Deploying Community Batteries with Finance from Financial Markets will benefit a few at the expense of the majority when compared with Communities owning the batteries in a Circular Economy.
The difference between traditional Capital and Community Capital is shown in the above diagram. On the left is the flow of money for traditional Capital when a payment is made. On the right is the flow of money for Community Capital. Any organisation with investors can use both Traditional Capital and Community Capital simultaneously. Using Community Capital puts the organisation into the Circular Economy.
In a Circular Economy, a local Community owns the Battery, and Capital is distributed via the payments system, not through a Capital Market. It removes the cost of replenishing Capital, and at today’s prices of Batteries and electricity, it makes Community Batteries economically viable. If Australia needs a Community Battery for every 50 dwellings, we need about 220,000 batteries for the 11,000,000 dwellings. If the batteries are 100 kWh and the income per year is $5000, the Community will acquire renewable assets at 5% per year if the battery price is $1000 per kWh. As the price drops, the profits increase. If we try to do it with Extractive Capital, prices will not drop, and some investors will become wealthier.
The electricity grid creates a natural clustering of dwellings behind the low-voltage transformer and facilitates a circular economic unit where households and businesses can opt-in. If they opt-in, they jointly own the Community battery and share the profits. As the community battery can consist of many batteries, they can be housed behind the meter, increasing the value of the arbitrage and reducing the installation costs as the property owner covers the location cost.
A small Community can distribute the profits as investments to the Community in proportion to household consumption. The investments increase the use of renewables and decrease electricity consumption. The investment will return 5%, which is attractive to local investors. If individual households want to avoid an asset, they can sell it to investors or other community members.
The approach is scalable and can be sold to most of the population. Those people who wish to refrain from participating do not have to, but it is expected the majority will.
The Provider Alternative
The traditional financial alternative is for an external investor to finance and own the batteries. Financiers hire local people in the Community to operate and run the system. The Community guarantees the providers a profit — in Australia, it is now close to 7% for metering, distribution and transmission. The world's spot price for energy determines the electricity generation profit.
For the Community, the provider alternative is an expensive choice. Still, it may be forced on them because of government decree and because the incumbents in distribution and retailing will lobby for the change.
Why is the Circular Capital Solution superior?
Circular Capital keeps the Capital in the Community. External investors can still invest and get a return on their investment. However, with Circular Capital, the return on the profits stays within the Community, and if the local Community invests, all the profits stay within the Community.
Other savings come from eliminating the need and cost of Capital Markets and the reduction in stagnating Capital. The whole community benefits because all the income from batteries is invested in further decreasing costs.
Another advantage is that consumers receive a return on the Capital they provide through their electricity payments, which takes away the systematic advantage that investors have in the economy. Ironically, today investors lose out because of the overheads of Capital Markets and inactive Capital. Investors will do better with Circular Capital, but some will lose large piles of inactive wealth, which gives them the perception of an advantage they rarely realise and often squander.
Some Numbers
The Australian Government is about to subsidise four hundred Community Batteries. Communities will see no reduction in the price of electricity benefit if they provide subsidies to a private company using extractive Capital. If they provide subsidies to a Community Organisation with Extractive Capital, the wealthy in the community, who can match the funds, will benefit. Unfortunately, those who cannot match the funds will not benefit. If they provide the funds to a Community Organisation using Circular Capital, every household will benefit equally.
If the shareholders in the Community Organisation want a 7% return on investment on their $100,000 contribution. If the battery earns $7,000 a year, all the funds will go to the shareholders who contributed money. The shareholders who invested nothing will not receive anything. However, if the Community Organisation used Circular Capital, the contributing shareholders would still receive $5,000 each year, all shareholders would receive future profits from $2,500, and existing shareholders would lose the future profits of $2,500 on the shares they have sold.
Summary
Australia can roll out community batteries at scale if governments encourage and facilitate the move to Community Ownership of Batteries using Circular Economic principles. The adoption rate will be determined by the availability of installers, not Capital or current prices.
