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Please tell me why would anyone buy your redeemable units, and at what price. Who decides to sell them at 30 or at 50? Who buys them, and why?

If your idea is to have a government-run pool, isn't is a lot easier to have a government-run electricity operator that builds windfarms and distributes power to consumers at society-favorable prices?


And the only risk, which is pretty much known these days, is the development risk.

No, there's the operational risk, ther's the price risk, there's theregulatory change risk, there's the fraud risk, etc... How do you deal with these? ie who takes a loss if they happen, and how can they mitigate it?

Please give me an exemple for my turbine, telling me who buys what at what price and gets what in return. In particular, given that the actual number of kWh produced in a year in unknown, and that the value of the kWh each year is unknown, how are either kWh or revenues shared, according to the volume available.

Be concrete, please.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Jan 19th, 2008 at 06:54:32 AM EST
[ Parent ]
Please tell me why would anyone buy your redeemable units, and at what price. Who decides to sell them at 30 or at 50? Who buys them, and why?

Leaving to one side the sort of Investors who buy gold as an investment, these units could be sold to anyone who has an interest in hedging electricity consumption.

What I am describing is an undated, un-geared futures contract. If you want gearing, then borrow to buy units, or buy call options on them (a market would develop soon enough).

Moreover this will be a market suitable for retail customers, because it is un-geared.

If your idea is to have a government-run pool, isn't is a lot easier to have a government-run electricity operator that builds windfarms and distributes power to consumers at society-favorable prices?

Government run? You must be joking. We don't all have efficient and non-bureaucratic governments like the French, you know. ;-)

Community owned, yes. By which I do not mean "the State" in the form of local or national government.

I mean assets placed in trust, with government participating as a market user/consumer, and as an investor.

The Managing/Operating partner within a "Community Energy Partnership" framework could, probably would, be a "private" sector operator, or maybe a community cooperative if they have the skills.

Essentially I propose a partnership between service users and service providers.

No, there's the operational risk, there's the price risk, there's the regulatory change risk, there's the fraud risk, etc... How do you deal with these? ie who takes a loss if they happen, and how can they mitigate it?

Operational risk you would probably build in to a leasing model, as I said. And if the turbine manufacturer isn't up for it, because he's a Plc or debt funded, or both, then you buy him out, or start your own, again as a Community (or Federation of Communities) owned business.

Regulation (and taxation) are always a risk but it works two ways: the units an investor buys could become more or less valuable.

Fraud? The use of a Custodian for funds will limit that, but shit happens.

It's your job as an investment banker to do the due diligence on projects to see that they appear viable and that no more units are to be sold than the project is capable of producing. A prospectus will be needed in the normal way, and there will be a minimum unit sale price below which a project will not happen.

Price Risk? Of course. That's what this is all about.

Investors are taking a risk as to price. If the market price doubles they make 100%. If it halves, they lose 50%.

Hedgers are off loading price risk. So if the local school buys 100 MwH and the physical market (externally provided) price goes down, they don't lose anything: it's just that they don't gain from the fall in physical market price.

Please give me an exemple for my turbine, telling me who buys what at what price and gets what in return. In particular, given that the actual number of kWh produced in a year in unknown, and that the value of the kWh each year is unknown, how are either kWh or revenues shared, according to the volume available.

Be concrete, please.

Let's assume we've sold 30,000 units at 50 euro's to hedgers and investors, local or otherwise.

Each year there will be operating costs to meet and sufficient production must be sold to meet these costs, or future production (if there is any unsold).

The liquidity pool must be managed, essentially a Treasury function.

The balance - if there is any - is firstly sold locally to anyone presenting units for redemption, and whatever is not consumed locally in this way is sold to the Grid under conventional arrangements, as now. In fact, it would be possible to provide that local sales could only be made in energy units.

Locals would be quite happy to pay anything up to the Grid price for these units. Until we buy out the Grid by "partnerising" it.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Jan 19th, 2008 at 08:04:37 AM EST
[ Parent ]

What I am describing is an undated, un-geared futures contract. If you want gearing, then borrow to buy units, or buy call options on them (a market would develop soon enough).

No, a market will not develop, because the product is not standardized. That's why each project has a taylor-made financing today: because you must adjust to the specific conditions in each case (different technical constraints, different local partners, different wind potential, investors with different goal in each case - PR, return on investment, fulfilling regulatory obligations, power prices, etc...)


Operational risk you would probably build in to a leasing model, as I said.

Leasing is just a financial object, not a risk allocation technique. What I mea, is - who loses out if production is less than expected? What's your cash waterfall which describes exactly who gets what money in what order when revenue is generated?


And if the turbine manufacturer isn't up for it, because he's a Plc or debt funded, or both, then you buy him out, or start your own, again as a Community (or Federation of Communities) owned business.

Suddenly you jump from building a few MWs of wind power to becoming a manufacturer of wind turbines, a completely different business, in the heavy industry sector, where the investment requirements are of a total different scale. This is, quite simply, ridiculous. Are you also going to tell me that if Toyota does not want to take your units to pay for the pick up truck to go operate the turbine, you'll also go into "community-owned" pickup truck manufacturing?


It's your job as an investment banker to do the due diligence on projects to see that they appear viable and that no more units are to be sold than the project is capable of producing. A prospectus will be needed in the normal way, and there will be a minimum unit sale price below which a project will not happen.

I thought the whole point was to get rid of the evil investment bankers? If we're in the picture, why not stick with our existing solutions, which do not require anybody to step out of their normal professional position, allow risk allocation on a case-by-case basis in accordance with each entity's needs and priorities, and, you know, actually happen and work?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Jan 19th, 2008 at 08:27:00 AM EST
[ Parent ]
No, a market will not develop, because the product is not standardized

What is not standardised about a unit of energy?

I am proposing a Pool denominated in units of energy, and investors will pay conventional money to buy these units, exactly as they would buy shares in Exchange Traded Funds. While hedgers will buy them in order to lock in price.

The resulting funds will then be invested - without using the conflicted "Debt/Equity" paradigm - to create production of units of energy.

I am proposing "ownership" of productive assets in trust on behalf of the communities, with production shared equitably as between those responsible for bringing it about.

Sure, each project is different, and needs to be appraised in terms of expected costs, and expected production. Your job.

But it is IMHO possible to achieve the same goals using a structure an order of magnitude simpler than now: this doesn't appeal to people who have no stake in the outcome, or to intermediaries.

Leasing is just a financial object, not a risk allocation technique.

Sure: leasing the way you are accustomed to doing it does not share risk. I believe that it is possible to confugure things differently, through partnership arrangements.

This is, quite simply, ridiculous.

Sure it's a leap from a single turbine to a thousand, and to a Pool of Pools capable of funding the necessary infrastructure.

You have a multi-faceted vision of how a deficit-based model may "Energise America".  I do not call that "ridiculous" even though you base it on a manifestly unsustainable financial paradigm which is even now - as you yourself document - breaking down around us.

A deficit-based economy cannot - the mathematics of compound interest prevent it - work in the long term in a world of finite resources, and is the principal direct cause of our problems.

That is a fact.

We need another way of doing it, and not only am I putting forward a view as to how that might work, I am doing my level best to make it happen, and getting a lot of traction, albeit at the "micro" level we are initially aiming at in Scotland and Norway.

I thought the whole point was to get rid of the evil investment bankers?

Now that snark really is not worthy of you. My view, expressed clearly and often, is that bankers have a perfectly valid role to play, but credit creation is not it.

Just in case you tuned out, bankers may IMHO add value:

(a) in managing mutually guaranteed bilateral credit creation;

(b) in appraising projects to build productive assets and to bring investors together with investment using "asset-based" finance through "unitising", as opposed to "securitising" production.

If we're in the picture, why not stick with our existing solutions, which do not require anybody to step out of their normal professional position, allow risk allocation on a case-by-case basis in accordance with each entity's needs and priorities, and, you know, actually happen and work?

But the point is that the toxic combination of Debt and shareholder value "Equity" combine to ensure that they do not "work" other than to concentrate ownership of resources in fewer and fewer hands.

And State solutions, IMHO, are little better.

Credit creation by Banks, coupled with private property in "Commons", and "free" limitation of liability - is why we are in this mess, and credit creation by Banks will not get us out of it.

If all we ever did is persist with "existing solutions" we wouldn't get very far.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Jan 19th, 2008 at 10:02:51 AM EST
[ Parent ]

What is not standardised about a unit of energy?

Because what you're offering to trade is not units of energy, but units of energy production capacity. It's like saying that you can go buy bread with units in wheat fields: not gonna happen.


I am proposing "ownership" of productive assets in trust on behalf of the communities, with production shared equitably as between those responsible for bringing it about.

You keep on saying "equitably" but you never once say what is equitable.

The existing model is equitable: the manufacturer gets paid for machinery and agreed warranties. The operator gets paid the first slice of revenue for making the equipment function correctly and generate revenue. Banks get paid next for providing the initial funding, and require an amount which is likely to be available even with low prices and lower than average wind, providing low but stable revenue to them and their capital. Investors get the rest, which is very volatile but is expected, on average, to produce a higher return on their initial investment - with the risk however that they will be wiped out if something goes wrong.

Tell me who takes what risks in your model. Who, what, how? Not grand words like equitable. concrete numbers for my turbine, please.


 leasing the way you are accustomed to doing it does not share risk. I believe that it is possible to confugure things differently, through partnership arrangements.

Please define leasing, then before telling me how I'm accustomed to doing it. Leasing, for me, simply means that you don't own the asset, and you pay some form of rental to use it. Rental obligations can vary widely, from the way payment amounts may vary, how long the lease lasts and how it may, or may not, be interrupted, and who ends up with the asset in the end. So I'm not sure what I'd be accustomed to do. Please provide your definition. You cmplain about my use of "ridiculous" but you sprinkle your comments with casual insults that are all the more annoying that you don't even bother to define what you claim I know nothing about.


you base it on a manifestly unsustainable financial paradigm which is even now - as you yourself document - breaking down around us.

It's not the financial paradigm which is breaking down, it's banking without risk analysis which is, as it always has been, unhealthy. It's not quite the same thing, as it is very much possible to have banking systems that do not drive all economic activity, because they are regulated differently.


But the point is that the toxic combination of Debt and shareholder value "Equity" combine to ensure that they do not "work" other than to concentrate ownership of resources in fewer and fewer hands.

Meh. It's bank lending that has allowed nobody hippies, local farmers or cooperatives to build their windfarms using "toxic" credit instruments. Color me skeptical of your grand claims.

You mistake tools for how they are used. The utopian tools you have in mind will get misused just as easily as current banking tools are.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Jan 19th, 2008 at 10:30:52 AM EST
[ Parent ]
Because what you're offering to trade is not units of energy, but units of energy production capacity. It's like saying that you can go buy bread with units in wheat fields: not gonna happen.

It's been around - imperfectly - for years in the form of futures contracts.

In 1989 there was an interesting experiment - DeliDollars - where a Deli owner raised $5,000 by selling units of future production forward to his customers.

I'm proposing a straightforward, albeit un-geared, and un-dated, alternative to futures contracts, and the reason it has not been done to date is simply that the legal forms did not exist to allow it.

Selling production forward in this way will happen IMHO, and it will be big. And it will require exactly similar risk management to that which you already practise.

You keep on saying "equitably" but you never once say what is equitable.

The existing model is equitable: <snip>

Equitable means "fair": but fairness is in the eye of the beholder.

IMHO conventional Equity is not "equitable" in terms of sharing risk and reward, and neither is a Debt contract. If you combine the two by using debt secured over assets owned by a company then you get two conflicting claims over the same asset

Sure it's possible to tie these financial claims together using "binding" contracts, the same way that you can tie together two N/S magnets. But they will always tend to fly apart.

I advocate proportional sharing of risk and reward as between financier and user of finance.

I do so firstly because I believe that it is "fair", and secondly because I believe it actually "works" which is why people are increasingly doing it.

Leasing, for me, simply means that you don't own the asset, and you pay some form of rental to use it.

"Use" is fine. I advocate a form of "co-ownership" - I've heard it called an "evergreen lease" - where the rights of use are set out in an LLP or LLC agreement.

but you sprinkle your comments with casual insults that are all the more annoying that you don't even bother to define what you claim I know nothing about.

If you consider any of my comments as insults then that is regrettable: and nowhere on this site will you find anything written by me that questions your knowledge of your subject.

I only request the same consideration from you, because if there is one thing I do understand it is how market mechanisms, and the legal protocols of which they and the contracts traded on them, actually consist and work.

it is very much possible to have banking systems that do not drive all economic activity, because they are regulated differently

I give you that it is possible to have non-toxic forms of banking. But only in the absence of the exponential growth of money supply which is a direct consequence of Money as Debt.

There is no way around this inconvenient truth, I'm afraid, however well Banks analyse risk, and no matter how well Banks are regulated.

Fortunately, the disintermediating effect of the Internet is about to render our disagreement on this subject irrelevant.

Meh. It's bank lending that has allowed nobody hippies, local farmers or cooperatives to build their windfarms using "toxic" credit instruments. Color me skeptical of your grand claims.

You mistake tools for how they are used. The utopian tools you have in mind will get misused just as easily as current banking tools are.

Hmmm...do I detect a "casual insult" here? Surely not.

The "utopian" tools I observe emerging - the entire Canadian capital market comes to mind - are doing so simply because they work. Pension funds actually like getting their hands on Company revenues before the management does. The fact that this "pre-distributive" arrangement shares risk and reward more "equitably" IMHO is an added bonus.

Banks as credit intermediaries are no longer necessary: it's that simple.

Anyway, I've enjoyed the cut and thrust: I can't speak for you. If we agreed all the time we wouldn't get anywhere, and there is a lot (indeed most) of what you say that I agree with wholeheartedly.

ET'ers will make up their own minds as to the rights and wrongs of the discussion.

Keep on energising, and may the best paradigm win!

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Jan 19th, 2008 at 11:55:02 AM EST
[ Parent ]

IMHO conventional Equity is not "equitable" in terms of sharing risk and reward, and neither is a Debt contract. If you combine the two by using debt secured over assets owned by a company then you get two conflicting claims over the same asset

There's no conflict. Lenders are "senior secured", ie they get first dips on the security when it is invoked - until they get paid. In normal times, they are entitled to specific payments; if these payments cannot happen, then they can make a claim on security. This is all laid out in the financial documentation. The legal form is fundamentally irrelevant, what matters is the precise definition of the rights and obligations of each party.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Jan 19th, 2008 at 12:16:57 PM EST
[ Parent ]
The legal form is fundamentally irrelevant, what matters is the precise definition of the rights and obligations of each party

The use of an LLP or LLC as a legal form allows those financiers "outside the box" - should they wish, and to the extent they desire to - to come within the LLP/LLC legal protocol/framework which defines "the rights and obligations of each party" and thereby to share risks and rewards as they may consensually agree.

If all you are doing is borrowing then the legal form of the borrower is irrelevant, I agree. But I am observing new alternatives to borrowing - Income Trusts being one, and "Capital Partnerships" being another .

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Jan 19th, 2008 at 12:42:01 PM EST
[ Parent ]
what makes you think that we bankers don't already use LLC or LLPs when it's convenient?

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sat Jan 19th, 2008 at 12:46:11 PM EST
[ Parent ]
I'd be amazed if you didn't.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sat Jan 19th, 2008 at 12:58:52 PM EST
[ Parent ]
I think the key here is the part about bringing bankers and manufacturers into a more symbiotic relationship.

Am I right in thinking that the debt problem is basically too many people needing to make a profit as costs rise--inflation?  Or that those with the most money demand over-the-possibilities payments for loaning out their money?

Jerome makes me think he'd say: "If banking is done correctly there cannot be an over-the-possibilities arrangement."

But...I think the key is right as Jerome says: Why should bankers try and be builders too?  Each to their own area of expertise.

To which I imagine a reply: "It depends if the builders are more interested in building or making a profit."

If the latter, then back to the issue about over-the-possibilities...okay, I'm not expressing myself well.

Sviatoslav Richter - Moments

(Invigorating!)

I'm thinking, okay, a company can't declare the future, there are unkowns, risks of all kinds, so we need a cushion--say 4-6%.  How big the cushion should be--I suggest those numbers from what I've read.

So a manufacturer quotes at 4-6% above costs (where costs include paying staff well, including all the way back to raw materials, so costs may be higher than average)--(but the profit is at 4-6% max as it's laid in stone more or less--it's the price of the risk--where risk has to avoid "rip off"--maybe impossible in some cases, but with wind farms there is already plenty of legislation for all parts of the process.)

So--I build wind turbines, or know people who do (I'm thinking of Crazy Horse); they are the people who like building wind turbines and 4-6% (or tell me a number--I'm interested!) is fine--it oils the wheels without covering everything in sticky gloop.

So as long as a financier can raise enough cash--lock in!  Guarantee business against production.  Note that buying longer brings stability (order ten years production of steel up front--I think this is part of Chris's idea--that everyone can buy in, lock in to an equitable (no one is taking more than 4-6% and that's understood to be fair liquidity)--and if costs drop, then 4-6% on top is still 4-6%.

A money hound--a person after profit--will shop elsewhere while there are businesses generating higher profits.

Okay.  Start with products that rely less on money hounds.  Energy!  Communities need it (I think the CO2 kicker--hey, I get my electricity from the wind, mate! will allow wind prices to stay above other forms--stability!)

(cough cough!  I mean, if I saw wind turbines on the hills surrounding our town, and I knew I was a partner in those wind turbines, and I knew everyone down the line was playing 4 to 6 and not "rip your pockets", then as long as it was affordable....)

So: if financiers and manufacturers (builders) could come together at four to six, would prices be higher or lower, assuming all other variables are the same whether they do or don't?  (Maybe a big if!)

Because if that works, I'll buy in.  I understand the energy credit as being ownership of production much as Jerome said with bread.  If I have rights to my potential X percent of grain, I have my access to my bread.  I can give those rights (in the form of money of some kind) to the baker, but the total of credits in the system add up to the production.  We all lose if no grain grows, so we're all that bit more involved in making sure grain grows = I (we!) can continue to eat bread.  

Moving out of the comfortable countries, there are going to be food riots across the globe soon (I'm happy if I'm wrong)--prices are rising and populations are high--a crash that would be completely avoided if (I suggest!) the farmers and communities were linked in as Chris (I'm suggesting!) suggests.  And the energy suppliers (food production needs energy--melo's electric tractors!), and the suppliers of chemicals (of the non-toxic to life kind)--that could be those who collect guano--it could be a link in with the refuse collectors--organic waste becomes fertiliser in realtime.

But why would a banker want to worry about all that?

Why would anybody?

Because separate-but-equal doesn't work?

I was thinking of Rupert Murdoch's brain today, wondering if he thinks just like the average thickhead.  How else would he know how to push all their buttons, and why else would he want to?  The average thickhead wants control, sex, money, more sex, wine, wo/men, just everything that Murdoch sells, with CONTROL number one and FEAR just above it (but given, not asked for--); and I think: "Why aren't there any newspapers I can read without tut-tutting my way quickly from front to back?"

Somehow that's connected.

I'm wondering "How far are we going to go with this intelligence we all have?  Where there are walls there is fear.  Where there aren't walls there are things to be afraid of, maybe.  But how do we know if we never go outside the walls and how do we get safe if we have no protection?  By getting symbiotic--by living as far as we can within a culture of win-win relationships--

Importantly: with nature.  Chris mentioned finite resources.  How does any banking that suggests we can live above 4-6% percent--how does that work?  Because the profits end up as consumption somehow (more use of finite resources) or else there's no need for them (above 4-6%)

Heh!  

Yours,

Ikernov Nussink.

Shostakovich plays Piano Concerto No 2 III. Allegro (1958)



Don't fight forces, use them R. Buckminster Fuller.

by rg (leopold dot lepster at google mail dot com) on Sat Jan 19th, 2008 at 05:42:01 PM EST
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