Back to the Future

21st Century Energy Finance

Chris Cook

Athens Energy Forum

11 March 2015

21st Century problems cannot be solved with 20th century solutions.........

The Burning Question

Question – how can the necessary $/€ trillions of investment in 21st Century low carbon energy be funded?

Since 2008 the conventional 'least $/€/£ etc cost' economic principle no longer provides answers

But there is another way

Least Carbon Fuel Cost Principle - minimise carbon fuel system input for given electricity, heat or power output

The Answer - Prepay

Taxation

Energy Prepay – What it is

What it is

- Undated prepay credit issued & sold by energy producers

- returnable by a holder in payment for energy use

What it is not

- Debt – holder has no right to demand payment

- Derivative – holder has no right to demand delivery

- Equity – holder has no right to a dividend

Energy Prepay – Value Propositions

Producer

- sells energy forward and locks in price

- interest-free Energy Loan until credit returned against supply

Consumer

- prepays for energy and locks in price

Investor

- 'Inflation hedge' - an energy return on investment

- Liquidity - consumers buy credits from Investors at best price below physical price & return against use

Energy Prepay and Dark Inventory

Enron

- defrauded investors and creditors who were unaware of prepay obligations lurking 'off balance sheet'

Global Oil Market

- for over a decade prepay funding has been used by producers to support global oil market price

- even traders – never mind public - have been aware of Dark Inventory of oil leased by passive investors

- end of QE led to collapse of the oil price – as I predicted from late 2011 onwards that it would

Energy Prepay – the Transition Trade

Transition Trade

- exchange of value of knowledge & knowhow for value of carbon fuel saved & renewable energy

- the higher the price of carbon fuel, the higher the returns from investment in saving & substituting energy

- Energy Loans invested directly in flows of value of renewable energy and energy savings

Energy Prepay – Into the Light

Renewable Energy

- assets financed through selling energy credits to buy equipment or by production sharing

Energy Efficiency – energy loan repaid from energy savings by buying back energy credits

Energy Dividend

- countries increase carbon fuel price dramatically,and then issue an energy dividend of energy credits

- Part of dividend funds energy loan investment in renewable energy & energy efficiency

Energy Prepay – Conventional Energy

Carbon Fuelled Energy

- if a carbon fuelled generator uses prepay funding he has a problem if the carbon fuel price rises

Solution is an Energy Swap – a production sharing agreement with a carbon fuel supplier

Outcome – oil & gas are no longer sold as a commodity but are swapped for prepay electricity, heat or power credits – oil & gas as a service

Greek Refineryor Generator

Consumers ManagerService Providers

%

Producers (eg Iran, Russia)

Energy Credits

Gasoline

Oil Gas

Electricity

Funding the Transition

Q. So who will fund the € trillions necessary to fund the Transition to a low carbon economy?

A. Anyone currently getting zero or negative interest rates on conventional investment in financial assets.

Finally : a Thought Experiment

Q. How can Greece resolve fiscal & monetary € crisis?

Step 1: return carbon fuel prices to $120/bbl levels

Step 2: pay all Greeks an 'Energy Dividend' of energy credits in their electricity bill

Step 3: introduce a Location Benefit Levy on land values (not buildings)

Step 4: pay all Greeks a Land Dividend again in energy credits

Owners use dividend for levy: renters pay rent with it

Net transfer from Greeks with more land to those with less

What a crazy idea...it could never work

Tax evasion is so bad in Greece that property taxes have had to be collected through the electricity bill........

Greece may then simply exchange € debt with foreign creditors for energy credits returnable in payment for Greek carbon fuel & location levies

…....21st century solutions pre-date modern finance