Energy Fintech - Strathclyde University Fintech Masters

IslandPower
ENERGY FINTECH:
University of Strathclyde – Fintech Masters 2021
Chris Cook
29 October 2021
Energy Treasuries, Mints and Exchequers
www.island-power.net

Context
IslandPower Page 2 of 44
Reality-based economy
l Location (3D Space)
l Energy
l Intellect
Market 3.0 - evolution of markets
l Market 1.0 - decentralised & disconnected -
People
l Market 2.0 - centralised & connected - Middlemen
l Market 3.0 – decentralised & connected -
Networks
Trend to Services
l Energy Intensity
l Capital intensity
UCL ISRS/IslandPower presentation to University of Strathclyde – Fintech Masters- 2021 – Friday 29, October 2021

Energy Fintech

of 21
Fintech
Finance (Law & Accounting) + Technology ( Data
Processing & Communications) = 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

Smart Acceleration
Accelerating transition to a zero carbon
economy
Energy Fintech
Legal Design
- mutual development finance &
sustainable funding
- smart markets in energy services
(heat/cooling, power, mobility)
Energy Technology
Natural Grid
- least carbon fuel cost energy services
- interactive confederated 'energy island'
micro-grids

Fintech 1.0

Fintech 1.0
Tally Sticks
on Shore on Island
Encryption - grain of the wood (Nature's hash)
Description of value exchange & counter-party identities
Notches – Number and Quantity

Fintech 1.0
Proofs & Promises
on Shore on Island
Tally-as-Proof receipt for past, not future utility e.g. energy use
Tally-as-Promise prepay credit obligation to provide future utility requires trust
in promissor
Single Entry the instrument is also the accounting record
Authentication the grain of the wood is nature's encryption!

Instruments 1.0
Proofs/Receipts for Value
on Shore on Island
• Asset buyers receive a bearer title document e.g. a Deed
• Memorandum tally was proof of past value
transfer/receipt
• Issued by seller in exchange for value received
identifying buyer and describing value transferred
• Receipt has zero objective/intrinsic use value

Instruments 1.0
Promises/Credit Obligations
on Shore on Island
• Promise/Credit obligation returnable in payment for
goods & services
• Issued by supplier in exchange for value received
• Rate of Return - rate over time at which credit
returnable to issuer in payment for services
• Rate not fixed - depends on existence & amount of flow
• Promise/Credit is a relationship (“in personam”) not an
exchangeable object (“in rem”)

Institutions 1.0
Types of Institutions
on Shore on Island
• Unincorporated associations of individuals
• Societies - common interest
• Companies - common purpose
• Colleges – common knowledge
• Agreements to share risk, cost, surplus and asset use

Institutions 1.0
Financial Institutions
on Shore on Island
• Treasuries – issue sovereign promises at a discount
returnable in payment for taxes/rentals
• Mints – apply standards, coin & issue currency (generally
acceptable credit instruments/objects)
• Exchequer – physical ledger

Fintech 2.0

Fintech 2.0
Double Entry Accounting
on Shore on Island

Fintech 2.0
Instruments 2.0
on Shore on Island
Texas electricity black-out
During February 2021 Texas experienced a energy systems
shock that affected upwards of 5 million inhabitants
throughout the state.
The stimulus for the shock was an unprecedented climate
event. The state energy provider, Electric Reliability Council
of Texas (ERCOT), despite having a broad portfolio of power
sources were unable to meet demands for heat and power.
There are a number of reasons for this:
• Both renewable energy and gas fuelled generation were
inadequately weatherised for reasons of cost
• 30,000MWs of generation capacity were curtailed due to
distribution constraints
• Vital fast reacting energy generation was unavailable to
market
• Market system is designed for cost efficiency and not
resilience.
This resulted in a massive (c.56,900%) increase and as yet
unquantified cost to the economy.
Coming decades will see a dramatic increase in climate
events. Investors in generation and distribution capacity are
exposed to volatility reducing Return On Capital Employed.
Sustainability, affordability and resilience will become the
focus of governments. Access to reliable and affordable
energy will be a primary political imperative.
IslandPower addresses these requirements by focussing on
the Energy Cost of Carbon.
• Equity
• Debt
• Derivatives
• Fiat currency
All are exchangeable/tradeable objects

Fintech 2.0
Institutions 2.0
on Shore on Island
• Corporate (“legal person”)
• Corporation Sole (e.g. the Crown)
• Collective Corporates
• Public - States, Municipalities
• Private - Companies limited by shares or guarantee
Issues
• Intermediaries which alienate people
• Principal/agent problem of management capture
• “Tyranny of the Majority” - 51/49% governance

Fintech 2.0
Institutions 2.0
on Shore on Island
• State Treasuries
• Central Banks
• Private Banks
• Derivative Exchanges
• Clearing Houses
• Stock Exchanges & Trading Networks
• Passive investments e.g. Index funds & ETFs

Fintech 3.0

Fintech 3.0
Shared “Triple Entry” Accounting
on Shore on Island
1998 - 2001 “NewClear” Shared Market Transaction Registry
recorded legally binding transactions for any instrument or
jurisdiction however negotiated or performed (Cook)
l Bilateral (P2P) online messaging/agreement
l Shared Database
l Associative/Club Market User Agreement
l Unique registration in time order
1997 -2003 Web-ledgers (Boyle)
2004 Ricardian Contracts (Grigg)

Fintech 3.0
Blockchain & Coins
on Shore on Island
Blockchain as agreement between machines & devices
• collective machine protocol for encrypted transaction database
• authenticates electronic transactions – no 'double spend'
• But entire database is encrypted & replicated synchronously for
every new transaction
Coin Instruments
• Proof of past value creation (e.g. Proof of Work/Stake)
• Subjective exchange value but no objective utility

Fintech 3.0
Venezuela and El Petro
on Shore on Island
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

Institutions 3.0
Capital Partnership
on Shore on Island
• Capital Partner (Investor) provides money or money's
worth of goods, services, technology, assets
• Capital User applies resources to create a productive
asset (Land, Energy, IP) with use value/utility
• Capital Partnership does not own anything, do anything
or contract with anyone
• Capital Partnership is simply an agreement sharing risk
and flows of use value/utility

Institutions 3.0
Nondominium – Shared Asset Use
Investors
Credit Obligations
Community
Asset Users
£ % in £
or Credits
Dividend
In Credits
Mint
Asset Manager
Payment in
£ or Credits
Prepaid
Credits
Exchequer
Shared Ledger
Treasury
Asset Custodian
£
Credits

Institutions 3.0
Community Treasury
on Shore on Island
• Treasury as Custodian issues assignable promises/credit
obligations in exchange for value received from Acceptors
• Service provider (Mint) manages issuance & maintains
shared ledger (Exchequer) & secure messaging
• Performance of Promissor is mutually assured by
Protection & Indemnity (P&I) agreement - Clearing Union

Institutions 3.0
Clearing Union
on Shore on Island
• Acceptor has no enforceable right to delivery of £ (debt
obligation) or £'s worth (derivative obligation)
• Promises may be assigned A>B>C>D & returned by final
acceptor in payment for value supplied by Promissor
• Clearing Union does not own anything, do anything,
contract with anyone or employ anyone
• Clearing Union is a mutual assurance agreement sharing
risk and cost of non-performance

Institutions 3.0
Mutual Assurance – P&I Clubs Share Shipping Risk
on Shore on Island
For 150 years, Protection & Indemnity (P&I) Clubs have
mutually guaranteed shipping risk Lloyds won't cover
For 140 years P&I Clubs have been managed by
Thomas Miller as platform service provider

Energy Fintech
Energy Credit Obligation (ECO)
on Shore on Island
ECO is
• Returnable in payment for energy services (heat/cooling,
power, mobility)
• Issued by Energy Treasury managed by energy service
provider (Mint) vs value received
• Accounted in energy in a shared energy ledger/exchequer
ECO issued, assigned, returned subject to mutual assurance
of performance (Energy Clearing Union)

Energy Fintech
ECO Value Propositions
on Shore on Island
Producer
• sells energy forward and locks in price
• interest-free energy loan until credit returned vs
supply
Consumer
• prepays energy & locks price or repays out of savings
Investor
• energy-linked return on investment

Energy Fintech
Energy Clearing Union – Mutually Assured Credit Risk
on Shore on Island
Seller A
Member
Credit
Value
Mint
Platform Service Provider
Exchequer
Shared Transaction
Registry
Buyer B
Member
Data
Data
Data

Energy Fintech
Energy Treasury - Outcomes
on Shore on Island
• Independent of location/state denominated in energy, not £, $, € Energy
return (no interest/discount rate)
• Energy Treasury issues ECO
• Levy/Pool & ECO Energy Dividend replaces £, $, € subsidies
• Energy economics replaces $ economics in the material realm
• Natural Grid replaces National Grids

Smart Acceleration
James Watt model
IslandPower
Page 31 of 44

Smart Acceleration
Pumping as a Service
on Shore on Island
• 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/Capital Partnership – Intellectual value
exchanged for value of carbon fuel savings at retail price
• Not pumps-as-a-commodity - Pumping-as-a-Service

Smart Energy Transition
Denmark
1990
Wind turbines
CHP power stations
Coal power stations
Natural grid 2014
National grid

on Shore on Island
Institutions 3.0
Resource Resilience - Denmark
• 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 public investment in renewables, heat, energy efficiency, transport
Outcome
decentralisation – trend to a Natural Grid

Energy Standard
A Thought Experiment
on Shore on Island
On 1st January 1999 Euro currency (ECB IOU) was fixed against
participating currencies at agreed rates
Let us fix € unit of account at a standard Joule unit of measure e.g.
equivalent of 10 kWh electrical energy
Everything changes, but nothing changes
l Banks cannot create energy use credits, but act as “Mint”
l Transition from fragmented fiat $ deficit accounting to shared
energy ledgers (“Energy Exchequers”)
l ₺, $, £, ¥ etc join Clearing Union & fix to Energy Standard

THANK YOU.
The following slides show how we can implement energy treasuries…
IslandPower
C.Cook@isrs.org.uk

IMPLEMENTING THE ENERGY TREASURY:
From $ Economics to Energy Economics
Energy islands

Smart Acceleration
Island Energy Rings

A small historic town situated 22 miles outside of Edinburgh, is known as the
birthplace of Mary Queen of Scots. In 2013, with support from the Community And Renewable
Energy Scheme (CARES) a study was undertaken to understand both the practicality and
feasibility of installing an independent energy microgrid network that would seek to introduce
resilient, reliable and efficient energy systems to the town as the primary supplier of energy.
The result of the survey was to highlight that there would be a up to 50% savings in energy
consumed and an average reduction in the annual energy bill of £750 per year.
Smart Acceleration
Energy mapping – town scale
From 50 to over 300
kWh/m2/yr
A. Survey target Area (2013) B. Gas and electricity consumption (2013)
Electricity consumption
Gas consumption
From 50 to over 400
kWh/m2/yr
Aim: Enable a town to be independent in energy
Means: Application of least carbon fuel cost principle
Enlisted: Innovation for academic input
Funded: Community And Renewable Energy Scheme (CARES)
funded a study carried out by Dr Mohammed Imbabi
of Aberdeen University
Objective 1: Map energy use in target town
Objective 2: Identify & prioritise viable least carbon fuel cost
interventions leading to energy resilience
Island Power Page 39 of 44

Smart Acceleration
Island Energy Networks
Island “National” Grid Island “Natural Grid”
Money flows out of the island
through fossil fuel supply,
energy export or financed
renewable projects.
A Natural Grid maintains money
within the island through
Capital and Community
Partnership. Excess energy
production can be exported.

Smart Acceleration
IslandPower’s model
DISRUPTIVE
RADICAL
£/$ kW/Ph price
Estimated Costs
Baseline demand
Realized Costs
Development Staged network upgrade Renewable expansion
Maintenance
& modifications
Existing demand Start of asset replacement Increased renewable
integration
Contract
renewal c.25 years
Increased demand
ACTIONS TO OPTIMIZE EFFICIENCIES IN STORAGE AND DISTRIBUTION
Predicted Results
Target Results Realised
Results
Contribution
Gap
A kW/h of renewable energy
is now cheaper than an
equivalent kW/h generated by
carbon sources.*
IslandPower replaces
inefficient and expensive
carbon fuelled energy
generation capacity with
efficient renewable capacity.
The more remote the island
community, the greater the
potential gains from reducing
cost of heat/cooling and
power services.
*Source: IRENA (2020),
Renewable Power Generation Costs in 2019,
International Renewable Energy Agency,
Abu Dhabi.

Smart Acceleration
IslandPower’s Natural Grid
Page 42 of 44
PARTNERSHIP
MODEL
NATURAL GRIDS
IslandPower’s partnership model incentivises energy efficiency through ensuring
that all stakeholders share in the energy production and efficiencies.
There are three classes of stakeholder partner:
1) Capital Partners
Individuals or organisations providing capital to
projects with an expectation of a return in money or in-kind
2) Development / Operational Partners
Enterprises providing the use of technology, such as
solar panels, or a service, such as engineering, distribution or a
customer base. Participate in development gains
3) Community Partners
Local governments and communities receive energy
dividends, funding job creation and economic
growth and reducing net cost of energy consumption.
There are two phases to any project:
Phase 1: Development
The development phase enables enterprises to realise a return on the initial
construction of an energy project. This phase is typically up to two years and
includes all three classes of partners.
Phase 2: Operational
Once the infrastructure and generation capacity is installed and operational, all
partners benefit from long-term reliable returns on the energy produced.
The creation of sustainable flows of renewable energy enables future investment to
be mobilised through release of partnership equity via prepay credit obligations.
IslandPower UCL ISRS/IslandPower presentation to University of Strathclyde – Fintech Masters- 2021 – Friday 29, October 2021

of 44
Conventional
Smart Acceleration
Outcomes – Swansea tidal lagoon
IslandPower Capital Partnership financing and
ECO funding drastically reduce funding costs,
since:
• equity returns are received only:
(i) during the development phase, via (tax
efficient) 'Green' equity participation in Tidal
IslandPower
(ii) in respect of development cash as and
when it flows into the project.
(b) long term funding via ECO forward sales of
renewable energy production has zero £ cost.
The outcome is a reduction in funding cost of
40%, but because STLU will conventionally sell
production at the wholesale price this may not
mean that the project is viable even with ECO
funding.
The Swansea Tidal Lagoon was a proposed
320MW powerplant that could operate 14
hours per day. Providing energy for 155,000
homes
IslandPower
The Commercial Review observed that on
the basis of project equity returns of:
• 11.65 % pa and long term debt of 4% pa:
• The summary total returns of £2.5bn are
clearly very significant additional costs
to the project
• Net costs are currently projected at
£1.3bn.
It is pointed out that upon completion the
project may be refinanced at better rates,
boosting equity returns.
finance
Artistic impression of Swansea tidal lagoon
IslandPower UCL ISRS/IslandPower presentation to University of Strathclyde – Fintech Masters- 2021 – Friday 29, October 2021

Chris@Island-power.net
IslandPower
on Shore + on Island
local Energy production and control
Development as a Service
www.Island-power.net

Energy Fintech - Strathclyde University Fintech Masters

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