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Heat Partnerships
A Green Deal that might actually work
Chris Cook
I.M.E., London, 29th August 2012
SolutionsCapital Partnership ('Nondominium')
Neutral framework agreement for sharing of risk and reward
Capital Partnership does not own anything, employ anyone, or contract with anyone but its members do
Agnostic as to legal form (eg Limited Liability Partnership; Company Limited by Guarantee)
Prepay ('Stock') Undated credit instrument returnable in exchange for
value Created, issued, exchanged and returned within Capital
Partnership framework agreement
Capital Partnership
CustodianCustodian
Investors
Consumers
Managers
Capital Partnership Custodian
Custody of data and accounts Mutual Guarantee
Energy Consumers – exchange value for the use of energy
Energy Managers Operate system, manage risk, provide quality control
Energy Investors Buy Units of stock returnable in exchange for energy Custodian issues energy stock on instruction of
Managers Managers supervise issue, exchange & return
Prepay 1.0 - 'Stock'Stock
Original form of 'equity' – not shares in Joint Stock Company
Prepay/credit instrument issued at a discount to market price
Returnable in payment for energy supplied Prepayment for supply Undated
Return Discount gives absolute return: eg $10's worth of gas
for $8 now Rate of Return is variable – literally the rate over time
at which stock may be returned to the issuer or sold No interest (money for the use of money)
Prepay 2.0 – Stock reinventedIn the late 1990's Enron began to use PrepayCommodities sold at a discount for dollars &
delivered laterExample: oil market price $100: 1m barrels sold
for $90 now and delivery in 6 monthsEnron used Prepay to defraud creditors and
investorsSince 2005 investment banks and producers have
used prepay to defraud the oil market
Green Deal - Issues Problem
Compound interest - bank rates of interest mean many
projects are not viable Behaviour (Jevon's Paradox) – even if £ is saved there is no guarantee that energy will be saved
SolutionDirect 'peer to asset' investment in energyReturn on energy investment but no compound interest – money paid for the use of energy Unless Exergy is saved £ will not be saved – saving Exergy is saving money
Green Deal 2.0 - Heat Pool and Heat Loans Investors buy Mmbtu units of Heat Stock at a
discount to the market priceDiscount generates a return to energy investors NB - $ billions now invested in energy even
without a returnHeat Pool energy fund is thereby created in £Heat Pool fund invests £ in heat production and
heat saving projects through 'heat loans' denominated in Mmbtu
Projects buy back units of heat stock at the market price through utility bill
How it Works
CustodianCustodianStock Investors
Consumers
Proportional SharesManagers, Producers
energy $ or Stock Returned
$
Stock
Stock
Stock
Hyde Farm Energy Partnership
CustodianLambeth Council
CustodianLambeth Council
Investors(Association)
Consumers(Association)
Managers(Consortium)
Hyde Farm Partnership – Financing PhaseShort term, medium/high risk investmentCapital Partnership framework uses transitional
LLP vehicle and a mix of grant, debt and partnership equity investment
City of Glasgow currently has five municipal LLPsDebt repaid, grants recyclable, and equity
investors exit to Funding Phase Investors
Hyde Farm Partnership – Funding PhaseLong term, low risk direct investment in energyCapital Partnership framework uses Company
Limited by Guarantee framework and energy stock investment
Optimal form of investment in terms of risk profile, liquidity and sheer simplicity
Optimal form of funding in terms of cost
Danish Policy – Energy Economics
Energy Investment Danish policy after 1973 oil shock exposed energy
insecurity Identify desired outcome eg heat, electricity, transport Identify solution with least carbon fuel input ie what happens in the system for each KwH of
electricity or Mmbtu of heat produced? Energy return against energy invested – least energy
cost solution Participants obliged to comply with policy against their
financial interests
Synergetic Economic BehaviourEnergy middlemen transition to energy service
provisionMinimises need for finance capital – replaced by
human capitalLeast energy cost, rather than least £ costMarket tends to stability Common interest in minimising energy useFinancing and funding costs minimised since no
payment is made to rent-seekers'Big Trade' of the 21st Century
Value of intellect (IP; skills) exchanged for value of carbon
energy saved (ie optimisation of Exergy)
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