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Good questions.

Firstly, it doesn't matter how many energy certificates investors hold: they have no right to delivery, merely the right to present the certificates in payment for supply.

But in fact the redeemability of prepay certificates means that they are an excellent investment, because even if other investors are not prepared to buy at the unit market price, if the unit price falls below the physical market price, customers will buy them for redemption.

Think of an ETF with units returnable in the underlying: or a REIT with units returnable in payment for rent.

Secondly, I think we will see an energy clearing union wherein producers/issuers agree to accept each others' certificates in payment for supply, and then account with each other.

Such an energy clearing union would operate as a 'guarantee society' as a variation on a risk sharing P & I Club , managed by a service provider.

The first defence against over-issue is transparency - since sunlight is the best disinfectant, all energy clearing union issuance would be available for scrutiny.  Service providers like Thomas Miller would then act in accordance with agreed rules to manage issuance.

Finally, there is the point that certificates are returnable in payment at the location of the consumer, but issued by producers at different locations.

What this means is that it is necessary for a change in the distribution/utility business model away from intermediation.

But this is already happening, because to transform from an intermediary to a service provider is actually in the interests of the intermediary, because service provision is 'capital lite'.

That is precisely why banks got into the business of selling quasi-equity instruments such as index funds and ETFs to passive investors - it means the maret risk is with the unwitting investor, not them.

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

by ChrisCook (cojockathotmaildotcom) on Fri Sep 6th, 2013 at 03:04:15 PM EST
[ Parent ]
ChrisCook:
it doesn't matter how many energy certificates investors hold: they have no right to delivery, merely the right to present the certificates in payment for supply.

This is where my little brain blows up once again.

The only way I can decipher the real dealings involved in your scheme takes me somewhere to an empty supermarket in Joe Stalin's Russia.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Sep 6th, 2013 at 04:40:35 PM EST
[ Parent ]
You've not grokked prepay yet.

It does take a bit of getting your head around, because you're probably looking for complexity which is not there.

Prepayment is just what it says.

You pay money (or money's worth) now, and take delivery of goods or services later, receiving a certificate of entitlement (on your mobile phone) in the meantime. The certificate does not entitle you to demand delivery (as a futures contract would) but if you do take delivery from the issuer (or from another affiliated within a clearing union), he undertakes to accept the certificate in payment.

You will probably only accept such a certificate if a discount or profit is agreed which compensates you for the delay. You achieve your discount/profit when you return it to the issuer. It is the return of prepay credit instruments to the issuer which gave rise to the the phrases 'tax return' and 'rate of return'.

At the moment prepay is already normal in relation to consumables, but not recognised a the investment it also is.

Mobile phone prepay is everywhere typically for those who cannot afford or do not want an account. Meanwhile poor people are not only obliged to prepay for electricity because they can't get credit: to add insult to injury pay more for the privilege. Similarly prepaid debit cards for the un-banked.

More to the point, the fiat currency which we currently use represents in reality - whether it is created and issued by private banks or the central bank as fiscal agents of the Treasury - prepayment of taxes.

Reality-based Economics and the Last Big Thing

There's nothing whatever new about prepayment. It's how the financial system worked formally or informally for hundreds, if not thousands of years, and still does in many parts of the world.

My case is that we began a 300 year aberration from the original undated 'stock' (prepay) into the conventional equity (shares of 'common' or 'joint' stock) and debt (interest bearing 'loan' stock such as 'gilt-edged' stock) forms of finance capital.

That era ended five years ago because it resulted in unsustainable concentration of wealth on a cosmic scale. We are now transitioning to a knowledge-based, energy-denominated economy of abundance from an economy of scarcity, and I think the endgame is probably that we will eventually cease to keep score at all.

Finally, it's not 'my scheme'. I'm simply describing, updating and re-introducing in electronic form the way things used to be done but which has been forgotten for centuries.


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

by ChrisCook (cojockathotmaildotcom) on Sat Sep 7th, 2013 at 03:48:13 AM EST
[ Parent ]
I grok prepay. I've been administering a prepay food coop for some years. Everything is prepaid (in euros, but it could be a local currency if everyone agreed on it). However, it's an account and not a certificate system.

The money people put in is credited to their account and the goods they receive are debited. There is no absolute guarantee of delivery: if a producer has problems and can't deliver, all concerned may decide he can keep the prepay without supplying the goods, because the aim of the system is to support local family-level quality farming. (At least, this is a principle written into our contracts -- in practice, producers prefer to waive their rights in this kind of case.)

What my comment above was getting at was that your system is certificate-based, and the certificates are bought and sold on a market. You say there is no guarantee of delivery. I can only imagine you mean dated delivery, because if the certificate is redeemable against supply (delivery? is there a difference?) and there is no supply, we'll see an almighty crash on the market for these certificates. In fact, without a guarantee of supply/delivery, no one will buy the things in the first place.

Or, as you say below in a reply to askod,

ChrisCook:

When examining and judging energy prepay unit issuance you have to have regard to the rate, and the likelihood, of a flow of energy over time.

This implies what I have heard described as 'confidence accounting'. ie the probability that a particular flow will be achieved.

In fact, a right to delivery is essential, or no one will have any confidence in the system. So I don't think you've answered Mig's question:

Migeru:

how do you prevent more money to be created than there is available energy, and how do you prevent energy certificate hoarding and "cornering the market" so to speak.
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Sep 7th, 2013 at 02:52:56 PM EST
[ Parent ]
Naturally no-one will hand over value in exchange for a prepay credit instrument unless there is an expectation of access to delivery either by the issuer or someone else.

Clearly there is a need for a guarantee of performance, but a unit of currency - whether in bearer (certificate) form or registered to an account - does not confer upon the issuer a dated obligation to supply upon presentation of the instrument as does a (dated) futures contract.

What it does do is confer an obligation on the issuer to accept it in payment for supply.

In relation to Mig's point, we have to look at availability over time,

There's no reason why an energy generator could not sell entitlements to 10 years' worth of production, or a property owner 10 years' worth of rent.

But they will do so at a discount which reflects the return demanded by investors in respect of that form of value; their judgement of the likelihood of continuing production (or in the case of a property, occupation); and their expectations as to what the unit of currency will be worth in the future by reference to a unit of account.

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

by ChrisCook (cojockathotmaildotcom) on Sat Sep 7th, 2013 at 05:35:08 PM EST
[ Parent ]
ChrisCook:
There's no reason why an energy generator could not sell entitlements to 10 years' worth of production

My electricity producer recently offered a low fixed ten year price in return for an upfront payment that they could use to build another wind power plantation. So something like that then?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun Sep 8th, 2013 at 02:56:26 AM EST
[ Parent ]
My electricity producer recently offered a low fixed ten year price in return for an upfront payment...

Is that purchase transferable? To even another address or person?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 9th, 2013 at 12:09:14 AM EST
[ Parent ]
Good question. I went to check the specifics, but the offer was gone (I saw it months ago, so presumably they have raised enough). If it was standard consumer deal it is transferable to another adress in Sweden with the same customer. But standard deals usually run for up to three years, not ten, so I guess it has to end in a big dunno.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Mon Sep 9th, 2013 at 04:01:23 AM EST
[ Parent ]
At three years it seems to be a sort of retail level piece of commercial paper offered directly to the customer and thus disintermediated from normal banking.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 9th, 2013 at 10:22:00 AM EST
[ Parent ]
Yes, I had already emphasized dated in my comment.

But it should now be clear that there is no distinction between "delivery" and "supply". If there is any doubt that the commodity will be delivered/supplied, the sale of certificates will be difficult to say the least. So waffly language such as

'confidence accounting'. ie the probability that a particular flow will be achieved

expectation of access to delivery

there is a need for a guarantee of performance

won't cut it. You actually have to garantee investors that there is sufficient supply to cover the certificates issued -- and more importantly, investors have to be convinced of that, or they will put their money elsewhere.

The function of these certificates as a form of money would therefore be strictly limited by a quantity of kWh, or rented accommodation/duration. The difference between this and the gold standard isn't clear to me.

The social usefulness of the certificates would seem at best to be simply a form of advance subscription with an advantage attached (discount). But who is addressed by the system? People with enough money to subscribe in order to gain a future advantage. One of the privileges of those who have enough money is in fact to save money by bulk buying, for instance, while those who live from hand to mouth pay top dollar for necessities (old example of the shilling in the gas meter?). Given that those who have no money ahead of them are far more likely to be living in rented accommodation than to be home-owners, what access will they have to your proposed rental scheme? In other words, what increased equality ie power-sharing would be achieved by it?

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Sep 8th, 2013 at 05:33:53 AM EST
[ Parent ]
You pay money (or money's worth) now, and take delivery of goods or services later, receiving a certificate of entitlement (on your mobile phone) in the meantime. The certificate does not entitle you to demand delivery (as a futures contract would) but if you do take delivery from the issuer (or from another affiliated within a clearing union), he undertakes to accept the certificate in payment.
If denominated in a delivarable (such as energy), what prevents more certificates from being prepaid thanit is physically possible to take delivery of?

And no, "transparency" doesn't cut it because the producer will always enjoy an asymmetric information advantage. And not everyone is a hedge fund. Buyers also have differring levels of informacion.

Finance is the brain [tumour] of the economy

by Carrie (migeru at eurotrib dot com) on Sat Sep 7th, 2013 at 04:56:28 PM EST
[ Parent ]
My capacity to utilise the underlying value has no relationship to how many units of currency I may acquire as an investment. I can always dispose of the surplus to another user if mine is the best offer below the physical market price.

Moreover, no matter how many I buy, I can't corner the market with an undated instrument.

Fiat currency is and always has been a tax prepayment - whoever issues it (whether public or private) - and it is irrelevant how many units of it I hold, although historically I would have expected some sort of return to be convinced to do so.

Transparency is necessary, but not sufficient. There is also a requirement for a manager to conduct due diligence and a monetary authority to supervise the manager in accordance with agreed standards.

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

by ChrisCook (cojockathotmaildotcom) on Sat Sep 7th, 2013 at 05:53:29 PM EST
[ Parent ]
Transparency is necessary, but not sufficient. There is also a requirement for a manager to conduct due diligence and a monetary authority to supervise the manager in accordance with agreed standards.
I am confused, I thought The Market™ would provide.

Finance is the brain [tumour] of the economy
by Carrie (migeru at eurotrib dot com) on Sun Sep 8th, 2013 at 05:55:16 PM EST
[ Parent ]
Fiat currency is and always has been a tax prepayment - whoever issues it (whether public or private) - and it is irrelevant how many units of it I hold, although historically I would have expected some sort of return to be convinced to do so.
The return is the opportunity cost of not having any on hand, which is substantial, either because of fines incurred for tax nonpayment, or the need to pay interest on borrowed money if everyday counterparties demand cash payments.

Finance is the brain [tumour] of the economy
by Carrie (migeru at eurotrib dot com) on Sun Sep 8th, 2013 at 05:57:54 PM EST
[ Parent ]
Opportunity cost denominated in what?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Sep 12th, 2013 at 01:39:10 PM EST
[ Parent ]
Disproportionate forfeiture of assets and liberties.

Specifically, goons with guns will take your stuff and put you in the slammer.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Sep 12th, 2013 at 07:13:43 PM EST
[ Parent ]
I think the crucial point is that fewer prepay energy credits are delivered then the amount of energy produced/consumed. Because then what Chris writes holds true, investors can always sell them to consumers at energy price. Otherwise it doesn't.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Sat Sep 7th, 2013 at 04:03:28 AM EST
[ Parent ]
When examining and judging energy prepay unit issuance you have to have regard to the rate, and the likelihood, of a flow of energy over time.

This implies what I have heard described as 'confidence accounting'. ie the probability that a particular flow will be achieved.

Over its design life, a wind turbine will produce a 'pool' of energy production, and part of that will be shared with landlords/communities/maintenance contractors.

The balance is then available to be 'unitised' into prepay electricity units which may - if the electricity sale price is adequate - be sold forward to fund the turbine.

The process of project assessment will be similar to that which Jerome probably makes every day of the week using conventional finance capital.

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

by ChrisCook (cojockathotmaildotcom) on Sat Sep 7th, 2013 at 04:38:16 AM EST
[ Parent ]
This is new
Firstly, it doesn't matter how many energy certificates investors hold: they have no right to delivery, merely the right to present the certificates in payment for supply.
At least new to me, I don't know how longe you've been including this so sharply stated in your presentations.

Finance is the brain [tumour] of the economy
by Carrie (migeru at eurotrib dot com) on Sat Sep 7th, 2013 at 04:51:14 PM EST
[ Parent ]
Well, a citizen of the USA might buy certificates for 300,000 Kilowatt-hours from a Swedish producer but could not very well expect to take delivery in the USA. But they could probably sell them to someone in the European grid, but not necessarily at a profit, but probably at a profit if the timing is good.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 9th, 2013 at 12:21:44 AM EST
[ Parent ]
In other words this is a new derivatives market on which those with money will seek to make arbitrage gains?
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Sep 9th, 2013 at 01:54:52 AM EST
[ Parent ]
Perhaps not the specific program to which askod referred, but certainly a general program of public sale of such prepays could become a derivatives market.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Sep 9th, 2013 at 11:23:32 PM EST
[ Parent ]
Mig was referring to Chris Cook's proposal, and so was I.

What askod describes seems to be simply a discount-for-early-subscription offer.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Sep 10th, 2013 at 02:15:00 AM EST
[ Parent ]

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