Energy Fintech & a New Green Deal

1. Fintech 2.0 – Energy Fintech: a New Green Deal
University of Strathclyde
Chris Cook, Senior Research Fellow
Institute for Strategy, Resilience &
Security, University College London
18 October 2019

2. About Me – Legal Designer & Developer
Forensic accounting – insolvency & fraud investigation
Regulation – markets & enterprises
Market & enterprise development
Networked market development
Research into resilience – institutions & instruments

3. Institutions & Instruments
Property & Money as Relationships
Rights & Obligations
Institutions as risk/cost/surplus/data/knowledge rules
Instruments as transactable objects

4. Market Paradigms
Market 1.0
Decentralised but disconnected; physical presence/trust
Market 2.0
Centralised but connected; presence/trust through
Middlemen
Market 3.0
Decentralised but connected; presence/trust on the
network
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5. Definitions
Fintech
Financial (Law & Accounting) + Technology
(Communications and Data Recording) = FinTech
Financing
Short/Medium term, medium high risk/reward development
finance for new productive asset or enterprise
Funding
Long term, low risk/reward funding based on completed
asset or mature enterprise
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6. Fintech 1.0
Number/Quantity - Notches
Description of value exchanged & Counter-party Identities
Encryption - grain of the wood (Nature's hash)

7. Fintech 1.0
Tally-as-Proof - receipt for past, not future utility eg energy use
Tally-as-Promise - prepay credit obligation to provide future
utility requires trust in promissor
Single Entry – the instrument IS the accounting record
Authentication – the grain of the wood is nature's encryption!

8. Fintech 2.0 – Double Entry

9. Fintech 2.0 – Instruments & Institutions
Equity
- Ownership shares in a Joint Stock Company
Debt
- obligation to pay money on a specified date or on demand
Derivatives
- obligation to deliver 'money's worth' on a specified date or on
demand
Institutions
- Treasuries/Central Banks, Clearing Houses, Exchanges,
Brokers, Dealers etc etc
- Risk intermediation (middlemen)

10. Fintech 3.0 – 1998 “NewClear”
Shared Market Transaction Registry – 1998 “Dot Com”
Whatever the instrument & however an exchange transaction is
negotiated or performed, it must always be legally binding
NewClear comprised three elements:
– Bilateral (P2P) online messaging/agreement
– Shared Database
– Market User Agreement
OilClear was the first instance, followed by MetalClear etc etc

11. Fintech 3.0 – Blockchain/Coins - 2008
Blockchain as Institution
- collective machine protocol for encrypted shared (triple entry)
transaction database
- authenticates electronic transactions – no 'double spend'
- But entire database is encrypted & replicated for every new
transaction
Coins as Instruments
- Proof of past value creation (eg Proof of Work/Stake)
- Subjective exchange value but no objective utility

12. Fintech 3.0 – Blockchain/Coins
Machine-centric, Transaction-centric & Time-less
Blockchain as Institution: Coin as Instrument
Dissociated from Reality
New protocols aim to link coins to the real economy
Smart contracts: Mattereum, Holochain, ChamaPesa

13. Energy Fintech - El Petro Coin
Petro is based on oil
- acceptability of currency is based on utility
- many different types & qualities of oil
- consumers use gas, oil products, energy services not oil
Petro is a Proof not a Promise
- Proof of payment 'backed' by oil reserves
- No obligation to deliver either oil or money
- Petro cannot be used instead of Dollar to pay for Venezuelan oil

14. Fintech 3.0 – Prepay Credit Instrument
Prepay credit instrument returnable in payment for
goods & services
Issued by supplier in exchange for value received
Issuer obligation is to accept credit instrument if & when
presented in payment for goods & services
Rate of Return - rate over time at which credit
instrument returnable to issuer in payment for services
Rate not fixed - depends on existence & amount of flow

15. Fintech 3.0: Prepay Credit Instruments

16. New Green Deal – Financing Transition
Transition to a low carbon economy requires literally $
trillions of investment
Institutions & instruments which caused 2008 financial
market meltdown cannot fund the transition
Energy Fintech enables complementary financing and
funding for the transition

17. National Grid Denmark Natural Grid

18. Energy Fintech - Resource Resilience
Since 1973 Denmark's GDP has doubled, energy use has been
stable and carbon fuel use declined
How?
Mandate - minimum carbon fuel input for a given output of
electricity, heat or power (Energy as Service)
Least energy cost policy; not Least DK (or €, $, £) Cost
Massive investment in renewables, heat, energy efficiency,
transport
Question: How did Denmark fund this Natural Grid?
Answer: Combination of local government funding and
guarantee of community cooperative debt finance.

19. Community Development - Beinn Ghrideag, Lewis
£14m project produces £900k pa net for local community projects
& up to £2m pa once equity/debt capital is repaid: identical private
development pays £54k pa to community

20. Energy Development - Capital Partnership
Wind-as-a-Service – instead of selling turbines to developers,
manufacturers supply turbine use for % production share
Solar-as-a-Service – instead of selling solar pv to developers,
manufacturers supply use of solar for % production share
Outcome
– Technology (IP) use swap for intrinsic value of energy flow
– Interests of community & manufacturer aligned
– Both share in development surplus

21. Energy Fintech 1778 - James Watt
Atmospheric Engine James Watt Steam Engine

22. Energy Fintech - Pumping as a Service
James Watt steam engine much more efficient at pumping
water than Newcomen Atmospheric Engine
In exchange for use of the pump, miners agreed a share of
one third of coal savings
Smart Swap – Intellectual value exchanged for value of
carbon fuel savings at the retail price
Not pumps-as-a-commodity - Pumping-as-a-Service

23. Asset Custodian
%
Energy
Investors
Energy Service
Provider
%
Energy Users
Prepay
Nondominium – Funding the Green Deal

24. Nondominium – How it Works
Production shares allocated to users & service providers
Balance of production allocated to Investor returns
No stakeholder has dominant rights, but each has veto
rights over matters which concern them
Custodian has right of final veto

25. Energy Fintech – Energy Credit Obligation (ECO)
ECO is
- Returnable in payment for energy supply
- Issued energy service provider (not bank) vs value received
ECO is not
- Debt - no right to demand money
- Derivative – no right to demand energy delivery
- Equity – no ownership right in respect of energy assets
ECO issuance, exchanged, cleared within Nondominium

26. Energy Fintech – Energy Loans
Producer
- sells energy forward and locks in price
- interest-free energy loan until credit returned vs supply
Consumer
- prepays for energy and locks in price
Investor
- energy-linked return on investment

27. Project Cost £1.3bn
Conventional funding:
25% Equity (11.25% pa), 75% debt (4%) = £1.2bn
Total Cost £2.5bn
Energy Fintech Funding
Capital Partnership 3yr Target @10%pa Target Return= £400k
Sell (say) 50 yrs net production to fund the project = £zero
Total Cost = £1.7bn (32% reduction)
Case Study - Swansea Tidal Lagoon Project

28. Iran Green Deal
Iran Solar Resources Iran Wind Resources

29. Iran Green Deal
Iran Population > 80m
Colossal reserves of oil & gas
 Electricity US 3 cents per kWh
 Gasoline US 29 cents per litre
 Waste, subsidy, smuggling (Turkey = 9 x Iran price)
ECO Strategy
 Fuel levies increase prices
 Install solar, wind, mobility, cooling as a service
 Efficiency & cost savings (eg battery storage)
 Share surplus via Energy Dividend in ECOs to
consumers
 ECO returnable in payment for power & transport utilities

30. Sark Grid Sark Tidal Resource
Guernsey
The Big Roussel
Sark
Sark Green Deal

31. Sark Population - < 500
Most expensive electricity in the world – Dark Skies
 Diesel fuelled electricity - UK 66p (US 85 cents) per kWh
 No cars – diesel tractors
 Expensive Heating Oil/LPG heat & cooking
ECO Strategy
 Maintain price at 66p /kWh
 Install solar, wind, tidal, mobility as a service
 Efficiency & cost savings (eg battery storage)
 Share surplus via Energy Dividend in ECOs to
consumers
Sark ECO Case Study

32. Strategic Megatrends - Energy & Capital Intensity
Energy Intensity
Peak Affordable Oil – secular increase in energy intensity
of Production & fall in Energy Return on Energy Invested
Smart Energy – higher the $ oil/gas price more $ profit in
smart energy efficiency (Fifth Fuel) & renewables
“Stone Age did not end for lack of stones & Oil Age will not
end for lack of oil” - Zaki Yamani
Capital Intensity
Commodity market is capital intensive (infrastructure
funding; market/credit risk) but services are Capital Lite
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33. Green Deal – Energy Fintech Outcomes
Independent of location/state denominated in energy, not £, $, €
Energy return (no interest/discount rate)
Banks cannot issue ECO, but provide banking-as-a-service eg
risk management & investment banking
Energy economics replaces dollar economics
Natural Grid replaces National Grids