Capital Productivity and Community Batteries.

In economics, Capital Productivity is the output per unit of Capital. For Community Batteries, it is how much Capital is used by Community Batteries over their lifetime. The minimum amount needed occurs when consumers supply the Capital and get a return as lower-priced electricity. Public Capital is a method to achieve this and will reduce the Capital required for Community Batteries by at least 50% over the lifetime of the Battery.

For Capital intensive products like Batteries, it means a community has more available for other investments, reducing the break-even point for Capital expenditure by at least half. Reducing the amount of Capital reduces the cost of Capital by half. If the community owns the batteries the profits go to the community rather than shareholders and the profits come as lower-priced electricity.

However, the social and economic advantage of Public Capital is that ALL households in Australia can participate and share in the savings from the investment and ownership of Community Batteries. Each time consumers pay for the electricity they pay less and they also buy some of the Public Capital in Batteries and acquire wealth.

Private Capital requires two markets and operation is complicated
Increased Investor Returns and Lower Electricity Prices

Summary

  • With Public Capital, there is no need for a Capital Market as each sale transfers Capital. It saves operating a Capital Market to transfer Capital.
  • With Public Capital, the “public” of investors and consumers own the asset. There are no shareholders with Public Capital. Instead, there are custodians.
  • With Public Capital, there is no change of ownership; hence there are no ownership fees.
  • With Private Capital, a Private Entity takes the risk on the Capital, while with Public Capital, members of the Public collectively take the risk.
  • With Public Capital consumers take Custody of the assets, with all the rights and obligations of ownership.
  • With Public Capital, the Capital moves twice as fast as Private Capital and hence is available for more investment. It moves twice as fast because there is no change in asset ownership — only a change in Public Capital ownership.

Example Calculation

Assume an investment of $10,000 results in a savings of $2,000 yearly for 20 years. With Public Capital and Public ownership, an investor would receive $1,000 per year for 20 years, and the Consumer would save $1,000 per year. The total investment Capital used is $10,000.

With Private Capital, where the money is raised with a loan at 5%, the investor would receive $800 per year; the Consumer would pay $2,000 a year, and the owner would receive $1,200 per year. The investment Capital received is $800 per year to the loan investor, and $1,200 per year to the private owner.

When banks issue a loan, they create extra money or Capital. When the money is used to buy an asset like a Community Battery, the loan still exists and is Capital. Hence monetising an asset with a loan creates extra Capital and the suppliers of the Capital expect to get a return on the additional Capital. When we use Public Capital, there is no extra Capital created. Instead of a loan, investors purchase the right to pay for electricity from the Community Battery. It is still like a loan but secured against the community battery owned by the Community as a single entity, not as shareholders. No extra money is created, so it is not a financial product. Instead, it is a prepayment and is treated that way. GST and other taxation events occur when the prepayment is used, not when it is created.

Part of the payment of electricity is a refund of Public Capital. The Capital transfers to the buyer, who can use it in the future to purchase electricity from the Community Battery.

Public Capital requires less Capital for a given investment and keeps the Capital moving. It is at least twice as productive as Private Capital.

Further details on Community Batteries are at Economic Democracy with Community Batteries.

Spreadsheet with Calculations

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Kevin Cox

Kevin works on giving individuals control over their online information - particularly their financial information with local communities.