David Cameron’s Energy Pools: the devil’s in the detail

By Chris Cook

I have a background of almost 25 years in market regulation and development, for six of them a director of a global energy exchange. I have been pointing out for several years now, firstly that most investment in renewable energy and energy saving actually finances itself, and secondly, that a partnership approach is an optimal enterprise model.

It seems that great minds think alike, and that good ideas have no political affiliation, since it was announced in the Guardian today that both of these elements are combined into a new Tory policy.

In California, the approach is Public, rather than Private, and in places like Berkeley, households are now able to receive low cost municipal loans to install solar energy, and then to repay them through an assessment on their property, ie. the loan is made to the property, rather than the owner, and collected through the equivalent of rates.

Municipal funding is in short supply, and is in any case anathema to Tories and of course also to the Treasury for ideological and voodoo economics reasons respectively.

Mr Cameron’s approach – as one would expect – is for the Private sector to do the work. The article refers to the likes of Tesco and M&S providing the necessary materials, goods and services and to fund their installation. The punters will then repay the financing over 15 to 20 years from the “Nega Watt” savings.

The devil is in the detail, of course, and leaving aside credit issues, and how one addresses tenanted properties, Mr Cameron’s approach is based upon the usual fat retail mark-ups and whatever interest rates the funding banks can get away with to rebuild their balance sheets.

Energy Pools
As I outlined earlier this year in LabourList, and recently expanded upon at the All Energy Show in Aberdeen, and recently in Glasgow, the creation of Energy Pools allows such investment to be funded interest free on the one hand, while creating a new asset class of Units redeemable in payment for energy on the other hand. Anyone who can understand Air Miles, or who has a Tesco Club Card, should be able to understand Units – they are not Rocket Science.

The materials and labour would be provided at cost by suppliers, who would then also participate directly in the streams of energy savings – Nega Watts – simply by receiving their agreed profit margin in Units, which they would then sell or redeem.

An Energy Pool could be a fund created by direct investment in energy. Note here that literally tens of billions of dollars are currently invested in similar funds, and are being mightily ripped off by the financial services community. This is in turn because they invest in energy through the volatile and manipulated futures markets and because the fact that the Units are not redeemable in payment for energy limits liquidity to purely financial investors.

On the other hand such an Energy Pool could also be created by a Carbon Levy, on carbon transactions. In which case those who make an involuntary investment – instead of a Carbon Tax – could then receive in return an allocation of Units in the Pool which they could use against renewable energy purchased, or in repayment of Energy Loans.

In fact both voluntary and involuntary investment could be made into the same Pool.

The repayments of what will essentially be Energy Loans made to properties by the Pool would be collected by utilities such as power or water suppliers. So by way of an example, an investment of £5,000 which gives rise to savings of £360 at (say) prices would at £50 per Mega Watt Hour be a loan of 100 Units redeemable in payment for 1 Mega Watt Hour, or alternatively a loan of 10,000 Units each redeemable in payment for 10 Kilo Watt Hours.

The energy loan would apply to the property, not the owner or occupier, and would be collected by a utility on behalf of the Energy Pool fund. Since occupiers typically pay energy bills, they would in all probability repay the energy loan as quickly as possible, if their view was that energy is unlikely to get cheaper. They repay the loan simply by overpaying their (reduced) energy bills.

The outcome is neither Public = State nor Private = Plc but a new synthesis within a partnership framework. The benefits are shared equitably between the stakeholders, and without unnecessary payments to unproductive shareholders, which will be kept to a minimum because capital simply comes interest-free from investors in energy.

The partnership approach means that none of this requires legislation, and the Labour government could – if it were able to galvanise a Civil Service quietly awaiting a Tory government – commence the introduction of this inherently co-operative and mutual model tomorrow.

What are they waiting for? Alex has my contact details.