Whitepaper 1.0
SURGE: A Decentralized Electricity Trading Marketplace
Authors:
Joseph Lee, David Gong, Anar Amarjagal, Ranadip Saha
Revisions:
Version 1: November 14, 2021
Disclaimer:
Information contained herein is subject to change. SURGE is not an investment product. SURGE is not intended in its design or distribution to be utilized as a form of investment, speculation, or as a financial product. No information herein constitutes financial advice. PLEASE do your OWN research before participating in SURGE . Neither the SURGE team nor any of its representative affiliates will ever solicit investment advice.
Abstract
This paper introduces SURGE, a decentralized electricity trading marketplace, positioned at the intersection of blockchain technology, decentralized finance (DeFi), government energy policy, and traditional infrastructure finance to yield energy security, industrial development, community development and financial democracy. SURGE , through the construction of the power plant, electric power generation, and the development of a blockchain-based electricity trading marketplace, presents a solution to the energy trilemma, which include energy security, equity, and sustainability, starting with the nation of Mongolia.
1) Mission and Vision
In the story of traditional economics, there has unequivocally existed a bifurcation that has misguided the economic characters in their pursuit for unlimited prosperity. Although there exist two paths, we continue to journey on the singular path of financial exclusion due to infrastructure and systemic inefficiencies, by default, rendering the second path, financial inclusion, obsolete. Existing infrastructure simply does not provide the means for equal access to opportunities that enhance the pursuit of realizing one’s economic aspirations.
Economic inequality in today’s world and throughout history has been further exacerbated by the disparity in political power, directly resulting from unequal access to the tools to convert our time, intellect, labor, and other resources into a productive economic output.
As proponents of equal opportunity and of financial inclusion, the founders of SURGE believe that each person or collectively a community or a nation, is endowed with resources, at its disposal, to produce an economic output. As economic agents, we endeavor to convert scarce resources into economically valuable output in order to satisfy our economic aspirations.
SURGE aims to aid in this conversion process by applying innovations in distributed ledger technology to the development and operation of a traditional infrastructure project, specifically power generation, in order to deliver a more robust, sustainable, and fair economic system.
2) Introduction
Existing energy infrastructure is known and time tested. For traditional stakeholders to make the costly and time consuming conversion to the blockchain, a demonstration of scalability in practical, real world application is required for this still nascent technology. Although we have seen numerous successful case studies in the last few years, broad-based mass adoption of blockchain technology effectively requires evidence of scalability.
Bitcoin, the world’s first public blockchain, is also the first practical use case of blockchain technology, proffering a decentralized financial infrastructure to securely and efficiently send digital cash payments. Enabling open access to financial services, Bitcoin has championed financial inclusion serving both marginalized and privileged members of the legacy financial system (Nakamoto).
With the introduction of Ethereum, the world’s first turing-complete general purpose smart contract platform, hosting decentralized applications (dApps) in finance, governance, healthcare, agriculture, mining, entertainment and gaming, among other sectors, has become readily available. The backbone of decentralized finance (DeFi), Ethereum, as a blockchain infrastructure, utilizes smart contracts to run applications on the network.
To date, over 3000 decentralized applications (dApps) are built on top of the Ethereum blockchain. If Bitcoin’s application of blockchain technology was targeted at the financial sector, Ethereum enables businesses to capitalize on the opportunities of blockchain’s utility upon implementation in broader industry. Be it for faster payments at a fraction of the cost of traditional systems or democratizing access to services for individuals who simply miss out or are otherwise excluded in basic services offered in legacy systems.
Public blockchains like Ethereum are the foundation on which SURGE can build on to improve the energy infrastructure and tangibly carry out our Mission and Vision to efficiently and fairly convert the factors of production to yield productive economic output. Using an existing, time tested blockchain infrastructure, SURGE applies decentralized technological innovation to the energy sector. SURGE automates the tedious and repetitive processes, logistics, cross-border payments, among other manual tasks by delegating such responsibilities to the blockchain.
As such, the founders of SURGE have identified and concretized the following three key areas of sustainable and independent energy production and distribution for blockchain implementation to enhance the existing energy infrastructure.
Energy Security
Energy Equity
Energy Sustainability
3) Problem
Sustainable energy production is a prerequisite for a nation’s economic prosperity and competitive position in the global geopolitical sphere. According to an Oliver Wyman annual report on energy sustainability, the World Energy Council has identified and defined three core challenges faced by countries in their pursuit of sustainable energy production. Although the energy challenges faced by each nation in the world are subject to vary, unique and complex in nature, there exists shared, common challenges, also known as the Energy Trilemma.
3.1 Energy Security
The International Energy Agency defines Energy security as the “uninterrupted availability of energy at an affordable price, measured in relation to the vulnerability of an energy system” (IEA). Research further conducted by the United Nations, along with the World Bank and the World Energy Council, also suggests that energy security is the ability for an energy system to recover from system shocks. It is a measure of vulnerability that determines a nation’s level of energy risks.
The vulnerability of an energy system can be measured in both the short term and long term. In the short term, much focus is placed on the ability of the energy system to promptly react to sudden changes in the supply-demand balance of energy. In the long run, vulnerability is measured based on how timely the investments to supply energy are in line with economic development and environmental needs.
Countries source energy to power its modern cities, retail and industrial operations, digital technologies, and communications to name a few. If a nation has the ability to independently and sustainably produce energy for domestic consumption without relying on other nations, at times incurring an energy surplus to export to other countries, it is considered of low vulnerability or simply put, energy secure. The United States, Russia, Canada, China, and Norway are among a list of countries that are energy secure
Conversely, countries that are dependent on other nations or external sources of energy for power generation are considered to be of high vulnerability. Nations of high vulnerability do not have the means for independent power generation, requiring support in the form of energy imports from international allies, generally countries with an energy surplus. Countries at most risk of energy security include countries commonly known for severe political conflict, frequent violence, or extreme poverty that further weakens already-fragile governments, including Sierra Leone and Gambia..
3.1.1 Energy Security: Mongolia
Mongolia is a nation that is highly dependent on foreign sources of energy without a domestic means of power generation thereby exhibiting high vulnerability. Mongolia’s electric infrastructure consists of three main grids (Western, Central, and Eastern grid systems).
The Western grid provides three provinces and its 22 soums with imported electricity from Russia. The peak load of the imported electricity reaches 8.0 MW. The Central grid is made up of five heat and electricity power plants, interconnected by a 220 kV line with the Russian-Siberian grid, one transmission network, and four distribution networks. The grid supplies power to the cities of Ulaanbaatar, Darkhan, and Erdenet and to the centers of 13 provinces (about 150 soums). The total power generation capacity of the central grid is, on average, 680 MW or 840 MW at maximum if you include the potential supplies from Russia. The total load currently amounts to 740 MW. The Eastern Energy System is based on the 36 MW Power Plant, supplying electric power to the province and soums of Dornod and Sukhbaatar.
The dependency on Russia for electric power hinders Mongolia’s short and long term energy security. Even with improvements, Mongolia’s coal-power-heat supply system is in poor condition, and unable to meet the basic supply requirements of industrial and commercial enterprises.
3.2 Energy Equity
Energy equity “assesses a country’s ability to provide universal access to affordable, fairly priced and abundant energy for domestic and commercial use” (World Energy Trilemma Index).
Indeed, the global energy equity crisis is well recognized. There exists also a positive correlation between wealth and energy equity. According to the American Council for Energy Efficient Economy, the problem of energy equity is hardest felt by low-income groups. More than two-thirds of low-income households live with a high energy burden in the United States, incurring higher energy burdens, on average, than other households (ACEEA).
3.2.1 Energy Equity: Mongolia
Mongolia’s power generation systems incur heavy financial losses due to faultily metered or unmetered consumption in the electricity distribution system, which are in the excess of 25%. Poor bill collection and revenue management practices cause further financial losses. Although the financial situation has improved substantially since mid-1996, it remains precarious, due to the high system losses, revenue collection difficulties and insufficient tariff levels (especially for heat) to cover the service cost. Financial information systems are insufficient and/or inappropriate, and skills and procedures need to be developed to undertake proper financial planning. Hardware, software and skills in Mongolia are inadequate for efficient operation of the main power generation and transmission systems, and interfaces with distribution systems.
3.3 Energy Sustainability
Energy sustainability “represents the transition of a country’s energy system towards mitigating and avoiding potential environmental harm and climate change impacts” (World Energy Trilemma Index).
3.3.1 Energy Sustainability: Mongolia
Mongolia’s energy system is dependent on Mongolia’s vast coal deposits. In 2018, coal-fired combined heat and power (CHP) plants constituted 93% of total power generation in the country’s Central grid, which represents 80% of the domestic electricity demand. Coal fired power plants create severe air pollution in the country, with all the accompanying health problems. According to the World Health Organization (WHO), annual mean particulate matter of less than 2.5 micrometers in diameter (PM2.5) in Ulaanbaatar is 6–10 times higher than the recommended safe levels of the WHO air quality guidelines. The pollution levels are worse during winter months, when the temperature can go below minus 40 degree Celsius.
The largest contributor to greenhouse gas (GHG) emissions in Mongolia is the energy sector, accounting for about two thirds of the country’s GHG emissions. According to Mongolia’s nationally determined contributions, GHG emissions will increase to 51.5 million tons of carbon dioxide (mtCO2) by 2030 in the business-as-usual scenario, with energy’s share of total emissions increasing to 81.5%. The country targets reducing GHG emissions by 7.3 mtCO2 by 2030 through emission reductions from power generation (4.9 mtCO2), industry (0.7 mtCO2), and transportation (1.7 mtCO2).
In order to promote sustainable energy in Mongolia, the Government has targeted a share of renewable energy in total installed capacity of 20% by 2023 and 30% by 2030 as announced in the State Policy on Energy, 2015–2030. Currently, the country's wind and solar power potential is estimated to be equivalent to 2,600 gigawatts (GW) of installed capacity or 5,457 terawatt-hours of clean electricity production per year.
4) Solution
Energy sustainability is a prerequisite for achieving economic prosperity, thus first requiring the solving of the problems pertaining to energy security, equity, and sustainability by implementing distributed ledger technology to establish an electricity-token connection. SURGE not only provides the means of converting the economic factors of production to electric power in token form, but also for delivering the generated power to those who require it in a timely and efficient manner. Starting with Mongolia, SURGE fosters energy inclusion and financial inclusion for its users, to further propagate industrial, commercial, and community development. SURGE balances the energy trilemma by offering the following solutions to the three aforementioned problems:
1. Energy Security
The SURGE Power Plant provides the means for independent and sustainable power generation in Mongolia, for a region that has been dependent on energy from Russia and China.
2. Energy Affordability
The SURGE utility token, WATT, is used to exchange electricity that is produced from the power plant at a discounted rate.
3. Energy Sustainability
The SURGE Marketplace allows for the peer to peer (P2P) trading of electricity where the price of each watt of electricity is determined by market supply and demand. This system offers electricity from a wide range of potential energy sources and enables the efficient allocation of electricity directly from network peers who are in a state of energy abundance to those who require additional electricity without replying on a single provider,
4.1 SURGE Power Plant
A power plant is simply an industrial facility or infrastructure that converts energy containing raw materials into electrical energy. For the SURGE Power Plant, it is the conversion of chemical energy from coal into electrical energy.
The following are essential elements for a successful power plant operation:
1. Raw Energy Source:
Stable (price, quantity and transportation), cost efficient coal supply
2. Connection to Users:
Interconnected Grid infrastructure
3. Ready Users:
Where will the revenues come from?
The SURGE Power Plant meets all of the essential elements for a successful power plant operation and becomes the means for providing energy security to the west Mongolia region.
1. Raw Energy Source:
The power plant sources a stable coal supply from the Khotgor Shanaga Coal Mine, a JORC compliant reserve (meets the highest standard for public reporting of mineral resources and ore reserves), operated by the Korean Government.
2. Connection to Users:
SURGE Power plant site utilizes an existing grid network of interconnected power grids to connect Uvs aimag, Bayan-Ulgii, and Khovd provinces (aimag). Table below conveys the annual energy consumption requirements per province.
3. Ready Users:
Existing mines and operations, coupled with the local population spanning the three provinces in the region will benefit greatly from the energy produced by the power plant. Table below conveys the amount of energy that is required to keep the mines and plants afloat.
SURGE Power Plant is covered under a 30 year Power Purchase Agreement or PPA from the Mongolian central government on a “take or pay” basis, which guarantees a minimum price on 100% of the electricity generated from the powerplant. As long as the power plant is built and commences operation, the revenues are guaranteed. Furthermore, because of the Chinese government's regional strategy, the construction of a plant is covered by a Chinese government company, Sinosure.
Electricity produced from the power plant will be utilized for providing access to reliable, affordable, and sustainable electricity to facilities within the vicinity of the powerplant. The distribution of electricity will be facilitated through the WATT token that is the electricity-token connection.
4.1.2 Location
The SURGE Power Plant is located in Bukhmurun Soum of Uvs Province, 1,016 km from Ulaanbaatar, in the north western region of Mongolia. The region is rich in iron ore and coal, but due to infrastructure challenges, it lacks the economic development that should accompany such mineral abundance. Consequently, the region is supplied with electricity from China and Russia.
The electricity generated by SURGE, will allow the three surrounding provinces, Uvs Aimag, Bayan Ulgii, and Khovd Aimag to receive electricity to support otherwise stifled industrial development.
4.2 WATT Token Economy
SURGE was launched to enhance the infrastructure for electric power generation and decentralize the electricity trading market, enabling easier and wider-ranging access to electric power through the tokenization of electricity. The value of WATT is secured by physical electricity that is generated from the power plant and its utility enables the conversion of a digital token to physical electricity and vice versa. SURGE runs a two-token system in order to safeguard the conversion of electricity production to valuable economic output that supports regional, commercial, and industrial growth.
4.2.1 WATT Token
WATT token is a utility token linked to electricity and represents the physical electric power to be produced from all of SURGE's power sources, starting with the SURGE Power Plant. This token will be listed on digital asset exchanges, both centralized and decentralized, championing financial inclusion and exhibiting a wide array of DeFi-centric features, including P2P payments, staking, and cross-chain bridging, to name a few.
The total supply of WATT tokens is determined by the power generation capacity of the SURGE Power Plant, which is 60MW. Each WATT token represents 1/10 of a watt of electricity so in sum, 600,000,000 WATT tokens will be issued at the token generation event.
4.2.2 Stablecoin: W-USD
An algorithmic stablecoin, W-USD, is issued to transact for physical electricity produced from the power plant through the WATT Marketplace (see: “4.3 WATT Marketplace”). W-USD tracks the price of 1 US Dollar (USD), remaining constant at 1 and eliminating volatility so as to provide a convenient means of transacting electricity without losing purchasing power that one may incur if a volatile digital asset were used instead.
The process of minting W-USD requires the over-collateralization of WATT in relation to W-USD at a collateralization ratio (C-ratio) of 6 to 1. WATT and W-USD exhibit a symbiotic relationship where WATT enables the minting of W-USD, while W-USD safeguards the value of the WATT, as expressed through the C-ratio, which fluctuates overtime due to the volatility of WATT.
If the C-ratio rises above 600%, users can either mint more W-USD or simply withdraw the proportionate amount of WATT. Conversely, if the C-ratio drops below 600%, a “Liquidation” event is triggered and the user is given a 3 day grace period to either burn W-USD proportionate to the decrease of the C-ratio or add more WATT as collateral to adjust the C-ratio to its original state of 600%. If the user’s C-ratio is still below the target C-Ratio of 600%% even after the 3 day grace period, their collateralized WATT is subject to liquidation.
W-USD will be introduced upon the completion of the SURGE Power Plant and the technical buildout of the WATT Marketplace. The precise date of launch will be announced through the SURGE Telegram community channels.
4.2.3 WATT Token Allocation
4.3 WATT Marketplace
The common practice for buying electric power is traditionally done through a utility company that serves as a central, single source of electric power distribution for a specific region, charging fees for the transmission of electric power that is generated through a power plant. Under this model for trading electricity, there is one producer who sells power to many consumers or buyers.
WATT Marketplace is a blockchain based Peer-to-Peer (P2P) Electricity Trading Platform established as an instrument of financial inclusion, focused on the trading of electricity. The marketplace will facilitate trading of electricity produced from the Mongolia government guaranteed SURGE Power Plant, and the token layer placed on top, will allow for the formation of a transparent, equally accessible electricity market. Starting with the SURGE Power Plant, all approved producers of electric power will be able to sell their electricity through the WATT marketplace. The participants of the WATT Marketplace constitute “Prosumers” and “Consumers”. Prosumers are both producers and consumers (buyer and seller) of electric power, whilst Consumers are simply buyers.
The marketplace facilitates the trade (purchase and sale) of electricity directly between producers and consumers, peer-to-peer (P2P) and without the need for an intermediary. P2P electricity trading enables energy generators, both large scale power plants and local energy producers, to sell their electricity at the price in which the consumers are willing to pay. By distributing the source of electric power and growing adoption of renewable means of independent power generation, such as solar and wind, energy consumers are not reliant on a single energy producer. It also keeps the region resilient to power outages in emergencies, and it can improve the energy access in some cases W-USD (see: “4.2.2 Stablecoin: W-USD) is used to transact electricity and the rate of exchange is determined solely by market supply and demand.
The marketplace utilizes existing power grids to distribute electricity and WATT becomes the means to verify ownership and facilitate the trading of electricity. Starting with the greater Mongolia region and later, extending to the global electricity market, the electricity-token connection will be established for all electric power generated from the consortium of SURGE energy producers in the form of WATT token.
Before the power plant can list electric power for sale on the WATT Marketplace, we first require the completion of the construction of the SURGE Power Plant and then power generation. As such, the launch of the Marketplace will be closely aligned with the power plant construction’s completion. The SURGE team will disseminate any and all pertinent information pertaining to the precise launch date of the WATT Marketplace through the SURGE Telegram community channels.
5) Partnerships
In addition to easily fulfilling the essential elements required for a successful power plant operation, SURGE's success is underwritten by powerful partnerships. Central governments of Korea, Mongolia and China are involved in and supporting every component of this project.
1. Government of the Republic of Korea:
Ministry of Trade Industry and Energy (MOTIE) as owner/operator of the Khtoghor Shanaga Coal- SURGE's coal supply.
2. Government of Mongolia:
The revenues of the powerplant are guaranteed for 30 years, (POWER PURCHASE AGREEMENT) through the Western Region Energy Security policy of the central government.
3. Government of the People’s Republic of China:
Debt Finance Provider: SinoSure
EPC Group: Beijing Shougang (BSIET)
As the project supports all central and local government objectives for energy security, this is a rare cryptocurrency and blockchain project that is receiving government support. Additional partnerships with power plants are also being discussed to remedy energy infrastructure challenges prevalent in legacy systems all across the world.
5.1 Conducive Energy Policy
Blockchain technology, used in the proper way unequivocally yields copious social and economic benefits. As such, to truly reap the benefits of a decentralized electricity trading system, it is important for policy makers to propose and implement regulation that is conducive to the continued, sustainable development of the blockchain industry thereby the growth of the SURGE ecosystem. As a team composed of the world’s foremost experts in energy policy, mining, and blockchain technology, SURGE aims to aid policy makers in the creation of “good regulation”.
6) Roadmap
Watt Token Pre-sale
Watt Token IEO- Mongolia
Watt Token International Sale
Exchange Listing 1 - International (before end of 2021)
Commence SURGE Power Plant Financing Technical Report
Exchange Listing 2 - International
Cooperation Agreement with the Republic of Korea Government
Partnership Announcement 1
Exchange Listing 3 - International
Cooperation Agreement with the Mongolian Government
Feasibility Study Completion
Power Plant Construction Updates
Partnership Announcement 2
7) Overview
SURGE combines cutting edge innovation in distributed ledger technology with the traditional energy infrastructure to present a solution to the energy trilemma currently plaguing commercial and industrial development in Mongolia. The development of the SURGE Power Plant, enables independent electric power generation and reduces the nation’s risk or vulnerability to energy security. SURGE, through the tokenization of electricity featuring a decentralized electricity trading marketplace, then solves the cost, distribution, and sustainability problems prevalent across the energy sector.
8) References
“The Energy Trilemma: Glasgow Science Centre.”The Energy Trilemma | Glasgow Science Centre, 2021“Energy – United Nations Sustainable Development.”United Nations, 2021Hertig, Alyssa. “Which Crypto Projects Are Based on Ethereum?”CoinDesk Latest Headlines RSS, 2021“Mongolia Energy Situation.”Energypedia, 2021“Peer-to-Peer Electricity Trading.”International Renewable Energy Agency, 2020Reiff, Nathan. “Bitcoin vs. Ethereum: What's the Difference?”Investopedia, May 2021“UN SDG Indicators.”United Nations, 2019“Six Reasons Why Ethereum Has Intrinsic Value.”Thomson Reuters, 2021“Understanding Energy Affordability.”ACEEE Research and Future Research,2019“Unlocking Mongolia's Rich Renewable Energy Potential.”Asian Development Bank, 2020“World Energy Trilemma Index 2019.”World Energy Council, 2019“The World Energy Trilemma.”Oliver Wyman - Impact-Driven Strategy Advisors, 2016Daniel, Will. “The Fundamental Value of Bitcoin Is Negative Given Its Environmental Impact, Says 'Dr. Doom' Economist Nouriel Roubini.”Business Insider, 2021Apostolicas, Paul. “Explaining Ethereum: Interview with Vitalik Buterin (Part 1).”Harvard International Review, 2021S.J. Ware. “How Bitcoin Improves Financial Access and Inclusion.”Nasdaq, 2021Metcalf, Gilbert E. “The Economics of Energy Security - NBER.”The Economics of Energy Security, 2013
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