Risk of customers defaulting on Solar Power Purchase Agreements

It is possible that, due to a number of reasons which are outside the control of the Issuer, the Customers are unable or otherwise unwilling to pay the agreed amount as set out in the relevant Solar Power Purchase Agreements. The Issuer faces the risk of financial loss resulting from the failure of Customers to fulfil their contractual obligations, including the timely payment for services rendered. The incidence of customer defaults could have a material adverse effect on the Issuer’s cash flow, profitability, and overall financial stability and, consequently, on the Issuer’s ability to pay into the sGRID Vault pursuant to the Deed Poll.

Risk of reliance on one source of income

The Issuer’s business is highly dependent on a single source of income, which is the revenue generated in connection with the Solar Power Purchase Agreements entered into between the Issuer and its Customers. This concentration exposes the Issuer to significant financial and operational risks, and any disruption or decline in this income stream would have a material adverse effect on the Issuer’s financial condition, results of operations and the Issuer’s ability to pay into the sGRID Vault pursuant to the Deed Poll.

Risk of Issuer’s business being unprofitable

The Issuer is a newly incorporated company and as such it has a limited trading history. Per the Deed Poll, the Issuer is only obliged to transmit to the sGRID Vault any net revenues received from Customers in connection with the Solar Power Purchase Agreements during each quarterly period. It follows that in the event no net revenues are realized in respect of a quarterly period, the Issuer will be unable to transfer any funds into the sGRID Vault for that particular period, which, in turn, will affect the availability of unstaking and/or withdrawing of sGRID tokens.

Risk of the Issuer’s fraud, negligence or breach of contract

Notwithstanding the net revenue which may be generated in connection with the Solar Power Purchase Agreements, the Issuer may breach its covenants as set forth in the Deed Poll and decide, of its own volition, not to transfer any funds into the sGRID Vault. The Customers may not be able to recover their losses or enforce their rights in the event of the Issuer’s and/or the Issuer’s employees’, contractors’, agents’ and other third parties’ fraud, negligence, misconduct or breach of contract. Such actions could expose the Issuer to significant financial loss, legal liability, regulatory penalties, and reputational damage and lead to no funds being transferred into the sGRID Vault.

Risk of operational interruptions and System outages

The Issuer’s ability to generate electricity from solar energy is subject to various operational risks, including system outages, equipment failures, and performance degradation, which could result in significant financial losses and impact the Issuer’s business continuity.

Key factors that could lead to system outages or reduced performance include, but are not limited to:

• Equipment failure and degradation: The solar panel system relies on key components such as panels, inverters, wiring, and mounting systems. The mechanical failure or degradation of these components over time due to age, manufacturing defects, or general wear and tear can lead to partial or total system failure. For instance, wiring issues or inverter malfunctions are common causes of power fluctuations or complete shutdowns.

• Environmental and weather events: The exposed position of solar infrastructure makes it highly vulnerable to natural hazards. Extreme weather events such as severe wind, hail, snow accumulation, heavy rain, or lightning strikes can cause significant physical damage to panels and electrical equipment, resulting in outages. Snow and ice build-up can also cause additional weight loading, posing a risk of roof collapse and subsequent system failure.

• Maintenance and installation issues: Improper installation, inadequate maintenance, or a lack of regular inspections can exacerbate potential issues. For example, poor connections or accumulated debris can lead to hot spots and potential fire hazards, forcing system shutdowns.

• Shading and debris: The performance of photovoltaic panels is directly correlated to sunlight exposure. Accumulation of dirt, leaves, bird droppings, or other debris can cause partial shading, reducing efficiency and potentially leading to system failure over time.

• Fire and safety hazards: Although rare, electrical faults in associated wiring, inverters, or battery storage systems can lead to fires, which could result in the total loss of the building, business interruption, and safety risks.
  
  

Any such outages or performance shortfalls may not be fully covered by insurance policies and could result in lost revenue, increased energy costs, and reputational damage. The Issuer manages these risks through preventative maintenance and regular inspections, but unforeseen events can still occur.

Risk of change in environmental conditions resulting in equipment and systems underperforming

The Issuer’s solar power generation assets are inherently sensitive to prevailing and changing environmental and weather conditions. A change in these conditions, particularly the increasing frequency and severity of extreme weather events attributed to climate change, may have a material adverse impact on the efficiency, physical integrity, and financial performance of the Issuer’s solar panel systems. The financial impacts of these events could include revenue loss from reduced energy production, increased operational and maintenance costs, asset impairment, and higher insurance premiums.

Risk of changes in the law resulting in the Issuer being unable to provide electricity on the terms set out in the Solar Power Purchase Agreements

The Issuer’s operations are subject to a complex and evolving framework of international, national, and local laws and regulations. Changes in these legal and regulatory requirements, or the interpretation and enforcement thereof, could materially and adversely affect the Issuer’s business, financial condition, and results of operations.

Risk of Customers buying electricity from competitors

The energy market is highly competitive, and the Issuer competes with traditional utility companies, other renewable energy producers, and alternative technology providers. A material drop in the retail price of utility-generated electricity from traditional sources could reduce the desirability and cost-effectiveness of the Issuer’s solar products, negatively impacting customer demand and the Issuer’s market share, which would in turn affect the Issuer’s ability to pay into the sGRID Vault pursuant to the Deed Poll.

Risk of fluctuation of energy prices

The cost of raw materials and components, such as crystalline silicon, silver, and aluminum, can be volatile due to market forces or geopolitical factors. Increases in these costs, or the imposition of tariffs on imported solar panels, could increase the Issuer’s operating costs and harm the Issuer’s financial results and business viability.

Risk of reliance on Government subsidies and incentives

The market for solar energy systems is heavily dependent on government subsidies, tax credits, and other economic incentives. The reduction, modification, delay, or elimination of these programs could significantly reduce demand for the Issuer’s products and services, impact the profitability or viability of the Issuer’s solar projects, and materially and adversely affect the Issuer’s business, financial condition, and results of operations, including the Issuer’s ability to pay into the sGRID Vault pursuant to the Deed Poll.

Risk of Issuer’s business being unsustainable

The Issuer may be unable to successfully scale operations and generate revenue as anticipated. In certain circumstances, the Issuer may not be able to generate meaningful customer sales due to unfavorable market conditions or other reasons. As a result, the Issuer may not generate sufficient cash flow to operate the business. 

If the Issuer decides that the business is no longer viable, it may resolve that the Issuer be managed with the objective of realizing assets in an orderly manner and distributing the proceeds to creditors in such manner as it determines to be in the best interests of the Issuer, in accordance with its constitutional documents. This process may be carried out without recourse to a formal liquidation under applicable bankruptcy or insolvency laws.

As a result of the factors set out above which could impair the Issuer’s cashflow, the Issuer may also experience bankruptcy, liquidation or similar financial distress, which could limit the Issuer’s ability to run the business, and may materially and adversely affect the return on, or the recovery of, the tokens. As a result, the Customers may lose entirely the ability to stake and/or withdraw the tokens and may not be able to recover their losses or enforce their rights in such a situation.

Risk of changes in technology

The solar energy market is characterized by rapid technological change, including improvements in panel efficiency, storage solutions, and alternative power generation methods. The Issuer’s failure to anticipate and adapt to these innovations, or delays in developing its own new products, could render the Issuer’s current offerings obsolete or less competitive, which could adversely affect the Issuer’s market position and financial results.

General economic and market conditions

The success of the Issuer’s activities may be materially affected by general economic and market conditions, including interest rates, inflation rates, economic uncertainty, availability of credit, financial market volatility, changes in laws and national and international political circumstances. The stability and sustainability of growth in global economies may be impacted by terrorism or acts of war. The availability, unavailability or hindered operation of external credit markets, equity markets and other economic systems which the Issuer may depend upon to achieve its objectives may have a significant negative impact on the Issuer’s operations and profitability. There can be no assurance that such markets and economic systems will be available or will be available as anticipated or needed for the Issuer to operate successfully. These factors may adversely impact the performance and growth prospects for the Issuer and, consequently, the Issuer’s ability to pay into the sGRID Vault pursuant to the Deed Poll.

General economic risks

The business and operating results of the Issuer may be impacted by worldwide economic conditions. Any conflict or uncertainty, including due to natural disasters, public health concerns, political unrest or safety concerns, could harm its financial condition and results of operations and cash flows. In addition, if the government of any country in which products are developed, manufactured or sold sets technical or regulatory standards for products developed or manufactured in or imported into their country that are not widely shared, it may lead some of its customers to suspend imports of its products into that country, require manufacturers or developers in that country to manufacture or develop products with different technical or regulatory standards and disrupt cross-border manufacturing, marketing or business relationships which, in each case, could harm the business of the Issuer. In addition, the Issuer may be susceptible to economic slowdowns or recessions.

Definitions

In these Risk Factors, the following terms have the following meanings:

“Customer” means each customer with whom the Issuer has entered into a Solar Power Purchase Agreement.

“Deed Poll” means the deed poll entered into by the Issuer dated [•] pursuant to which it covenants to pay net revenues received under Solar Power Purchase Agreements to the sGRID Vault.

“GRID” means the Daylight native stablecoin built on M0's $M stablecoin protocol, as described on the Website.

“sGRID Vault” means the autonomous smart-contract system deployed by the Deployment Entity and accessible through the Website which facilitates (a) the staking of GRID in exchange for sGRID, and (b) the subsequent unstaking and withdrawal of GRID in accordance with its encoded terms and parameters.

“Solar Power Purchase Agreements” means each of the solar power purchase agreements entered into by the Issuer with any customer for the sale by the Issuer of energy to such customer.

“Website” means the website of the [DayFi (BVI) Limited] at [•].