by ChrisCook
Fri Dec 7th, 2012 at 07:03:32 AM EST
I still check in here occasionally, but as Migeru recently reminded me, I haven't posted here for a while.
Not that I've been idle. I've been spending quite a bit of time as a Senior Research Fellow at UCL working on reality-based and pragmatic policies aimed at facilitating resilient markets and a resilient society.
Also internationally, where I am advising a group of ten nations in respect of strategic energy policy generally, and a Transition through Gas specifically.
The following post was written - at the invitation of the Yes Campaign - as a consequence of a recent 'Radical Independence' event in Glasgow which brought together Scottish Nationalists and the Left. As the Green MSP, Patrick Harvie, put it re Radical Independence,there is no other kind of Independence, since if you want the status quo, why vote for Independence?
Anyway, the following policy proposal aimed at achieving energy independence suggests a simple but radical way - implementable with no change in any law - of funding energy efficiency generally, and Danish-style community heat initiatives in particular.
The model will work in any jurisdiction: all that changes is the legal vehicles necessary.
A Scottish Green Deal
The fact that the Green Investment Bank has now opened for business in Scotland but will not be receiving borrowing powers from Westminster until 2015, if then, is a conclusive example of the need for new policies for radical independence generally and energy independence in particular.
Energy independence for Scotland can be achieved in two ways: firstly by exploiting Scottish renewable energy, and secondly, by massive investment in energy efficiency.
21st Century problems cannot be solved with 20th century solutions, but the irony is that the radical funding solutions leading to energy independence may be found prior to the Act of Union in 1707.
Prepay 1.0
It has been long forgotten, but for many hundreds of years British sovereigns financed their expenditure though issuing undated IOUs - at a discount enabling a profit - to creditors who provided value in exchange. These IOUs were returnable in payment for taxes and that part of the wooden 'tally stick' record issued to a creditor as a token of the IOU was known as the 'stock'.
Interestingly, the phrase 'rate of return' describes the rate at which the creditor could generate his profit by returning his IOU/stock to the Exchequer for cancellation. The more tax he was due to pay, the quicker was the rate of return of the stock.
Now, while the idea that a future Scottish government might fund itself by issuing prepaid tax 'stock' at a discount in this way is a fascinating one, this proposal is rather more pragmatic, being achievable immediately, rather than after independence.
Prepay 2.0
Both renewable energy and energy efficiency are free. Clearly, if renewable energy or energy savings can be packaged and sold to investors at the right price, then necessary capital investment can be funded. But there are several problems with conventional sterling (£) funding of renewable energy.
Firstly, compound interest on bank borrowings: a debt doubles in 10 years at 7% compound interest. Secondly, electricity is sold at a low price to a wholesaler, who makes as much profit as the regulator permits when selling to retail customers. Thirdly, the high rates of return demanded by investors in respect of shares in Victorian vintage 'Joint Stock' Limited Liability Companies.
Then, to add insult to injury, because most renewable energy development is by foreign owned companies, most of these fat profits from Scottish renewable energy are hoovered out of Scotland.
So, let's put renewable energy investment to one side for the moment and look at the low hanging fruit: massive investment in energy efficiency - ie a Scottish Green Deal.
The Gas Pool
The Gas Pool will be a fund, administered by a service provider like the Green Investment Bank.
Firstly, the proposition for Investors is that they may buy units in the Pool, and that these units will be denominated, like their gas bill, in Mmbtu's of heat energy. So investors may invest directly in natural gas. However, rather than only being able to sell units conventionally (or unconventionally) to other investors they will have the 'stock' choice of returning their units in payment for gas bills.
Note here that in the US there are billions of dollars invested in natural gas and other energy funds by investors who observe zero per cent interest on Treasury Bill investment, while the Federal Reserve Bank prints new dollars massively. These risk averse 'inflation hedger' investors do not seek a return on their capital: they simply seek a return of their capital.
Gas Loans
The Gas Pool will invest - alongside the existing Green Deal and complementary to it - in 'micro' level energy saving investments in homes and the resulting 'Gas Loans' will be repaid as occupiers buy back units in the Gas Pool at the gas market £ price via their gas bill.
The conventional bank debt funded Green Deal suffers from two flaws: firstly, compound interest at perhaps 7%, and secondly, the behavioural problem that even though people may save £ there is no guarantee they will save energy.
However, with Gas Loans, there is firstly no compound interest, since the return to investors is in the energy value of gas, and secondly unless occupiers use less energy then they will not save £.
With the right legal and financial structure, such a Scottish Green Deal could be introduced tomorrow.
A Natural Grid
But of course, investment in homes addresses only part of the problem. Scotland needs a least energy cost 'Natural Grid' which is complementary to the 'least £ cost' National Grid currently festooning Scottish beauty spots with pylons.
Denmark leads the way here, both with retrofitting 'macro' infrastructure (eg Copenhagen's 150km hot water grid) and with massive 'bottom up' investment in community level heat infrastructure, such as combined heat and power, and heat storage.
Such macro and 'meso' level investment may be funded using similar techniques: but exactly how that works is another Radical Independence story.
