The problems seems to be
1) Short term vs. long term - consumers are worried about their electricity bill this year, entrepreneurs/investors/bankers have to SHOW a profit this year, and a politician's max immediate life span is five years (with an attention span of 5 minutes).
ii) the unquantifiable nature of the risk - Oil prices HAVE gone down dramatically for long periods between spikes in the past
iii) All the investment has to be very upfront - major cash flow issues for anyone who doesn't have deep pockets, or huge credit facilities - you are not talking about humanitarians or visionaries here
iv) The market makers in the "redeemable units" will cream off huge service fees which will make the whole thing unattractive for a small investor
The longer term nature of the business may make it attractive for pension funds who have huge assets and very long term liabilities but who will see wind energy as just one other class of asset in their portfolio and one they can usefully use as a hedge against oil price sensitive stocks (e.g. Airlines.
But is this not good ol capitalism as we know it? Index of Frank's Diaries
(i) Short term vs long term
The point is that "term" doesn't come into it in an equity-based structure like this. "Time" is not a consideration as it is in a deficit-based system.
(ii) the unquantifiable nature of the risk
Nothing new here. Price risk over time is price risk over time. The difference is that I'm proposing a simple new way in which risk may be bought and sold - without the "gearing" of a futures contract.
Price Risk is and always will be in the eye of the beholder.
(iii) All the investment has to be very upfront
Indeed, which is why the government should prime the proposed "Pool" from a carbon tax ($20 a barrel?).
The redeemable energy units they will receive in return for the investments enabled by the Pool will be distributable as they see fit, ideally as an "energy dividend".
Government should also create credits (as the Bank of England is doing with Northern Wreck) to invest in units. To those who say that this is inflationary, I would say that it is less inflationary than having banks create the credit, but with an interest burden attached...
(iv) The market makers in the "redeemable units" will cream off huge service fees which will make the whole thing unattractive for a small investor
What a pessimist you are! Units in a "Pool" like this will undoubtedly be acceptable in exchange by virtually anyone, for anything. Because they know it will be acceptable against something of value to them.
But note that these units of energy "ownership" are not like futures contracts with lots of "prompt dates", fragmenting liquidity, with money creamed off from fund investors as positions are "rolled" from month to month.
The more liquid the pool, the less market-makers will cream off.
This market, as pools link with pools to form a networked "Energy Clearing Union", will comprise a simple asset class of "ownership" of x Kilowatt Hours. Essentially an energy-based currency - an "energy dollar" maybe.
Lots of issues, of course, but nothing the assembled brains of ET couldn't handle.
This Kilowatt Cards guy has essentially already done it, using his own money, just to show what's possible. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
This is like saying that time is not relevant when swimming underwater, so long as, on average, you spend enough time above water.
It's like all these financial models that work as long as there is liquidity.
Term matters when you have limited resources. In the long run, we're all dead. John Maynard Keynes
I propose replacing (and I've done it and seen it done, it's not difficult):
(a) use for a defined term (eg debt, leasehold) with use for an indefinite or indeterminate period (ie no "term")- ie for as long as you use an asset in which investment has been made, you share the revenues you create; and
(b) "absolute" ownership with trusteeship.
Secondly, renewable energy is not in any meaningful sense a limited resource.
Finally, what could be more liquid than an "energy dollar" of a set amount of energy? "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Or am I missing something?
Because otherwise the unit energy recipient will not have its unit when needed, and it might freeze. The drowning analogy is very apt. In the long run, we're all dead. John Maynard Keynes
This isn't a futures contract, where a contract owner/holder could demand delivery, and the turbine may then default. What happens here is that when delivery by the turbine actually does take place, units may be exchanged instead of conventional money, thereby allowing the turbine owner to "redeem" the units and cancel some of the obligations of indeterminate duration he took on to fund the turbine.
If the turbine is down, then customers in possession of units have to get their supply from someone else (a utility?), who may or may not accept energy units in exchange, which they probably would if the rate was less than that they are accustomed to paying the turbine for its excess capacity.
But there is no need for customers to sell the units: they may simply keep them and use them at a later date.
The risk is that the turbine cannot produce - over its life - sufficient energy to redeem all of the energy units sold.
"Overselling" is a form of "evil" which the investment banks who put projects together, and energy market regulators, would have to prevent.
Underproduction is a different issue, and if (say) the turbine was destroyed, then (mandatory?) insurance would kick in and compensate investors (through a buyback at market price) or pay for a rebuild etc etc
But there would be no "evil" double counting. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Selling the actual energy production forward differs very little from selling a revenue amount forward. I thought your model involved selling shares of production, whatever that will be in the future, rather than selling a fixed amount of KWh. We have met the enemy, and he is us — Pogo
It wasn't that long ago (a few months) that it occurred to me that there are two forms of "Equity" possible:
(a) Proportional shares, giving indefinite rights to streams of production; and
(b) "Redeemable" shares redeemable in units of production, but not conferring any "income".
One could do either, or both, technically, but that could get messy.
But it's the "units" that have the most potential I think.
Selling the actual energy production forward differs very little from selling a revenue amount forward.
True. Because "revenues" consists of the sale proceeds of energy expressed in conventional currency.
But denomination in MwH and Btu equivalent etc could allow us to integrate the energy content of carbon based fuels into a coherent "carbon dollar" market and an "energy clearing union" framework.
As opposed to the trading/clearing of units of carbon content of CO2 brought to us by intermediaries.
The creation of pools of energy units in this way gives us the basis of a globally fungible asset class. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
