A submission to the NEM Review — Initial Consultation
This submission contrasts competitive and collaborative market models, arguing that collaborative models, where producers and consumers work together, are more efficient and equitable. Using “Big Batteries” as an example, it illustrates how collaborative ownership, funded directly by governments, can lower costs and increase accessibility compared to traditional, investor-driven competitive models. The submission advocates for community-based financing to create more resilient and affordable energy systems, promoting a shift away from existing financial structures. The piece concludes with references to additional resources exploring community capital and computational modelling related to this approach.
Economies worldwide are based on competitive markets where producers compete with other producers for customers, and customers choose from producers who best satisfy their needs. The primary measure of choice is the price of goods or services.
There is an alternative model of collaborative markets where groups of customers work with groups of producers to produce the most goods and services that best satisfy their needs for the least cost.
The power of markets comes from producers and consumers having a choice with whom they will deal. Price is the dominant factor in competitive markets, while in collaborative markets, the relationships with the people you deal with become the dominant factor.
With humans, good working relationships lead to lower costs for the same goods and services and significant innovations, such as collaboration and sharing, which cost less than competition. Competition still exists, but competition with collaborative markets is competing to find ways for all to benefit.
Ownership of Big Batteries
Big Batteries illustrate the difference between competitive markets and collaborative markets. In a competitive market, the electricity consumers do not own the battery, while in a collaborative market, the consumers and investors own the battery. In a competitive market, the consumers pay the finance costs and a profit for investors. In a collaborative market, both these costs are eliminated because consumers are also investors.
To implement a Big Battery project, a wealthy company (often overseas) can go to a bank (often overseas) and get a more favourable loan than a local individual cooperative or government can obtain. The rich company hires community members to install and operate the battery. The money for the bank loan comes from the government because loans introduce new money into the economy. The loan repayment and interest show that the money was spent on the battery asset. The wealthy company will make a profit; some of the profit will go to the government as taxes, and some taxes will return to the community in subsidies to help them pay for the use of the battery.
This is an extraordinarily complicated and expensive process whose primary purpose is to expand the wealth of the already rich.
If the government allowed banks to provide funding directly to communities for purchasing batteries, it would create a more efficient financing model. Instead of involving banks and wealthy companies competing to finance the purchase, the government could supply the funds directly to the community and produce two to three times as many assets for the same money. The income from the sale of electricity goes to buying more batteries or other assets or reducing the cost of electricity.
More Information
I have written extensively on Democratic or Community Capital and self-published at https://kevin-34708.medium.com/. I have reported on computational modelling, the approach, and attempts to work within the existing financial system. I have put in submissions to Australian Energy Regulator.
The result of funding through local communities will be a low-cost electricity system that is fully distributed, resilient, adaptive and able to withstand the coming climate shocks.
An immediate benefit will be to reduce electricity costs by implementing a way for consumers to purchase part of the monopoly suppliers of transmission and distribution businesses with each payment of electricity. The money released will finance extensions to the needed transmission and local distribution assets.
FAQ: Competitive vs. Collaborative Markets — generated by notebooklm.google.com
1. What is the difference between competitive and collaborative markets?
Competitive markets pit producers against each other, vying for customers primarily based on price. Collaborative markets encourage groups of customers and producers to work together to maximize output and satisfaction while minimizing costs. Relationships and shared benefits take precedence over solely price-driven decisions.
2. How do “Big Batteries” illustrate this difference?
A wealthy company typically owns the battery in a competitive market, financed by bank loans repaid by profits from consumer electricity sales. A collaborative market model would see the community and investors jointly owning the battery, eliminating financing costs and profits for external entities and allowing for more efficient resource allocation.
3. Why are collaborative markets more efficient for projects like Big Batteries?
Collaborative models cut out intermediaries like banks and corporations, reducing the need for profit margins and financing costs. Profits generated can be reinvested directly back into the community, potentially funding more batteries or lowering energy costs.
4. What role does the government play in both models?
In the competitive model, the government indirectly supports the project by supplying new money through bank loans and receiving a portion of profits through taxes. In a collaborative approach, the government, through banks of loans that do not have to be repaid, increases the impact of the increase in the money supply from bank loans two to three-fold.
5. How do collaborative markets impact relationships within the community?
Collaborative markets prioritize relationships and shared benefits between producers and consumers. This fosters trust, encourages innovation, and leads to a more equitable distribution of resources and wealth within the community.
6. What are the potential benefits of collaborative markets beyond cost savings?
Collaborative markets promote distributed and resilient systems. In the case of energy, this means a more localized and robust power grid better prepared for climate-related disruptions.
7. Where can I find more information about collaborative markets and community capital?
You can explore the author’s extensive writings on Democratic or Community Capital and computational modelling at https://kevin-34708.medium.com/.
8. What is the long-term vision for a collaborative market approach to energy?
The goal is to create a low-cost, distributed, and resilient electricity system capable of adapting to future challenges, particularly those posed by climate change. This system prioritizes community ownership and shared benefits over profit maximization for external entities.
