DavidVorick
commented
1 year ago Participating in Glow with a Solar Installation
Please note that though I have consulted with tax lawyers, I am not a lawyer myself. No part of this post constitutes legal advice, and any Glow participant should consult their own lawyers when making decisions.
The purpose of the Glow protocol is to incentivize the construction of solar to offset dirty energy produced by the grid. As such, many solar installations can increase their overall profitability by participating in Glow.
Solar installations receive two new streams of income when participating in the Glow protocol. They receive weekly cash rewards based on the number of carbon credits they produce, and they receive weekly Glow token rewards based on the value of their electricty.
The biggest factor to consider when joining Glow is the Glow protocol fee. Conceptually, the fee represents the value of all of the electricity that will be produced by the solar installation while it is operational. The size of the fee therefore depends on the value of the electricity. For most installations, the protocol fee is slightly less than the construction costs.
The Glow protocol fee is expensive, however the protocol is structured to guarantee that the average solar installation will receive at least as much in rewards as was paid in protocol fees. Not every installation gets the same amount, but on average they all get their money back and more.
Solar installations in the United States have an even bigger advantage as the Glow protocol fee qualifies for Investment Tax Credits, effectively reducing the cost of the fee by 30%.
When Glow receives the protocol fee, the money is put into an escrowed incentive pool that is used to provide weekly cash rewards to solar installations based on their carbon credit production. Installations that produce an above average amount of carbon credits will receive a larger share of the incentive pool, and therefore will receive more cash rewards than was paid for their protocol fee.
Solar installations receive weekly Glow token rewards in addition to weekly cash rewards. For solar installations that produce a below average amount of carbon credits, the Glow token rewards will often make up the difference, enabling the installation to still be more profitable compared to not participating in Glow.
Solar installations in the United States are not required to pay taxes on their Glow token rewards, because the Glow tokens qualify under rebate tax law. The exception to this is if the total value of the Glow token rewards exceeds the cost of the protocol fee, at which point the owner will owe capital gains taxes. This of course would be an excellent outcome for the owner.
Obligations
Because Glow takes an up-front protocol fee, installation owners are not encumbered by the protocol in any way. The protocol fee is non-refundable, and rewards will stop without a refund if the solar installation is removed, but no further penalties will be applied.
This means that land owners and home owners can decide to remove the solar at any point. This is particularly valuable when selling or upgrading property, because the solar installation is not restricting what the owner or new buyer is allowed to do with the property.
Duration
Solar installations typically join the Glow protocol for a 25 year duration, though they have the flexibility to choose any duration up to the expected lifespan of the installation.
The chosen duration impacts the size of the protocol fee, because the installation owner needs to purchase all of the electricity forwards for the duration of the installation's participation in the Glow protocol.
It typically makes sense to pick the longest possible duration when participating in Glow. This is because the manufacturing and construction of a solar installation incurs a small amount of carbon debt that needs to be paid back over the participation duration. A longer duration means less of the debt needs to be paid back each year, enabling the owner to collect more rewards each year.
Furthermore, the price of the electricity forwards is discounted based on risk and the time value of money, and therefore each additional year is materially cheaper than the previous.
Cash Reward Schedule
The protocol fees get aggregated into an incentive pool. The incentive pool is divided into weeks, with a certain amount of money being paid out to solar installations each week.
Each individual protocol fee gets distributed over 208 weeks, or roughly 4 years. The 208 weeks begins as soon as the protocol fee is paid. The first 16 weeks get none of the protocol fee, and the remaining 192 weeks each get an equal portion of the protocol fee.
A solar installation's protocol fee gets paid out over 208 weeks regardless of the installation's participation duration. This is mainly done to reduce the total opportunity cost of locking capital into the Glow protocol.
A consequence of this is that the reward for each carbon credit produced will be disproportionately high for the first 25 or so years of the Glow protocol, with the first 4 years being the most substantially disproportionate. In essense, solar installations that join Glow at the beginning of the life of the protocol will earn back their entire protocol fee in just 4 years, and then continue earning more rewards for the next 21 years.
This is because when Glow is new, there are no legacy solar installations to soak up the protocol fee. All of the rewards go to newer installations, because newer installations are all that exist. When Glow is 25 years old, new installations will have their protocol fee divided among solar installations that have been participating in Glow for up to 25 years.
This effect resets every time that the total amount of solar on Glow grows significantly. If the Glow protocol doubles in size every 4 years, this disproportionate effect is essentially always active, and the earliest solar installations will be able to collect the full value of their protocol fee every 4 years for their full 25 year participation in Glow.
Incentive Bonuses
When Glow launches, there will be very few Glow tokens in circulation. This is a natural consequence of inflation based cryptocurrency, but it often causes undesirable price volatility.
Glow has a feature called 'early liquidity' to help mitigate the early volatility. Glow users are able to purchase Glow tokens from a solidity gadget to generate liquidity. Purchases are made in USDC.
The USDC that gets collected by the early liquidity gadget is added to the incentive pool that pays out solar installations for producing carbon credits. This gives early solar installations yet another advantage, because early interest in the Glow token will prop up the size of the cash rewards.
Glow Token Rewards
The Glow token is an inflationary cryptocurrency. Every week, 230,000 new Glow tokens are minted and put into circulation. 175,000 of those tokens are given to solar installations as a reward for participating in the Glow protocol.
Solar installations receive Glow tokens based on the size of their protocol fee for that week. For example, a solar installation that contributed 10% of the value to the week 20 rewards of the incentive pool will receive 17,500 Glow tokens on week 20.
Solar installations that pay a larger protocol fee will earn more Glow tokens. Additionally, because the Glow token rewards are based on the size of the protocol fee and nothing else, a solar installation will continue to earn Glow token rewards even if it stops producing electricity.
Since all protocol fees are distributed over a period of 208 weeks, all solar installations will earn their Glow token rewards over that period. After the 208 weeks, the only rewards for the solar installations are the cash rewards for producing carbon credits.
Glow Token Value
As of writing, the Glow protocol has not launched, so it is difficult to ascribe any concrete value to the Glow token. That said, the Glow protocol is structured such that the full value of all carbon credits produced by solar installations accrue to the Glow token.
Solar installations on Glow get their rewards in the form of both cash and Glow tokens. The carbon credits on the other hand are owned by the Glow protocol. Glow sells all of the carbon credits that get produced in a weekly auction.
Prospective buyers must bid for the new carbon credits using Glow tokens. The Glow tokens from the winning bids are removed from circulation. This means that as long as the carbon credits have value, the Glow tokens will also have value because buyers need to acquire and discontinue Glow tokens in order to receive new carbon credits.
The net effect is that every carbon credit which is bought and retired within the Glow ecosystem is economically equivalent to buying Glow tokens and removing them from circulation.
General Hueristics for Joining Glow
Glow has not launched yet, and therefore it is difficult to provide any guarantees around which solar installations are likely to make money. That said, I've had a large number of conversations with prospective participants, and I believe that any solar installation which costs less than $4 per watt and produces electricity that has a value below 15 cents per kilowatt hour is likely to benefit overall from participating in Glow. The solar installation should also be in a high carbon area, which includes the vast majority of the United States.
Solar installations need to be audited before they can go live. The audit is free, but auditors will prioritize solar installations based on the size of the protocol fee. My guess is that any installation paying more than $20,000 in protocol fees will be able to get audited quickly, and that smaller installations are likely to face potentially frustrating delays.
Once the Glow protocol is live, it will be much easier to make informed decisions. Key details like the value of the cash rewards, the value of the Glow token rewards, and the schedule / backlog of the auditors will be publicly available facts rather than guestimates. In the meantime, the Glow protocol intentionally favors pre-launch solar installations to ensure that Glow is already producing carbon credits when it launches.
Participating in Glow with a Solar Installation
Please note that though I have consulted with tax lawyers, I am not a lawyer myself. No part of this post constitutes legal advice, and any Glow participant should consult their own lawyers when making decisions.
The purpose of the Glow protocol is to incentivize the construction of solar to offset dirty energy produced by the grid. As such, many solar installations can increase their overall profitability by participating in Glow.
Solar installations receive two new streams of income when participating in the Glow protocol. They receive weekly cash rewards based on the number of carbon credits they produce, and they receive weekly Glow token rewards based on the value of their electricty.
The biggest factor to consider when joining Glow is the Glow protocol fee. Conceptually, the fee represents the value of all of the electricity that will be produced by the solar installation while it is operational. The size of the fee therefore depends on the value of the electricity. For most installations, the protocol fee is slightly less than the construction costs.
The Glow protocol fee is expensive, however the protocol is structured to guarantee that the average solar installation will receive at least as much in rewards as was paid in protocol fees. Not every installation gets the same amount, but on average they all get their money back and more.
Solar installations in the United States have an even bigger advantage as the Glow protocol fee qualifies for Investment Tax Credits, effectively reducing the cost of the fee by 30%.
When Glow receives the protocol fee, the money is put into an escrowed incentive pool that is used to provide weekly cash rewards to solar installations based on their carbon credit production. Installations that produce an above average amount of carbon credits will receive a larger share of the incentive pool, and therefore will receive more cash rewards than was paid for their protocol fee.
Solar installations receive weekly Glow token rewards in addition to weekly cash rewards. For solar installations that produce a below average amount of carbon credits, the Glow token rewards will often make up the difference such that the installation is overall receiving more rewards than it paid in protocol fees. Installations receive Glow tokens based on the total amount that was paid for their protocol fee.
Solar installations in the United States are not required to pay taxes on their Glow token rewards, because the Glow tokens qualify under rebate tax law. The exception to this is if the total value of the Glow token rewards exceeds the cost of the protocol fee, at which point the owner will owe capital gains taxes. This of course would be an excellent outcome for the owner.
Obligations
Because Glow takes an up-front protocol fee, installation owners are not encumbered by the protocol in any way. The protocol fee is non-refundable, and rewards will stop without a refund if the solar installation is removed, but no further penalties will be applied.
This means that land owners and home owners can decide to remove the solar at any point. This is particularly valuable when selling or upgrading property, because the solar installation is not restricting what the owner or new buyer is allowed to do with the property.
Duration
Solar installations typically join the Glow protocol for a 25 year duration, though they have the flexibility to choose any duration up to the expected lifespan of the installation.
The chosen duration impacts the size of the protocol fee, because the installation owner needs to purchase all of the electricity forwards for the duration of the installation's participation in the Glow protocol.
It typically makes sense to pick the longest possible duration when participating in Glow. This is because the manufacturing and construction of a solar installation incurs a small amount of carbon debt that needs to be paid back over the participation duration. A longer duration means less of the debt needs to be paid back each year, enabling the owner to collect more rewards each year.
Furthermore, the price of the electricity forwards is discounted based on risk and the time value of money, and therefore each additional year is materially cheaper than the previous.
Cash Reward Schedule
The protocol fees get aggregated into an incentive pool. The incentive pool is divided into weeks, with a certain amount of money being paid out to solar installations each week.
Each individual protocol fee gets distributed over 208 weeks, or roughly 4 years. The 208 weeks begins as soon as the protocol fee is paid. The first 16 weeks get none of the protocol fee, and the remaining 192 weeks each get an equal portion of the protocol fee.
A solar installation's protocol fee gets paid out over 208 weeks regardless of the installation's participation duration. This is mainly done to reduce the total opportunity cost of locking capital into the Glow protocol.
A consequence of this is that the reward for each carbon credit produced will be disproportionately high for the first 25 or so years of the Glow protocol, with the first 4 years being the most substantially disproportionate. In essense, solar installations that join Glow at the beginning of the life of the protocol will earn back their entire protocol fee in just 4 years, and then continue earning more rewards for the next 21 years.
This is because when Glow is new, there are no legacy solar installations to soak up the protocol fee. All of the rewards go to newer installations, because newer installations are all that exist. When Glow is 25 years old, new installations will have their protocol fee divided among solar installations that have been participating in Glow for up to 25 years.
This effect resets every time that the total amount of solar on Glow grows significantly. If the Glow protocol doubles in size every 4 years, this disproportionate effect is essentially always active, and the earliest solar installations will be able to collect the full value of their protocol fee every 4 years for their full 25 year participation in Glow.
Incentive Bonuses
When Glow launches, there will be very few Glow tokens in circulation. This is a natural consequence of inflation based cryptocurrency, but it often causes undesirable price volatility.
Glow has a feature called 'early liquidity' to help mitigate the early volatility. Glow users are able to purchase Glow tokens from a solidity gadget to generate liquidity. Purchases are made in USDC.
The USDC that gets collected by a solidity gadget is added to the incentive pool that pays out solar installations for producing carbon credits. This gives early solar installations another layer of advantage over installations that join later, as the early liquidity contract loses relevance as more Glow tokens enter circulation.
Glow Token Rewards
The Glow token is an inflationary cryptocurrency. Every week, 230,000 new Glow tokens are minted and put into circulation. 175,000 of those tokens are given to solar installations as a reward for participating in the Glow protocol.
Solar installations receive Glow tokens based on the size of their protocol fee for that week. For example, a solar installation that contributed 10% of the value to the week 20 rewards of the incentive pool will receive 17,500 Glow tokens on week 20.
Solar installations that pay a larger protocol fee will earn more Glow tokens. Additionally, because the Glow token rewards are based on the size of the protocol fee and nothing else, a solar installation will continue to earn Glow token rewards even if it stops producing electricity.
Since all protocol fees are distributed over a period of 208 weeks, all solar installations will earn their Glow token rewards over that period. After the 208 weeks, the only rewards for the solar installations are the cash rewards for producing carbon credits.
Glow Token Value
As of writing, the Glow protocol has not launched, so it is difficult to ascribe any concrete value to the Glow token. That said, the Glow protocol is structured such that the full value of all carbon credits produced by solar installations accrue to the Glow token.
Solar installations on Glow get their rewards in the form of both cash and Glow tokens. The carbon credits on the other hand are owned by the Glow protocol. Glow sells all of the carbon credits that get produced in a weekly auction.
Prospective buyers must bid for the new carbon credits using Glow tokens. The Glow tokens from the winning bids are removed from circulation. This means that as long as the carbon credits have value, the Glow tokens will also have value because buyers need to acquire and discontinue Glow tokens in order to receive new carbon credits.
General Hueristics for Joining Glow
After Glow launches, it will be much easier to calculate whether joining Glow makes sense, because the value of the rewards will be public. Solar installations will be able to look at the rewards value and use some relatively simple math to determine whether it makes sense to pay the protocol fee.
Before launch however there's a lot more guesswork. However, the Glow protocol has several features that strongly advantage the earliest solar farms, and that helps to mitigate some of the early uncertainty.
I don't have magic powers and therefore I can't provide any guarantees, but based on my conversations with solar installations that are currently considering joining Glow, I believe that any solar farm in the United States which has a construction cost below $4 per watt and produces electricity with a value of less than 15 cents per kilowatt hour is likely to benefit overall from joining the Glow protocol.
Once the early adopter benefits are gone, the math will change a bit, but the uncertainty will also disappear and it will be much easier to make an informed decision.