy which might impact how you can purchase and lease solar cells. These may include, for example:
- Changes to tax law which might affect us or make it less advantageous for you to own solar cells.
- Regulatory issues which might entail expenditure, costs or operational restrictions which we have not foreseen.
- Changes to the basis on which the CPI is calculated.
- General economic circumstances which may lead to increases in costs or unforeseen expenditure.
- Lower than expected ESKOM tariff increases.
Currency Risk
Lease Rental payments for energy generated will be denominated in South African Rand. From time to time we will convert our ZAR lease rental balances to BTC for the purpose of payment to lessors located outside of South Africa. Non-SA Owners will be exposed to the currency volatility risk and to the timing of our currency conversions, which we will make at our sole and absolute discretion.
Insurance Risk
We, or a contractor, may, where economically practicable and available, endeavor to mitigate some of the project risks by procuring relevant insurance cover. However, such cover may not always be available or economically justifiable, or the policy provisions and exclusions may render a particular claim outside the scope of the insurance cover. There will also remain the risk that an insurer defaults on a legitimate claim.
Solar Irradiation
We have based the estimated output of the solar plant on a Helioscope simulation with a high level of certainty. We have used a solar energy production assessment with a 50% probability factor.
Inflation
The financial forecasts for this project are based on a tariff escalation of CPI + 2% per year each year over the 20 year lease term. However, the relative value of rental received will be relative to the actual rate of inflation. The average inflation rate in South Africa is around 5%.
Arbitration
Sun Exchange and the SPC may require that any claims against it be resolved through binding arbitration rather than in the courts. The arbitration process may be less favorable to lessors than court proceedings and may limit your right to engage in discovery proceedings or to appeal an adverse decision.
Operational Issues
Pre and post-operational issues relating to the quality of installations could result in the loss of solar yield and therefore rental amounts. The design agreement with the EPC provides for an audit upon completion. In the event that there are any installation or operational issues with the PV systems, the installer will pursue the relevant party on the SPC’s behalf, if relevant. If there is an issue with any of the equipment, the installer will ensure the relevant manufacturer is pursued under the terms of the warranties if it makes commercial sense to do so. Although they may use equipment made by different manufacturers, it will be of similar type and quality.
The terms of the lease contain key rights including access rights, maintenance obligations and our rights to revenue and the ability to remove the system equipment upon lease termination.
Adverse Economic Conditions
Adverse economic conditions beyond our control may affect Watergate Apartments’s ability to pay project lease rental. Factors such as declining revenues or increased operating expenses, ability of Watergate Apartments to collect on accounts receivable or other amounts owed, lawsuits brought or legal judgments against the Watergate Apartments changes in commercial lending terms including the calling of letters of credit or other debt obligations, unexpected changes in management of Watergate Apartments or other impacts on the operations and finances of Watergate Apartments that result in a shortage of cash available to satisfy its obligations under the lease with the SPC, which will impact the amount of lease rental to pay solar cells lessors.
Service Disruption
If a catastrophic event resulted in a platform outage and physical data loss, The Sun Exchange’s ability to perform its servicing obligations would be materially and adversely affected. The satisfactory performance, reliability, and availability of The Sun Exchange’s technology and its underlying hosting services infrastructure are critical to our operations, level of customer service, reputation and ability to attract new users and retain existing users. Sun Exchange’s hosting services infrastructure is provided by a third party hosting provider (the “Hosting Provider”). Any interruptions or delays in Sun Exchange’s service, whether as a result of an error by the Hosting Provider or other third-party error, Sun Exchange’s own error, natural disasters or security breaches, whether accidental or willful, could harm our ability to service the solar cell Owners or maintain accurate accounts, and could harm Sun Exchange’s relationships with its clients and its reputation. Sun Exchange’s disaster recovery plan has not been tested under actual disaster conditions, and it may not have sufficient capacity to recover all data and services in the event of an outage at a facility operated by the hosting provider. These factors could prevent us from processing or posting payments to solar cell Owners, damage Sun Exchange’s brand and reputation, divert its employees’ attention, and cause users to abandon our service platform.
To mitigate the risks of service disruption discussed above, Sun Exchange intends to migrate many of its services to a blockchain ledger and autonomous smart contracts. By decentralizing information storage and functionality, Sun Exchange intends to increase the security and reliability of its services.
Loss of Books and Records
Events beyond our control may damage Sun Exchange’s ability to maintain adequate records, maintain the online financing platform, or perform our servicing obligations.
If a catastrophic event resulted in a platform outage and physical data loss, our ability to perform our servicing obligations would be materially and adversely affected. Such events could include, but are not limited to, fires, earthquakes, terrorist attacks, natural disasters, computer viruses and telecommunications failures. If Sun Exchanges electronic data storage and back-up storage system are affected by such events, we cannot guarantee that you would be able to recoup all the money spent on your purchase.
Limitation on Individual Claims
When you create a Sun Exchange account, you enter into Sun Exchange’s standard Terms of Service which sets forth your principal rights and obligations. To protect Sun Exchange from having to respond to multiple claims by lessors in the event of an alleged breach or default, the Terms of Service restrict rights to pursue remedies individually in connection with such breach or default. Except in limited circumstances, such remedies may only be pursued by a representative designated by the holders of a majority-in-interest of a particular Sun Exchange project.
Reliance on product and service providers in the solar industry
Volatility in the business environment for providers of products and services related to solar power could adversely affect the ability of the SPC, Sun Exchange and the OM to service the solar plant.
Our business is dependent on products and services provided by wide array of third party developers, equipment suppliers, installers and service providers. In recent years, the business environment relating to solar power generation has been highly volatile and has been adversely affected by changes in government funding, tax incentives and foreign competition. As a result, many companies doing business in the solar power industry have encountered significant financial difficulties or been forced to discontinue operations altogether.
In the event such difficulties affect a company that is delivering important products or services to a Project, the completion of the project or its ongoing operations could be jeopardized, which could result in a default in payments to the lessors of the solar cells.
A counterparty providing necessary services may become insolvent. The Sun Exchange and/or the SPC will endeavor to hire a replacement party on substantially similar terms, although there is no assurance this will be possible, and Sun Exchange and the SPC bear no responsibility in this case.
Regulation of the Internet, blockchains, and digital currencies
As global finance develops, governments may adopt new laws to regulate Internet commerce, digital currencies, and block-chain technologies which may negatively affect our ability to service Owners of solar cells.
The cost to comply with such laws or regulations could be significant and would increase our operating expenses, and we may be required to pass along those costs to holders of solar cells in the form of increased fees. Governments may impose taxes on services provided, which would adversely affect the viability of our platform.
Committed Funds
When you commit to purchase a solar cell, you must complete payment prior to Sale End. Deposits to purchase solar cells are irrevocable and during the period between the time of your purchase and the time when your allocation of solar cells is completed, you will not have access to your funds.
Regulation of Sun Exchange
Sun Exchange believes it conducts its businesses in a manner that does not result in being characterized as an electrical utility subject to regulation in any nation or state.
Furthermore, as an e-commerce platform we believe we are not an investment company, broker-dealer, bank, or other regulated financial institution and we consider solar cells to not be a financial product as are hardware items being leased under a commercial contract.
If, however, in future Sun Exchange is deemed to be conducting a business requiring registration or regulation, it may be required to institute burdensome compliance requirements and its activities may be restricted, which would affect its business to a material degree.
We are not subject to the electrical utility or banking regulations of any state or national regulatory agency.
We are not subject to the periodic examinations to which such electrical utilities, commercial banks, broker-dealers or other such institutions are subject. Consequently, we are not subject to regulatory oversight relating to our capital, asset quality, management or compliance with laws.
No Appointed Agent
Lessors of solar cells will not have an appointed agent to represent and protect their interests under the terms of the Owner Lease, Terms of Service, and other related documents.
Solar cell lessors may assemble to discuss and decide material matters relating to their purchases and the lease contract. At his option, any lessor may appoint a third party agent or trustee.
Installation Delays
For solar projects in general the risk of installation delays is quite low. We believe we allow plenty of time to complete the installation of the PV systems so that it is possible to pay Lease Rental at the end of the first month following the crowdsale ends. It is possible that the EPC partner experiences significant issues or delays that could hamper payment of project lease rental to Sun Exchange which would impact the amount of lease rental you receive under the Owners Agreement, although in all such circumstances the lease period will only begin once the solar plant has been commissioned and is fully operational.
In some circumstances, we have the right to donate certain rental income from your solar cells to a charity that you select, instead of paying it to you.
Each nation and jurisdiction has its own laws and regulations governing the offering of financial and other products which provide the purchaser to earn income over time.
In the event we determine that the sale of solar cells and subsequent payment of lease rental to you in excess of your original purchase price would require us to register the sale as a securities offering, or seek an exemption under securities laws or regulations in your jurisdiction, we have the option to not pay pay you rental income in excess of your original solar cells purchase price, and instead donate only those excess rental amounts to a charity you select.
Load-Shedding
South Africa sometimes suffers rolling power cuts when the national grid is under stress. When these events occur the solar power production from your solar cells is disconnected for safety and technical reasons. These events are rare and unpredictable, but when they do happen, power losses for two to four hours can be expected. The rental forecasts that we provide do not take into consideration load-shedding events as it is impossible to predict the frequency of these events. There are however monthly minimum charges to the offtaker, so even in the event of a total failure of the grid, half of the predicted power in any given month will be billed.