energy pool 20 05 2009
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An Energy Pool?
All Energy Conference
Chris Cook , Aberdeen
20 May 2009
A New Approach to Grid and Network Investment
What are the alternatives for funding a North Sea Supergrid?
There are conventionally two types of ownership - Public or Private...
10/04/23 3
...and there are two ways of raising finance: Credit and Investment
10/04/23 4
Investment through a Limited Company...
10/04/23 5
....a 19th Century legal dinosaur...
10/04/23 6
...is what makes the Private Sector ”Private”
10/04/23 7
Credit is typically issued by banks and secured by legal claims
10/04/23 8
...giving two conflicting claims over the same productive asset
10/04/23 9
But there’s a new furry animal out there....
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...the 21st Century Limited Liability Partnership (LLP)
10/04/23 11
A UK LLP is a corporate body with limited liability....
10/04/23 12
...and...errrr...that’s it!...
10/04/23 13
As far as the UK Tax Man is concerned it is a Partnership
10/04/23 14
It’s an “Open” Corporate where partnership working is possible....
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... even without a written agreement
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It enables Direct “Peer to Peer” (P2P) Credit and Investment
10/04/23 17
LLPs are now in pervasive use for purposes never intended...
10/04/23 18
...even in the Public Sector, where Glasgow has 4 municipal LLPs
10/04/23 19
As we have seen, collaborative working in the North Sea is not new..
10/04/23 20
NET proposes financial collaboration within a Capital Partnership framework....
10/04/23 21
...to fund Supergrid as an Energy Pool
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Capital Partnership – direct Peer to Peer investment in productive assets
10/04/23 23
Hilton Capital Partnership ( > £1bn)
Capital Partnership LLP10 UK Hotels
Gross Revenues
Hilton GroupCapital User
Consortium LLP Capital Provider
BankProperty
DeveloperHotel
Specialist
% %
%%%
Capital Partnership LLP
AssetsAssets
Investors
Payment
% %
Custodian
Use
Managers
Users
Productive assets are held by a “Custodian”..
AssetsAssets CustodianCustodianOwnership
…Investors put in Financial Capital in money, or “money’s worth”…
AssetsAssets
Investors
CustodianOwnership
Financial Capital
…Managers provide Human Capital of time, expertise and experience....
AssetsAssets
Investors
CustodianOwnership
HumanCapital
Financial Capital
Managers
..Users pay for the use of Capital
AssetsAssets
Investors
Payment
% %
Custodian
Use
Managers
Users
Generic Capital Partnership Framework
AssetsAssets
Investors
Payment
% %
Custodian
Use
Managers
Users
Capital Partnership reinvents Equity
Equity Shares - % age shares in revenues or production...
10/04/23 32
…..which may be transferred, but never redeemed, since there must always be 100%
Units – Redeemable in production eg Kilo Watt Hours, natural gas
Units have a value in exchange, but no rights to production or income over time…
Asset-based on value provided by issuer...
….rather than deficit-based upon a claim over value issued by a Bank
Let’s have a look at an Energy Pool for a 10 Giga Watt Supergrid
Two Phases – Development and Operation
Firstly, a Custodian is created....a ‘Master Trust’
AssetsAssets CustodianCustodianOwnership
Suppliers provide “money’s worth”
AssetsAssets
Suppliers
CustodianOwnership
CapitalEquipment
They may invest equipment & materials - an evergreen lease with a return in energy
...must invest agreed profit margin, thereby giving a stake in the outcome
Investors provide risk capital for costs suppliers cannot or will not invest
AssetsAssets
Investors
CustodianOwnership
Risk Capital
…Managers provide Human Capital of time, expertise and experience
AssetsAssets
Investors
CustodianOwnership
HumanCapital
Financial Capital
Managers
...and the Supergrid is built
Sounds great, but where does the €25bn development credit come from?
10/04/23 47
Firstly, €25bn development credit is not needed – just funding of work in progress....
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...since production will be unitised as and when electricity comes on stream
10/04/23 49
Second, the project will be subject to government guarantees....
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...in exchange for which governments may receive an Equity Share
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Finally, national grid utilities as Manager members ....
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...would invest in return for Equity Shares
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When production comes on-line the Energy Pool is operational
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Operation Phase
AssetsAssets
Payment
Custodian
Electricity
Consumers
Managers receive an Equity Share
AssetsAssets
Payment
x%
Custodian
Electricity
Managers
Consumers
Operation Phase
AssetsAssets
Investors
Payment
100-x% x%
Custodian
Electricity
Managers
Consumers
The Pool may now issue to Investors Units redeemable in electricity
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Units - the Value Proposition
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Investors - a direct investment in energy with no return...
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....similar to an investment in gold...
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...except that while gold may be pretty...
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....it’s not useful in the way that electricity is
10/04/23 63
Consumers – the ability to lock in the price of future consumption
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Units are hybrid – analogous to a futures contract but no expiry date, and no
gearing....
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....analogous to an Exchange Traded Fund Unit but redeemable in energy
10/04/23 66
What about Liquidity? Investors selling Units may not find Investor buyers....
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No Problem! Consumers will buy if the Unit price falls below electricity market price...
10/04/23 68
...because they would profit by buying Units and redeeming them against
consumption
10/04/23 69
Energy Pool
10 Giga Watts(Custodian)
10 Giga Watts(Custodian)
Unit Investors
Consumers
Equity SharesManagers, Governments
electricity£, €, etc or Units Redeemed
£,€, etc
Units
Units
Interest-free financing through monetising renewable energy...
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...by issuing - for value now - a Unit that will cost nothing to redeem
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Energy Pooling and Unitisation has potential far beyond SuperGrid
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Existing energy production may be unitised and refinanced interest-free.....
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....releasing development credit and energy dividends
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A Carbon Levy on fuel may fund Energy Pool investment in renewable Mega Watts
10/04/23 76
Units enable an Energy dividend on a compulsory investment...instead of a tax
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Units simply finance the cheapest energy of all – Nega Watts - energy savings...
10/04/23 78
Energy Loans in KwH may be repaid out of energy saved via utility bills
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The outcome is that those with above average carbon use ...
….make a net transfer to those with below average carbon use
Energy Pool offers a new approach to the proposed Kyoto carbon markets....
...where the Emperor has No Clothes
Overheard at a traders’ conference.....
“If you want to keep a cow healthy, you don’t regulate what comes out of it……
“……you regulate what goes in….”
An Energy Pool enables a Carbon currency based upon the intrinsic value of energy…
..rather than a market in value-less Units of CO2 emissions, imposed by governments …
….promoted by the same people who brought us the Credit Crunch
The Energy Pool is not an Organisation...
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...it does not own anything, do anything, employ anyone, or contract with anyone...
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….it is simply a framework for cross border energy investment
It transcends borders through interactive consensual ‘contrats de société’...
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...rather than national or international institutions and hierarchies
Energy Pool has no adversarial contractual relationships – ‘contrats de mandat’
10/04/23 95
...it 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)
% %
€
10/04/23 96
...no public borrowing and probably no permission
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Sustainable Scottish Nordic development is what we do
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Thank You
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