Pre Power Funding is a distributed funding algorithm. It is built into the operation of buying and selling renewable energy.
Traditionally enterprises create financial models and implement their business plans with debt and equity funding to achieve the results outlined in the models.
A Pre Power Cooperative does not use traditional financial modelling and then build a system. Instead, it implements funding without debt or equity. It is an implementation of an algorithm designed to optimise the economic benefits for the least cost for the participating customers, producers and investors. The Cooperative members work together for their mutual benefit. The total system is optimised as the only way for them all to benefit is to reduce the cost of building and operating the system.
Pre Power Co-op algorithm makes the assumption that consumer members want a simple easily understood and transparent billing system. That they want the complexities of delivering reliable and low-cost power be hidden from them. Transparency in billing means they want to see direct results if they change their behaviour. They also want the system to treat all users equally no matter how much they consume.
The Co-op does not exist in a vacuum. It interacts with other systems and the other systems change. The Co-op business plan needs to adapt to the changing environment. The Co-op members need to have ways to change the rules and processes to agree to the rule changes.
To do this the business plan is written as a set of constraints rather than the goal of profit maximisation.
Pre Power Cooperative (PPC) algorithm constraints.
The amount of money going into a PPC equals the amount of money going out of the PPC plus the cash in the PPC.
A PPC generates a money surplus that members will periodically decide how to use.
The profit or surplus is divided equitably as decided by the Co-op members.
The return on money is the independent on the amount supplied or when it was provided and returned. It is dependent on the time it remains in Pre Power.
All Power sold through PPC must be from renewable sources and create minimal green house gases.
All Power generated by PPC costs all members the same fixed cost per kWh
There are no fixed cost charges. Members only pay for energy consumed.
Purpose of constraints
The first constraint saves the cost of renting money tokens. People still get paid for the use of money and get a return on the use of cash. Instead of getting a return on money by getting more money the same amount of money gives more electricity. Money invested generates discounts not interest.
The second constraint ensures PPC remains financially viable.
The third is an equity principle that attempts to balance the returns between providers of money and services, and consumers of electricity. Equity is subjective and is negotiable and is decided by the Co-op members.
The fourth is an equity principle, but it also discourages participants from attempting to game the system.
The fifth principle means the PPC does not spend money on developing non-renewable energy sources.
The Sixth and Seventh principles make it easy for customers to see the savings and costs of changing behaviour.
Cooperatives can and will add further constraints. For example a PPC could include a neighbourhood constraint that says that no person in a neighbourhood shall be without a minimal level of power.
PPC members work cooperatively to achieve the optimal funding outcome. The benchmark price is the cost of power to other consumers in systems that use equity and loan financing but PPC could use other references such as the cost of production and set a return on investment.
Funding and Operational Savings
Today a PPC can reduce the cost of electricity by providing a discount of about 30% over existing systems. Funding members get a further discount that gives about a 30% increase in return on debt investment. A PPC set the targets and has full control over these numbers and adjusts them as the economic and technological environment changes.
In Canberra the algorithm will initially use a flat 18 cents per kWh for the cost of electricity, and an investor receives about double their money over twenty years or 50% more over ten years or 25% more over five years. The return on investment is the same no matter how long before an investor gets a return.
A PPC achieves these results because:
It eliminates many costs caused by the implementation of business plans that use debt and equity to give a return on money. Debt and equity cost more because the system has to generate the cost of renting money or returns on capital.
In a PPC Capex and Opex and Opex are combined. Capital expenditure is future operational expenses.
A PPC does not use markets to set the price of electricity. Electricity is a commodity and the cost of capital is the main cost. For this reason, there is little opportunity for markets to cause prices to change and markets become expensive exercises of obtaining customers.
Pre Power Cooperatives eliminate the cost of interest and capital returns by giving returns as discounts. They reduce most marketing and retail costs as the customers are members of the same Co-op and Capex and Opex use the same system. There are many Cooperatives and members get choice as they can move between Cooperatives.