1. Heat Partnerships
A Green Deal that might actually work
Chris Cook
I.M.E., London, 29th August 2012

2. Solutions
 Capital 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

3. Capital Partnership
Consumers
Custodian
Custodian
Investors Managers

4. 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

5. 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)

6. Prepay 2.0 – Stock reinvented
 In the late 1990's Enron began to use Prepay
 Commodities sold at a discount for dollars & delivered later
 Example: oil market price $100: 1m barrels sold for $90 now
and delivery in 6 months
 Enron used Prepay to defraud creditors and investors
 Since 2005 investment banks and producers have used prepay
to defraud the oil market

7. 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
 Solution
Direct 'peer to asset' investment in energy
Return 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

8. Green Deal 2.0 - Heat Pool and Heat Loans
 Investors buy Mmbtu units of Heat Stock at a discount to the
market price
 Discount generates a return to energy investors
 NB - $ billions now invested in energy even without a return
 Heat 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

9. How it Works
Stock Consumers
$ or Stock energy
Returned
Stock Custodian
Custodian
Investors
Stock
$
Stock Proportional Shares
Managers, Producers

10. Hyde Farm Energy Partnership
Consumers
(Association)
Custodian
Custodian
Lambeth Council
Lambeth Council
Investors Managers
(Association) (Consortium)

11. Hyde Farm Partnership – Financing Phase
 Short term, medium/high risk investment
 Capital Partnership framework uses transitional LLP vehicle
and a mix of grant, debt and partnership equity investment
 City of Glasgow currently has five municipal LLPs
 Debt repaid, grants recyclable, and equity investors exit to
Funding Phase Investors

12. Hyde Farm Partnership – Funding Phase
 Long term, low risk direct investment in energy
 Capital 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

13. 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

14. Synergetic Economic Behaviour
 Energy middlemen transition to energy service provision
 Minimises need for finance capital – replaced by human capital
 Least energy cost, rather than least £ cost
 Market tends to stability
 Common interest in minimising energy use
 Financing 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)