politics of energy and the cost of carbon future
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Politics of Energy and Cost of Carbon
Sheffield University
Chris Cook
28 September 2010
An Arab joke: “My father rode a camel”
“I drive a Hummer ....”
“My son flies a Falcon”
“But my grandson will ride a camel.”
Producers waste carbon energy on a cosmic scale because they value it incorrectly
Gas is too cheap to meter....
Nigeria's flared gas could power Brazil
Saudi Arabia uses 1.5 million barrels of oil a day on desalination alone
In Tehran, obsolete cars, minimal public transport and gasoline at 10 cents/litre...
....means air quality so bad...
....that even the crows are leaving
Energy subsidies by producers and developing nations cost trillions of dollars
Investment in the global transition to renewable energy requires trillions of dollars
The question is how to make the connection?
Mega Watts......from wind
.....any amount of solar energy
The real prize is the cheapest energy of all...NegaWatts...of energy savings
“You can't solve 21st Century problems with 20th Century solutions”...Dr Narsi Ghorban
There are conventionally two types of ownership - Public or Private...
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...and there are two ways of raising finance: Credit and Investment
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Investment through a Limited Company...
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....a 19th Century legal dinosaur...
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...is what makes the Private Sector Private
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Credit is typically issued by banks and secured by legal claims
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...giving two conflicting claims over the same productive asset
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But there’s a new furry animal out there....
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...the 21st Century Limited Liability Partnership (LLP)
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A UK LLP is a corporate body with limited liability....
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...and.....errrr.....that’s it !
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As far as the UK Tax Man is concerned it is a Partnership
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It’s an Open Corporate where
partnership working is possible....
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... even without a written agreement
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It enables Direct “Peer to Peer” (P2P) Credit and Investment
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LLPs are now in pervasive use for purposes never intended...
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...even in the Public Sector, where Glasgow has five municipal LLPs
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Introducing the Capital Partnership
AssetsAssets
Investors
Payment
% %
Custodian
Use
Managers
Users
Capital Partnership – direct Peer to Peer investment in productive assets
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Hilton Capital Partnership ( > £1bn)
Capital Partnership LLP10 UK Hotels
Gross Revenues
Hilton GroupCapital User
Consortium LLP Capital Provider
BankProperty
DeveloperHotel
Specialist
% %
%%%
Productive assets are held by a “Custodian”..
AssetsAssets CustodianCustodianOwnership
…Investors put in Financial Capital in money, or “money’s worth”…
AssetsAssets
Investors
CustodianOwnership
Financial Capital
…Managers provide Human Capital of time, expertise and experience....
AssetsAssets
Investors
CustodianOwnership
HumanCapital
Financial Capital
Managers
..Users pay for the use of Capital
AssetsAssets
Investors
Payment
% %
Custodian
Use
Managers
Users
Generic Capital Partnership Framework
AssetsAssets
Investors
Payment
% %
Custodian
Use
Managers
Users
Capital Partnership reinvents Equity
Equity Shares - % age shares in revenues or production
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Units – redeemable in payment for energy production eg Kilo Watt Hours, natural gas
Units have a value in exchange
Asset-based on value provided by issuer...
….rather than deficit-based upon a claim over value issued by a Bank
Let’s have a look at an Energy Pool for a wind turbine
Two Phases – Development ('Financing') and Operation ('Funding')
Development phase: firstly, a Custodian
AssetsAssets CustodianCustodianOwnership
Suppliers provide money’s worth
AssetsAssets
Suppliers
CustodianOwnership
CapitalEquipment
They may invest equipment & materials if they are willing and able
...but must invest agreed profit margin, thereby giving a stake in the outcome
Investors provide risk capital for costs suppliers cannot or will not invest
AssetsAssets
Investors
CustodianOwnership
Risk Capital
Managers provide Human Capital of time, expertise and experience
AssetsAssets
Investors
CustodianOwnership
HumanCapital
Financial Capital
Managers
...and the turbine is installed
Sounds great, but where does the money for the costs come from?
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Simple: the turbine creates a Pool of future production
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...and from this Pool we sell Units to investors redeemable in payment for electricity...
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… at a discount to the market price
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Operation Phase
AssetsAssets
Payment
Custodian
Electricity
Consumers
Managers receive an Equity Share
AssetsAssets
Payment
x%
Custodian
Electricity
Managers
Consumers
Operation Phase
AssetsAssets
Investors
Payment
100-x% x%
Custodian
Electricity
Managers
Consumers
The Pool may now sell Units to consumers and risk averse investors
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Units - the Value Proposition
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Investors - a direct investment in energy with no return...
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....similar to an investment in gold...
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...except that while gold may be pretty...
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....it’s not useful in the way that electricity is
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Consumers have the ability to lock in the price of future consumption
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Middlemen extracting profit become service providers sharing surplus
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What about Liquidity? Investors selling Units may not find Investor buyers....
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No Problem! Consumers will buy if the Unit price falls below electricity market price...
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...because they would profit by buying Units and redeeming them against
consumption
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Energy Pool
Mega Watts(Custodian)
Mega Watts(Custodian)
Unit Investors
Consumers
Equity SharesManagers, Communities
electricity £ or Units Redeemed
£
Units
Units
Interest-free financing through monetising renewable energy...
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...by issuing - for value now - a Unit that will cost nothing to redeem
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Energy Pooling and Unitisation has further potential beyond funding new renewables
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Existing energy production may be unitised and refinanced interest-free.....
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…releasing funds for further investment
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Nega Watt energy savings - the cheapest energy of all – may be simply financed…
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…energy loans in KwH may be repaid via utility bills out of energy saved
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A £5k interest-free energy loan is 100 Units of 1 Mega Watt Hours sold for £50/MWh....
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....or 10,000 Units of 10 Kilo Watt Hours each sold for 50p
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A reduced bill is paid to the power supplier for energy actually used.....
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...while Units are bought from the Pool to repay the energy loan
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A Carbon Levy on fuel may fund Energy Pool investment in renewable Mega Watts
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…and investment in energy saving Nega Watts
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Unitisation enables an energy dividend from a valuable carbon investment
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The outcome is that those with above average carbon use ...
….make a net transfer to those with below average carbon use
A Capital Partnership is not an Organisation
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It does not own anything, do anything, employ anyone, or contract with anyone
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It is simply a framework for cross border energy investment
It transcends borders through interactive consensual contrats de société...
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...rather than national or international institutions and hierarchies
There are no adversarial contractual relationships – contrats de mandat
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Capital Partnership requires no legislation
Master Partnership
Master Partnership
Financial Capital(Money, IP etc)
Financial Capital(Money, IP etc)
UsersUsers
Human Capital(Developers, Operators)
Custodians(National)
Custodians(National)
% %
€
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Unitising energy enables a Carbon currency based upon the intrinsic value of energy…
..rather than a market in value-less Units of CO2 emissions, imposed by governments
Gas is homogeneous and Units would be regionally and globally acceptable in exchange
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Electricity Units – redeemable in payment for Kilo Watt Hours –are regionally acceptable
Other Units – redeemable in payment for carbon fuels - may be nationally acceptable
All may be priced against a Unit of measure – an Energy Standard....
...a fixed Unit of energy
Outcome: producer nations can massively increase domestic energy prices....
...without subsidy, inflation or fuel riots...
...through an Energy Dividend of Units
Populations may choose to waste energy and use valuable Units to pay for it
...or conserve energy and exchange Units for accommodation, food or goods
“Reality is defined by the questions you put to it”... J A Wheeler
Can we price Dollars in energy: rather than pricing energy in Dollars?
What would an energy economy look like?
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