The levelised cost of energy (LCOE) is a measure of energy cost used to help decide energy projects.
Assume equal costs and an equal amount of output each year. The Levelised Cost of Energy approximates to:
LCOE = Total Cost divided by the total output.
Total Cost = Capital Cost + Cost of Interest + Cost of Operations
Total Output = Sum of the kWh each year.
When a community borrows money from outside the community, the calculation includes the Cost of Interest. The interest adjusts for the time difference between incurring costs and producing electricity. Costs today have more effect than costs in a few years. Future benefits have less value than immediate benefits.
When a community uses its own money, the interest is no longer a cost and can be removed from the equation. We call these loans Community Loans. The money stays within a community, and so it is not a cost to the community. Removing the cost of interest makes a significant difference to the LCOE and changes the projects a community will fund. Community Loans favour systems with higher capital costs, long life and lower prices. Bank loans favour systems with low capital costs, short life and higher prices.
Cost accountants introduced interest rates to compare different investment proposals where the costs and benefits varied over time. (In their calculations they call it the discount rate on money). The interest gives money value over time. It allows external investors of money to select projects that achieve the highest monetary return in the shortest time. If used internally in a community, it is used to reward members who invest money with more money.
If a community uses its own funds instead of borrowing money, there is no need to add the time value of money as the community pays the money to itself. Instead of using the standard LCOE, the community can total the costs, subtract the project’s end value, and divide the total output to give a comparative cost. The profits from investment include the costs and benefits of changes to prices, the inflation rate, and the reduction in costs due to learning. The increase in profit replaces the time value of money to give a return on investment.
To create Community Loans, investors, workers, and consumers form a community venture to collectively own assets. Investors get a fixed return from the profits, workers get a fixed return for their work, and consumers and workers share any remaining profits. Community Loans provide a way to reduce the cost of investment by the time value of money.
Any collective organisation can make Community Loan agreements and reduce the cost of investment. The system works with a regular bank loan by ensuring that the consumers end up with the capital, not some external investor or shareholder. The capital is defined as the value of future output from the investment, not asset ownership. Ownership remains with the community.
Larger communities (greater than the low hundreds) tend to hierarchies with a chief with a small number of lieutenants who have others reporting to them. The larger the organisation, the deeper the hierarchical structure with the community appointing chiefs at different levels. As soon as hierarchy forms, those in positions of authority tend to take more than others because of their power positions. This leads to distortions in wealth. The distortions amplify with a financial system that rewards with more money versus a financial system that rewards with more goods and services. (There is no limit on the amount of money a person can accumulate. There is a limit on the consumption of any individual.)
An alternative to scaling with hierarchies is to scale with fractals. With fractals, the system gets larger by repeating patterns at different levels. Each level has a limited number of entities, all of which have equal power. Communities can consist of many smaller communities for specified, well-defined assets—sets of communities for energy, food, education, transport, etcetera. Individual humans in the communities that supply the goods and services are autonomous and can move freely between like communities at the same level. The communities at the base of the structure fund organising enterprises that provide systems of use to other communities. The approach prevents the domination of one group of people over another implicit in hierarchical structures. The spread of human activity across multiple interlinked fractal structures restricts any person's ability or any group to dominate community life.
Community loans change the driver of economic growth from the creation and generation of money to providing more goods and services for the same amount of money. Providing more for the same amount of money is a definition of economic efficiency. The dispersal of wealth across more individuals leads to greater cohesiveness in society, and dividing the provision of needs into separate silos increases diversity and experimentation. Modern societies can expect to double the value of funds available for investment.