Economic democracy is a socioeconomic philosophy that proposes to shift decision-making power from corporate managers and corporate shareholders to a larger group of public stakeholders that includes workers, customers, suppliers, neighbours and the broader public. — Wikipedia
The financial system has turned money from a commons into a commodity for rent and in doing so has destroyed economic democracy. Renting money gives corporate shareholders, including bank shareholders, decision-making power. The justification is that rent provides a way to give investors a return on investment. However, there are other ways to give investors a return on investment without the need to rent money. Pre Power cooperatives use one such approach that gives both investors and consumers a share of the return on investment. In so doing the cost of renting money is saved. The savings are shared between investors and consumers leaving both better off. How the savings are divided is up to the cooperative.
Implementing Economic Democracy with Pre Power Cooperatives
Installing rooftop solar panels is a high return investment. If a household consumed all the electricity from solar panels installed on their rooftops the “payback” period is around four years. As panels will continue to produce for another 20 years — albeit at a lower rate — a $6000 investment is likely to return $30,000 worth of electricity over the panel lifetime. Assume a maintenance cost of $500 each year; this gives an IRR of around 20%.
The investment is unavailable to low-income or households under financial stress who cannot afford or are not permitted to take on the risk of a long term loan.
Pre Power cooperatives make it possible for all households to access the returns from rooftop solar investments regardless of their financial situation. They become a member of a local Pre Power Cooperative that includes other consumers and investors. All consumers are equal and all share in lower-cost electricity, currently priced around 70% of the regulated market price. Investors get a return about equivalent to 10% fixed interest. All investors get the same return on investment and consumers can be investors.
Some investors — like philanthropic or government investors — may choose to pass the investment return on to low-income people. Others, like super funds, will share the returns with their members through future payouts.
Pre Power cooperatives use an information systems platform or set of procedures.
The platform has the following features.
- Cooperative members who purchase electricity from the cooperative have control of the cooperative’s investments.
- Investors have a right to get their money back plus an agreed return on investments and have a claim on the installations for any unreceived amount if the cooperative goes out of business.
- Consumer members pay for electricity. Their payments fund the operation of the cooperative and the repayments to investors.
- When the investors are repaid this reduces the claim they have on the assets of the co-operative. The reduction is transferred to the members who paid for the electricity.
- This means the consumer-member claims on the assets will, over time, equal the value of the assets from which they receive electricity. When this occurs, the members do not pay for electricity but pay a maintenance and co-op operating charge.
- Members who have claims on cooperative solar installations can sell their claims to other members or investors in the cooperative, but not to anybody outside the co-operative. This rule prevents the extraction of asset value from the cooperative.
Each cooperative can set its own parameters or rules.
Typical Set of Rules for a Pre Power Cooperative
- Consumer members pay 70% of a benchmark grid price.
- Investors get double their money back over twenty years in equal monthly payments.
- Consumer members buy electricity from the solar panels installed on their roof. This income is used by the co-operative to repay the investors as well as to pay for operating costs and maintenance. When investor funds are repaid, the consumer member’s claim over their solar panels is increased by the claims given up by the investors.
- If consumer-members fall behind in their payments to the cooperative they are asked to work with the cooperative to settle their account. As a last resort, the cooperative may remove panels from their roofs.
- Members can require members to leave the cooperative with a 50% vote of other members.
- Members assist in operating the cooperative. How much and what they do is determined through negotiation. If members refuse to contribute, they are asked to leave the cooperative.
- New members must be nominated by existing members.
- A group of members can break from the cooperative and start or join another cooperative and take their asset claims to the new cooperative.
- Investments are in the form of pre-purchased electricity from solar installations. The value of solar installations in the cooperative determines the value of the investments.
- Consumer members agree to pay their invoices with direct debit as a condition of membership.
Benefits of Pre Power Cooperatives
The Pre Power cooperative platform has no financial products. It has prepayment, credit and payment agreements. It means money transactions do not come under the investment provisions of corporation law but under consumer law. It also means members do not have to pay rent for the use of money, nor is it possible for the value of solar installations to leave the cooperative without the agreement of the cooperative. It also means money stays in bank deposit accounts.
- Individual consumer-members are custodians of solar installations. They do not own or possess the installations. They have the responsibility for them and get benefits from them in return.
- Members have claims to the value of the assets in the case of the cooperative closing down or them leaving the cooperative.
- Consumer members are part of a community of solar users and contribute in various ways to the cooperative. Having the opportunity to contribute reduces conflict and increases cooperation.
- If relationships with members break down, members can join other cooperatives without penalty.
- Consumer members gain by remaining a member of a cooperative. It means they are likely to agree to compromises when disputes arise.
- Cooperatives are not charities and all members get a fair share of the output from the solar installations. It removes the “charity mindset” that afflicts some other programs.
- The financials and operations of the cooperative are transparent. Everyone knows the rules and financial status. It reduces the opportunities for conflict and reduces the cost of operating the cooperative business.
- The cooperatives are private but transparent. Each member can see the overall financial state of cooperative and see their position. Members contribute by checking and assisting other members to ensure the integrity of the system.
- The cost of operating cooperatives is low as there is no need to compete for members, and there is no strong advantage in having large cooperatives as all cooperatives use the same or a similar platform.
- Cooperative administration and operations scale because cooperatives are formed to provide services to individual cooperatives.
- Cooperatives will tend to be local as this leads to lower costs. Local cooperatives lead to social inclusion making neighbourhoods desirable, and so increasing the value of membership.
- Cooperatives can negotiate directly with landlords or other third parties on behalf of members. It leads to better outcomes for landlords, third parties and members.
- Philanthropic organisations and Governments can reduce the cost of energy to some members by agreeing to waive their return on investments. Typically this will reduce the cost of electricity to one-third of the grid price for some members as decided by the external organisation. For example, a household might lose a substantial amount of income and be unable to pay their invoices. A government can act independently of the cooperative and move its investor benefits to a particular member. If a member obtains outside assistance, it is kept private.
- Members are encouraged to use their cooperative system as a place to keep their savings. They will get a high return on investment, and their funds are liquid.
- Cooperatives are businesses. Member involvement gives training in operating and running other cooperatives or other businesses.
The Business Case for Super Fund Investment in Pre Power Cooperatives
Super Funds have choices in where they invest. They can choose to invest in ethical investments, in high-yielding investments, and, if possible, investments that have an immediate social and financial benefit to their members.
Super Funds have other constraints. They must invest in secure long-term investments that will provide an income stream at some time in the future. They must invest in scalable investments where the incremental cost of investment is low and they can invest continuously.
Pre Power cooperatives satisfy all these criteria.
Investments that reduce greenhouse gas emissions are ethical investments and solar installations on the roof-tops of homes will reduce GHG emissions.
Rooftop solar is economically efficient as most of the power consumed is generated at the same physical location. This eliminates the need for extra land for production, the distribution costs are zero, and there are no marketing costs. Using their own savings a consumer eliminates the cost of renting Capital. By working together with other consumers the costs of installations and maintenance are lower. These advantages remain no matter how much the cost of generating energy drops.
Pre Power cooperatives are secure. Unlike financial investments, they are in physical hardware and they are spatially distributed. Pre Power cooperatives have sticky customers as there are strong incentives for members to remain as customers. Electricity will always be in demand and will only increase as new uses for energy arise.
Pre Power cooperatives are designed to provide a fixed stream of income. With financial products, the stream of income starts high but drops as value is extracted from the investment. Super Fund management is easier with Pre Power as investing is the same process as the provision of a pension stream.
Pre Power cooperatives deliver immediate benefits to Super Fund members in ways that comply with the Superannuation rules as the benefits are not more money but social and in price reductions.
Pre Power Cooperatives Social Benefits
The social benefits to members working cooperatively distinguish Pre Power from most other investments. The financial system works to distribute savings and to protect investors money from untrustworthy borrowers. In Pre Power cooperatives many customers may be investors so there are fewer potential untrustworthy borrowers. Trust is built with transparent operations, a defined set of fair rules, and through person to person interactions. Each member remains in control of their financial and personal contributions to the cooperative. The cooperative platform watches members financial status and anomalies are soon noticed.
Pre Power builds social cohesion and social capital. The social capital gives a financial return in low-cost electricity and in high return investments.
Member customers are not replaceable cogs in a large machine but are participants in an evolving local system. Pre Power cooperatives will spread through word of mouth and they will develop new interests and opportunities based around the availability of low-cost energy.
Social cohesion comes from allowing members to contribute in meaningful ways to the operation of the cooperative. There are the financial contributions of payments and prepayments for electricity and members assisting other members to understand and there are contributions of work and involvement within the cooperative. There will be cooperative celebrations and rituals such as the AGM.
An investment of $100,000 gives a return of $10,000 each year for twenty years. There are no entry or establishment costs. There are no exit or transaction costs.
Reinvestments are possible meaning an investment of $100,000 will turn into the same investment with a higher value if no funds are returned. $100,000 value becomes $300,000 in twenty years, $200,000 in ten years, $150,000 in five years.
If the investment returns are taken as a discount on the price of electricity there is no tax payable, other than GST. If the investment returns are in cash the return is treated as a capital gain.
Investments can be sold at any time to other members of the cooperative or to other co-op approved investors.
Government Assistance to low-income households
Governments can use Pre Power cooperatives to channel investment funds to low-income households. For example, the ACT government offers low-income households $2,500 towards the cost of solar panels and provides access to loans, repayable over three years, through ActewAGL.
An alternative would be to provide $2,500 privately and confidentially to households via a Pre Power cooperative. The funds would go towards the purchase of panels and the household would pay less for power from the panels. The exact reduction would be a matter of negotiation between the cooperative and the government but it is expected that cooperative supplied electricity under this arrangement would be half the cost of electricity from the grid for seven years. Pre Power would negotiate with Housing ACT to put solar on public housing and to maintain and manage the installations.
Pre Power cooperatives offer the governments a low-cost, administratively simple solution which enables low-income households to invest in solar on their rooftops. The government only has to deal with one body and the cooperative will ensure the money is used wisely in an accountable and verified manner.
Potential Pre Power Cooperative Membership
Seventy per cent of ACT rooftops have no solar panels. Most of the rooftops with panels could have more so the Canberra potential membership is over 125,000. Across Australia, the potential membership is 5,000,000
Barriers to Adoption
Pre Power cooperatives use the existing infrastructure of installers and grid connections without modification so there are no additional technical, legal or regulatory barriers. The main barriers are the unfamiliarity of potential members with cooperative organisation and governance.
The strategy of member involvement means that participating members will rapidly understand how the system works. Once a group of members is confident in operating a cooperative they are encouraged to start another cooperative. Expansion of the Pre Power cooperatives is through viral member participation and engagement rather than traditional selling.