1.
An Energy Pool? A New Approach to Grid and Network Investment All Energy Conference Chris Cook , Aberdeen 20 May 2009

2.
What are the alternatives for funding a North Sea Supergrid?

3.
There are conventionally two types of ownership - Public or Private... 10/06/09

4.
...and there are two ways of raising finance: Credit and Investment 10/06/09

5.
Investment through a Limited Company... 10/06/09

6.
....a 19 th Century legal dinosaur... 10/06/09

7.
...is what makes the Private Sector ”Private” 10/06/09

8.
Credit is typically issued by banks and secured by legal claims 10/06/09

9.
...giving two conflicting claims over the same productive asset 10/06/09

10.
But there’s a new furry animal out there.... 10/06/09

11.
...the 21 st Century Limited Liability Partnership (LLP) 10/06/09

12.
A UK LLP is a corporate body with limited liability.... 10/06/09

13.
...and...errrr...that’s it!... 10/06/09

14.
As far as the UK Tax Man is concerned it is a Partnership 10/06/09

15.
It’s an “Open” Corporate where partnership working is possible.... 10/06/09

16.
... even without a written agreement 10/06/09

17.
It enables Direct “Peer to Peer” (P2P) Credit and Investment 10/06/09

18.
LLPs are now in pervasive use for purposes never intended... 10/06/09

19.
...even in the Public Sector, where Glasgow has 4 municipal LLPs 10/06/09

20.
As we have seen, collaborative working in the North Sea is not new.. 10/06/09

21.
NET proposes financial collaboration within a Capital Partnership framework.... 10/06/09

22.
...to fund Supergrid as an Energy Pool 10/06/09

23.
Capital Partnership – direct Peer to Peer investment in productive assets 10/06/09

24.
Hilton Capital Partnership ( > £1bn) Capital Partnership LLP 10 UK Hotels Gross Revenues Hilton Group Capital User Consortium LLP Capital Provider Bank Property Developer Hotel Specialist % % % % %

25.
Capital Partnership LLP Assets Investors Payment % % Use Managers Users Custodian

26.
Productive assets are held by a “Custodian”.. Assets Custodian Ownership

27.
… Investors put in Financial Capital in money, or “money’s worth”… Assets Investors Ownership Financial Capital Custodian

28.
… Managers provide Human Capital of time, expertise and experience.... Assets Investors Ownership Human Capital Financial Capital Managers Custodian

29.
..Users pay for the use of Capital Assets Investors Payment % % Use Managers Users Custodian

30.
Generic Capital Partnership Framework Assets Investors Payment % % Use Managers Users Custodian

31.
Capital Partnership reinvents Equity

32.
Equity Shares - % age shares in revenues or production... 10/06/09

33.
… ..which may be transferred, but never redeemed, since there must always be 100%

34.
Units – Redeemable in production eg Kilo Watt Hours, natural gas

35.
Units have a value in exchange, but no rights to production or income over time…

36.
Asset-based on value provided by issuer...

37.
… .rather than deficit-based upon a claim over value issued by a Bank

38.
Let’s have a look at an Energy Pool for a 10 Giga Watt Supergrid

39.
Two Phases – Development and Operation

40.
Firstly, a Custodian is created....a ‘Master Trust’ Assets Custodian Ownership

41.
Suppliers provide “money’s worth” Assets Suppliers Ownership Capital Equipment Custodian

42.
They may invest equipment & materials - an evergreen lease with a return in energy

43.
...must invest agreed profit margin, thereby giving a stake in the outcome

44.
Investors provide risk capital for costs suppliers cannot or will not invest Assets Investors Ownership Risk Capital Custodian

45.
… Managers provide Human Capital of time, expertise and experience Assets Investors Ownership Human Capital Financial Capital Managers Custodian

46.
...and the Supergrid is built

47.
Sounds great, but where does the €25bn development credit come from? 10/06/09

48.
Firstly, €25bn development credit is not needed – just funding of work in progress.... 10/06/09

49.
...since production will be unitised as and when electricity comes on stream 10/06/09

50.
Second, the project will be subject to government guarantees.... 10/06/09

51.
...in exchange for which governments may receive an Equity Share 10/06/09

52.
Finally, national grid utilities as Manager members .... 10/06/09

53.
...would invest in return for Equity Shares 10/06/09

54.
When production comes on-line the Energy Pool is operational 10/06/09

55.
Operation Phase Assets Payment Electricity Consumers Custodian

56.
Managers receive an Equity Share Assets Payment x% Electricity Managers Consumers Custodian

57.
Operation Phase Assets Investors Payment 100-x% x% Electricity Managers Consumers Custodian

58.
The Pool may now issue to Investors Units redeemable in electricity 10/06/09

59.
Units - the Value Proposition 10/06/09

60.
Investors - a direct investment in energy with no return... 10/06/09

61.
....similar to an investment in gold... 10/06/09

62.
...except that while gold may be pretty... 10/06/09

63.
....it’s not useful in the way that electricity is 10/06/09

64.
Consumers – the ability to lock in the price of future consumption 10/06/09

65.
Units are hybrid – analogous to a futures contract but no expiry date, and no gearing.... 10/06/09

66.
....analogous to an Exchange Traded Fund Unit but redeemable in energy 10/06/09

67.
What about Liquidity? Investors selling Units may not find Investor buyers.... 10/06/09

68.
No Problem! Consumers will buy if the Unit price falls below electricity market price... 10/06/09

69.
...because they would profit by buying Units and redeeming them against consumption 10/06/09

70.
Energy Pool 10 Giga Watts (Custodian) Unit Investors Consumers Equity Shares Managers, Governments electricity £, €, etc or Units Redeemed £,€, etc Units Units

71.
Interest-free financing through monetising renewable energy... 10/06/09

72.
...by issuing - for value now - a Unit that will cost nothing to redeem 10/06/09

73.
Energy Pooling and Unitisation has potential far beyond SuperGrid 10/06/09

74.
Existing energy production may be unitised and refinanced interest-free..... 10/06/09

75.
....releasing development credit and energy dividends 10/06/09

76.
A Carbon Levy on fuel may fund Energy Pool investment in renewable Mega Watts 10/06/09

77.
Units enable an Energy dividend on a compulsory investment...instead of a tax 10/06/09

78.
Units simply finance the cheapest energy of all – Nega Watts - energy savings... 10/06/09

79.
Energy Loans in KwH may be repaid out of energy saved via utility bills 10/06/09

80.
The outcome is that those with above average carbon use ...

81.
… .make a net transfer to those with below average carbon use

82.
Energy Pool offers a new approach to the proposed Kyoto carbon markets....

83.
...where the Emperor has No Clothes

84.
Overheard at a traders’ conference.....

85.
“ If you want to keep a cow healthy, you don’t regulate what comes out of it……

86.
“…… you regulate what goes in….”

87.
An Energy Pool enables a Carbon currency based upon the intrinsic value of energy…

88.
..rather than a market in value-less Units of CO2 emissions, imposed by governments …

89.
… .promoted by the same people who brought us the Credit Crunch

90.
The Energy Pool is not an Organisation ... 10/06/09

91.
...it does not own anything, do anything, employ anyone, or contract with anyone... 10/06/09

92.
… .it is simply a framework for cross border energy investment

93.
It transcends borders through interactive consensual ‘contrats de société’... 10/06/09

94.
...rather than national or international institutions and hierarchies

95.
Energy Pool has no adversarial contractual relationships – ‘contrats de mandat’ 10/06/09

96.
...it requires no legislation..... Master Partnership Financial Capital (Money, IP etc) Users Custodians (National) % % € 10/06/09 Human Capital ( Developers, Operators)

97.
...no public borrowing and probably no permission 10/06/09

98.
Sustainable Scottish Nordic development is what we do 10/06/09

99.
Thank You 10/06/09