To be upfront, I am consulting in the finance department of a competitor (although a different target market segment).
The Sun Exchange allows the crowd to get returns, with a positive impact by provide cash to finance projects. Given the declining solar equipment prices and increasing grid prices, the potential returns in this market remain attractive despite increasing competition.
The Return
While returns are attractive, the competition is forcing companies to think more creatively about their proposition. Sun Exchange has done this by offering low entry (R69) and even a bitcoin alternative to the ZAR.
Glancing through their project history, there have been 10 projects financed and one currently available with targeted ROI of 10%+ . Considering that a typical IRR is 25%-30%, someone is taking a huge slice here. It’s still an okay return for SA and I wouldn’t have direct access to this to the 25%+, so perhaps this point is moot.
That said the lovely pie chart seem to imply 80%’ish of the rental comes to the investor. That is after fees/profit cuts. There are loads of costs and risks, associated, but considering the heavy handed ethical leveraging (see below), they could be a bit more transparent themselves. That, or they are just doing projects not attractive to other companies.
Compared to Fedgroup
Perhaps a fairer comparison is to the Fedgroup option, which gives a return around 10%, but promotes that the investment can be written off against taxable income it makes it much more attractive, but with a R5,000 entry point, it is not nearly as accessible as Sun Exchange’s R69.
The Sun Exchange investment potentially can be written off under Section 12, but this is not a selling point promoted within the collateral that I read.
The Platform
The platform itself is well designed and easy to sign up, with payment in Bitcoin as it is designed to be global with a heavy South African focus.
The only usability issue I found is that it didn’t pre-populate my details, when I clicked buy. So I had to re-enter some information I had just entered to create my account. But this is very minor.
The Investment
Considering my frustration with the high entry point ($1,000+) of many similar operations, it is refreshing to see a R69 (£4/$5) per cell. This becomes a very inclusive offering with the alternative of BTC 0.00045695 per cell when I was looking.
The only available project was for the Hoedspruit Spar with a targeted IRR of 11.63% for 20 years.
- There are 41,000ish cells available @ R69 = R2.8m for 203.8KW project.
- The IRR assumes 7.5% increase in rental price annually. With R5.46 on first year expected to rise to R221 over the 20 years. Given the current state of Eskom, this is probably secure for the next few years at least.
- 0.92c per kWh, with 82% to rent (me), 15% to service fee and 3% to insurance.
I found the disclaimer tagged on at the end interesting:
When it came to payment there was a 5.4% credit card fee for 1 panel which dropped to 3.9% when I enter 5 panels. I assume there is a fixed fee and % at play. Bank transfer in ZAR is free.
BTC had a 7minute window, so I assume is live. It also gives the option of accumulating returns in ZAR or BTC, regardless of what the investment currency was.
Lastly, it gave the opportunity to donate a % of rental to a nominated charity, in this case the Endangered Wildlife trust, from 0% to 100%. As this was a test, I went with R69 for one cell and donated the entire return (I wonder if I could write this off for tax purposes and is something like this a more effective way to give donations as it has a long tail).
My Closing Thoughts
It’s great to see a company in South Africa aligning with the likes of Trine (Sweden) and Abundance (UK). I would like to turn into more of an exchange, where people can bring projects from one side, then the work is bid for, this may increase the due diligence cost.
I would also like to see a resale (secondary) market tagged on, but I know from Upgrowth that the regulatory requirements for this are often more complex than the primary market. Until either of these, it is not an exchange in my view.
The Sun Exchange is an inclusive option for those looking for alternative investments to top up their core wealth plan.
