More Related Content Similar to Financing energybeyond Peak Credit Similar to Financing energybeyond Peak Credit (20) More from ChrisJCook (20) 1. Beyond Peak Credit A New Approach to Energy Investment Chris Cook Claverton 25/26 October 2008 3. … .some say, “the end of the financial system as we know it” 5. … .but last year we reached the point of Peak Credit.... 11. A Bank is a Credit Intermediary – or “Middleman” £ £ Bank Borrower Depositor 15. Now, if you think about it, a bank’s true economic function…. 16. … is to guarantee that the borrowers’ credit is good… 20. ..and a profit to Investors normally results Interest Interest Costs Investors Bank Borrowers Depositors 21. So Banks create a Pyramid of Credit, on a base of Equity Bank Credit Bank Equity 23. … .that Banks began to “outsource” their guarantee to rid themselves of risk. 24. … and thus allow Equity to support more credit creation 26. … temporarily – with “Credit Derivatives” (a time-limited guarantee)…. 27. … and partially – using credit insurance from insurers such as AIG 28. The Result is a bigger Credit Pyramid than Banks alone could sustain… Investor Equity Credit Bank Equity 29. … and an opaque “shadow banking system” of Investors holding “sliced and diced” risk… Investor Equity Credit Bank Equity 31. … and servicing this credit finally exceeded the financial capacity of the US population. 33. In August 2007, the Bubble started to deflate and attention turned at last to defaults … 34. ..but by now no-one knew where the Risk lay… Investor Equity Credit Bank Equity 38. The problem is not shortage of money - liquidity – Central Banks can handle that…. 39. … ..it is shortage of Equity - a Solvency problem – which Central Banks cannot handle….. 46. … .and drain money out of the system in a “deflationary spiral”.... 50. So we will take a new approach to “Equity” investment instead. 52. Ownership by a Corporation is what makes the “Private Sector” Private 57. Income Trust Income Trust Corporation Gross Revenues Unit Investors % % Units Costs Dividends? 59. … who consider investment less risky if they access corporate revenues… 61. We are also seeing new asset classes such as Exchange Traded Funds (“ETF’s”)…. 65. In 2001 the UK introduced the Limited Liability Partnership (“LLP”) – not in fact, a “Partnership” 66. … but simply an infinitely flexible corporate form – an “Open” Corporate ...... 69. … Investors put in Financial Capital in money, or “money’s worth”… Assets Investors Ownership Financial Capital Custodian 70. … Managers put in Human Capital of time, expertise and experience.... Assets Investors Managers Ownership Human Capital Financial Capital Custodian 71. … and Users pay for the use of this Capital… Assets Investors Users Payment Managers % % Use Custodian 72. … the result is a “Capital Partnership” Assets Investors Users Managers Custodian 74. (a) Equity Share Units - proportional (%age) ”n’ths” such as billionths..... 75. … ..which may be bought and sold, but never redeemed, because there must always be 100% 77. Such Units have a value in exchange, but carry no rights to production or income over time… 78. They hold their value because they are asset-based on value provided by the issuer … 79. … .rather than being deficit-based upon a claim over value issued by a Bank 80. Let’s have a look at how an Energy Partnership might work..... 85. Contractors may invest equipment & materials but must invest their agreed profit margin 89. Imagine that a community wishes to retrofit combined heat and power.... 91. A Pool or Fund is created and invested in CHP and a heat network.... 96. … and the Pyramid of Risk is very different…. Management Equity Investor Units Community Equity 97. A Carbon Pool…. Carbon Pool Energy Users Managers Custodian Units % of Units Units £ Levy £ Investors 98. … .is created by a carbon levy and the fund is unitised at an initial market price.... 99. … .interest free investment is then made in Energy Pools (renewable Mega Watts)... 100. … .and in Heat Pools (NegaWatts – the cheapest energy of all) - eg retrofitting CHP... 103. Units in the Carbon Pool are distributed fairly to energy consumers generally... 104. … .who may redeem them against energy used... 105. … .or to repay investment (interest-free energy loans...) in energy efficiency... 108. … .make a net transfer to those with below average carbon use ... 109. A Carbon Pool enables a Carbon currency based upon the intrinsic value of energy… 110. ..rather than a market in value-less Units of CO2 emissions, imposed by governments … 112. A trader’s metaphor illustrates the fundamental uselessness of a deficit-based carbon currency… 113. “ If you want to keep a cow healthy, you don’t regulate what comes out of it……
