Jury still out on blockchain energy start-up Power Ledger

After a strong start to life, blockchain energy start-up Power Ledger is yet to generate profits.

Power Ledger chair Jemma Green, pictured in 2016 when the company launched. Picture: Justin Benson-Cooper

How sweet and simple the dream was – “democratising” the electricity grid by using the power of blockchain to let consumers trade renewable energy.

That was 2016, and Power Ledger, founded by ex-JPMorgan banker Jemma Green, had hit its stride. The Perth-based firm enjoyed the patronage of billionaire entrepreneur Richard Branson and Silicon Valley venture capitalist Bill Tai. Elon Musk was said to be interested.

Green, soon to be made the City of Perth’s deputy lord mayor, had founded a wildly popular company. In a sweetly-timed deal – fed by a global bout of crypto­mania – Power Ledger raised $34m in the country’s biggest initial coin offering. In exchange for its POWR token, which would be used on its energy trading platform, Power Ledger investors handed over $6m in bitcoin, $10.8m in ethereum and $400,000 in litecoin.

A trial with Origin Energy looked promising.

Half a decade on, however, the company is still to generate a profit.

Confidential accounts for the year ending June 30, obtained by The Australian, show a loss before capital gains of $5.2m, with $250,000 in commercial revenue from trials and licence fees dwarfed by $7.1m in costs.

And while the pre-tax profit of almost $32m looks worthy of celebration, a closer examination reveals it was powered by a $37.2m capital gain on the sale of some of the crypto assets.

Green tells The Australian that this is nothing unusual. Power Ledger has been investing in markets to demonstrate its technology and is “very pleased” with the progress. “We are in a phase akin to pre-Netflix in energy markets and we are executing our plans consistent with our understanding and expectations of the market,” Green, who has spent years on energy and blockchain advisory board, says.

Power Ledger is working with one of the largest energy retailers in France, another in Europe, and in a “world first”, putting renewable energy certificates on the blockchain with the biggest registry in the US.

In to a separate memo sent to shareholders, updating the group’s finances to the end of September, Green writes that Power Ledger has more than 20 clients in 10 countries.

But the update also notes that many of the current projects are “smaller scale demonstration projects”, and some are “earlier stage commercial deployments with scale anticipated as the distributed energy markets mature”.

“Consistent with information previously provided, the company is in (sic) active product and market development stage with a focus on acquisition of users of the platform,” Green says. “Therefore, it is not anticipating to be cashflow-positive from normal operating activities in the next three years.”

The Power Ledger platform, at its simplest, adds a further option for consumers who have installed solar panels – they can already use the electricity, store it in a battery, or sell it back to the grid. The addition is the ability to sell the power directly to another consumer without having to go through a middleman.

Power Ledger founder Jemma Green with billionaire entrepreneur Richard Branson.

The commercial pitch is best left to venture capitalist Tai, the global ambassador and adviser to Power Ledger who also co-founded Mai Tai, a kiteboarding retreat and community whose members have net worth of $US7bn ($9.7bn), according to Forbes.

Tai says in his two-minute YouTube pitch that with 22 IPOs from early-stage investments, the world is moving from an economy dependent on oil to dependence on electricity.

“There’s a supply and demand mismatch almost at all times, everywhere on the planet, so if you can be that intermediary layer it has value,” he says.

“I don’t know what percentage of the transaction that will be, but I do know from all the companies I’ve funded that you will always be able to charge for it if you drive fundamental value to your customers.

“And then if you can do it at scale, you will have a really big company.”

While Power Ledger’s 2017 initial coin offering predated Tai’s pitch, it presented the same blue-sky narrative, with the POWR tokens issued to investors to access the platform.

The take-up surpassed all expectations. The $34m in proceeds was evenly split between a pre-sale and a main sale, with the value of the tokens spiking at one point to an extraordinary $US800m ($1.1bn). Even now they’re worth about $300m.

Power Ledger’s momentum continued through 2018. Green was crowned the winner in a pitching competition at Branson’s Extreme Tech Challenge on his private Necker Island in the Caribbean. After the event, the host gave her a copy of his book. Inside, he’d inscribed: “Dear Jemma, may you power the world.”

EY crowned her the professional services firm’s fintech entrepreneur of the year.

But then, as the year closed out, Green took offence at two articles published in the Australian Financial Review about the promotion of POWR, alleging in West Australian Supreme Court filings that the newspaper had implied she misled the public and investors in her “creation, promotion and operation” of Power Ledger.

Last Thursday, Supreme Court judge Rene le Miere ruled in favour of Green, awarding her $400,000 in damages and costs, expected to run over $1m.

During the trial, Justice le Miere rejected an attempt from Nine Entertainment, the publisher of the AFR, to throw out the case because Green had failed to comply with document disclosure orders in relation to the “Elon Musk rumour”. The speculation, published online in HuffPost, claimed Musk had approached Green to discuss his interest in Power Ledger. While Green denied it, lawyers for Nine alleged that she had ­failed to take reasonable steps to set the record straight on the Musk rumour during the Power Ledger initial coin offering.

Silicon Valley venture capitalist Bill Tai. Picture: Rob Maccoll

Justice le Miere said in last week’s judgment that the evidence did not show Green was responsible for the erroneous sentence, just that she failed to correct it for some time.

“It has not been established that the erroneous sentence misled anyone to invest in Power Ledger or POWR tokens,” he wrote in the judgement. “It has not been established that Dr Green had any intent to mislead investors or that her conduct was culpably negligent.”

Even without its legal distractions, the energy market has proven to be a tough nut to crack for Power Ledger. At first, it was promising. Origin had signed off on a technical trial using the platform and anonymised customer data to see how the technology would work across a regulated energy network.

An Origin spokeswoman confirmed the energy giant ran a “desktop trial but we decided not to progress the technology”.

Green, in an in-house article published one year later, said Power Ledger saw the project as a success because it showed the application of agreed trading rules, buying and selling of energy at varying rates and tariffs between different types of customers, and the recording of the data on the blockchain.

A range of factors “contributed to what (we) felt at the time was a setback”.

Origin, for its part, decided to focus on further development of its home energy management and distributed energy platform, and regulatory challenges also played a role.

“The concept of peer-to-peer trading isn’t forbidden by existing regulations; the fact is, peer-to-peer trading isn’t even considered by the regulations, meaning the ‘how to’ rules are yet to be written,” Green said.

“In an industry as heavily regulated as the energy industry, rules are king.

“We were proposing a change to the rules when we weren’t even invited to the game.”

Tony Wood, energy program director at the Grattan Institute, says the underlying problem might be that peer-to-peer energy trading on the blockchain “is just too complicated”.

“The telecommunications industry has opened up access to the internet through a mobile phone, which has evolved into a mobile communications device,” Wood says.

“With energy, yes, you can have rooftop solar and store it in a battery, but it hasn’t led to anything else to enhance your life.”

Green, however, says the markets for Power Ledger products are developing and there are favourable changes to the regulatory environment occurring in “multiple” jurisdictions.

Profitability, she says, depends on how quickly markets and regulation develop, and the rate of adoption of the company’s products. The near-term focus is on brand recognition and product and market development.

But will Power Ledger’s cash and crypto assets last the distance? Green says they will, because the cash-burn rate is “modest” compared to the company’s treasury position.

“Blockchain, crypto and distributed energy markets are all new technologies and applying these to a very old world and conservative markets can take time,” she says.

“Our progress is consistent with our expectations of progress to date and we are very excited about the future of the business.”