Politics of energy and the cost of carbon future

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Politics of energy and the cost of carbon future

  1. 1. Politics of Energy and Cost of Carbon Sheffield University Chris Cook 28 September 2010
  2. 2. An Arab joke: “My father rode a camel”
  3. 3. “I drive a Hummer ....”
  4. 4. “My son flies a Falcon”
  5. 5. “But my grandson will ride a camel.”
  6. 6. Producers waste carbon energy on a cosmic scale because they value it incorrectly
  7. 7. Gas is too cheap to meter....
  8. 8. Nigeria's flared gas could power Brazil
  9. 9. Saudi Arabia uses 1.5 million barrels of oil a day on desalination alone
  10. 10. In Tehran, obsolete cars, minimal public transport and gasoline at 10 cents/litre...
  11. 11. ....means air quality so bad...
  12. 12. ....that even the crows are leaving
  13. 13. Energy subsidies by producers and developing nations cost trillions of dollars
  14. 14. Investment in the global transition to renewable energy requires trillions of dollars
  15. 15. The question is how to make the connection?
  16. 16. Mega Watts......from wind
  17. 17. .....any amount of solar energy
  18. 18. The real prize is the cheapest energy of all...NegaWatts...of energy savings
  19. 19. “You can't solve 21st Century problems with 20th Century solutions”...Dr Narsi Ghorban
  20. 20. There are conventionally two types of ownership - Public or Private... 09/03/10 20
  21. 21. ...and there are two ways of raising finance: Credit and Investment 09/03/10 21
  22. 22. Investment through a Limited Company... 09/03/10 22
  23. 23. ....a 19th Century legal dinosaur... 09/03/10 23
  24. 24. ...is what makes the Private Sector Private 09/03/10 24
  25. 25. Credit is typically issued by banks and secured by legal claims 09/03/10 25
  26. 26. ...giving two conflicting claims over the same productive asset 09/03/10 26
  27. 27. But there’s a new furry animal out there.... 09/03/10 27
  28. 28. ...the 21st Century Limited Liability Partnership (LLP) 09/03/10 28
  29. 29. A UK LLP is a corporate body with limited liability.... 09/03/10 29
  30. 30. ...and.....errrr.....that’s it ! 09/03/10 30
  31. 31. As far as the UK Tax Man is concerned it is a Partnership 09/03/10 31
  32. 32. It’s an Open Corporate where partnership working is possible.... 09/03/10 32
  33. 33. ... even without a written agreement 09/03/10 33
  34. 34. It enables Direct “Peer to Peer” (P2P) Credit and Investment 09/03/10 34
  35. 35. LLPs are now in pervasive use for purposes never intended... 09/03/10 35
  36. 36. ...even in the Public Sector, where Glasgow has five municipal LLPs 09/03/10 36
  37. 37. Introducing the Capital Partnership AssetsAssets Investors Payment % % Custodian Use Managers Users
  38. 38. Capital Partnership – direct Peer to Peer investment in productive assets 09/03/10 38
  39. 39. 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 %% %%%
  40. 40. Productive assets are held by a “Custodian”.. AssetsAssets CustodianCustodian Ownership
  41. 41. …Investors put in Financial Capital in money, or “money’s worth”… AssetsAssets Investors Custodian Ownership Financial Capital
  42. 42. …Managers provide Human Capital of time, expertise and experience.... AssetsAssets Investors Custodian Ownership Human Capital Financial Capital Managers
  43. 43. ..Users pay for the use of Capital AssetsAssets Investors Payment % % Custodian Use Managers Users
  44. 44. Generic Capital Partnership Framework AssetsAssets Investors Payment % % Custodian Use Managers Users
  45. 45. Capital Partnership reinvents Equity
  46. 46. Equity Shares - % age shares in revenues or production 09/03/10 46
  47. 47. Units – redeemable in payment for energy production eg Kilo Watt Hours, natural gas
  48. 48. Units have a value in exchange
  49. 49. Asset-based on value provided by issuer...
  50. 50. ….rather than deficit-based upon a claim over value issued by a Bank
  51. 51. Let’s have a look at an Energy Pool for a wind turbine
  52. 52. Two Phases – Development ('Financing') and Operation ('Funding')
  53. 53. Development phase: firstly, a Custodian AssetsAssets CustodianCustodian Ownership
  54. 54. Suppliers provide money’s worth AssetsAssets Suppliers Custodian Ownership Capital Equipment
  55. 55. They may invest equipment & materials if they are willing and able
  56. 56. ...but must invest agreed profit margin, thereby giving a stake in the outcome
  57. 57. Investors provide risk capital for costs suppliers cannot or will not invest AssetsAssets Investors Custodian Ownership Risk Capital
  58. 58. Managers provide Human Capital of time, expertise and experience AssetsAssets Investors Custodian Ownership Human Capital Financial Capital Managers
  59. 59. ...and the turbine is installed
  60. 60. Sounds great, but where does the money for the costs come from? 09/03/10 60
  61. 61. Simple: the turbine creates a Pool of future production 09/03/10 61
  62. 62. ...and from this Pool we sell Units to investors redeemable in payment for electricity... 09/03/10 62
  63. 63. … at a discount to the market price 09/03/10 63
  64. 64. Operation Phase AssetsAssets Payment Custodian Electricity Consumers
  65. 65. Managers receive an Equity Share AssetsAssets Payment x% Custodian Electricity Managers Consumers
  66. 66. Operation Phase AssetsAssets Investors Payment 100-x% x% Custodian Electricity Managers Consumers
  67. 67. The Pool may now sell Units to consumers and risk averse investors 09/03/10 67
  68. 68. Units - the Value Proposition 09/03/10 68
  69. 69. Investors - a direct investment in energy with no return... 09/03/10 69
  70. 70. ....similar to an investment in gold... 09/03/10 70
  71. 71. ...except that while gold may be pretty... 09/03/10 71
  72. 72. ....it’s not useful in the way that electricity is 09/03/10 72
  73. 73. Consumers have the ability to lock in the price of future consumption 09/03/10 73
  74. 74. Middlemen extracting profit become service providers sharing surplus 09/03/10 74
  75. 75. What about Liquidity? Investors selling Units may not find Investor buyers.... 09/03/10 75
  76. 76. No Problem! Consumers will buy if the Unit price falls below electricity market price... 09/03/10 76
  77. 77. ...because they would profit by buying Units and redeeming them against consumption 09/03/10 77
  78. 78. Energy Pool Mega Watts (Custodian) Mega Watts (Custodian) Unit Investors Consumers Equity Shares Managers, Communities electricity£ or Units Redeemed £ Units Units
  79. 79. Interest-free financing through monetising renewable energy... 09/03/10 79
  80. 80. ...by issuing - for value now - a Unit that will cost nothing to redeem 09/03/10 80
  81. 81. Energy Pooling and Unitisation has further potential beyond funding new renewables 09/03/10 81
  82. 82. Existing energy production may be unitised and refinanced interest-free..... 09/03/10 82
  83. 83. …releasing funds for further investment 09/03/10 83
  84. 84. Nega Watt energy savings - the cheapest energy of all – may be simply financed… 09/03/10 84
  85. 85. …energy loans in KwH may be repaid via utility bills out of energy saved 09/03/10 85
  86. 86. A £5k interest-free energy loan is 100 Units of 1 Mega Watt Hours sold for £50/MWh.... 09/03/10 86
  87. 87. ....or 10,000 Units of 10 Kilo Watt Hours each sold for 50p 09/03/10 87
  88. 88. A reduced bill is paid to the power supplier for energy actually used..... 09/03/10 88
  89. 89. ...while Units are bought from the Pool to repay the energy loan 09/03/10 89
  90. 90. A Carbon Levy on fuel may fund Energy Pool investment in renewable Mega Watts 09/03/10 90
  91. 91. …and investment in energy saving Nega Watts 09/03/10 91
  92. 92. Unitisation enables an energy dividend from a valuable carbon investment 09/03/10 92
  93. 93. The outcome is that those with above average carbon use ...
  94. 94. ….make a net transfer to those with below average carbon use
  95. 95. A Capital Partnership is not an Organisation 09/03/10 95
  96. 96. It does not own anything, do anything, employ anyone, or contract with anyone 09/03/10 96
  97. 97. It is simply a framework for cross border energy investment
  98. 98. It transcends borders through interactive consensual contrats de société... 09/03/10 98
  99. 99. ...rather than national or international institutions and hierarchies
  100. 100. There are no adversarial contractual relationships – contrats de mandat 09/03/10 100
  101. 101. 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) % % € 09/03/10 101
  102. 102. Unitising energy enables a Carbon currency based upon the intrinsic value of energy…
  103. 103. ..rather than a market in value-less Units of CO2 emissions, imposed by governments
  104. 104. Gas is homogeneous and Units would be regionally and globally acceptable in exchange 03/04/10 104
  105. 105. Electricity Units – redeemable in payment for Kilo Watt Hours –are regionally acceptable
  106. 106. Other Units – redeemable in payment for carbon fuels - may be nationally acceptable
  107. 107. All may be priced against a Unit of measure – an Energy Standard....
  108. 108. ...a fixed Unit of energy
  109. 109. Outcome: producer nations can massively increase domestic energy prices....
  110. 110. ...without subsidy, inflation or fuel riots...
  111. 111. ...through an Energy Dividend of Units
  112. 112. Populations may choose to waste energy and use valuable Units to pay for it
  113. 113. ...or conserve energy and exchange Units for accommodation, food or goods
  114. 114. “Reality is defined by the questions you put to it”... J A Wheeler
  115. 115. Can we price Dollars in energy: rather than pricing energy in Dollars?
  116. 116. What would an energy economy look like? 09/03/10 116

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