See a better version of this title at Rewiring Australia with Public Capital.
Capital builds assets, improves and sells products, and reduces the cost of building and selling products. We organise bookkeeping, so we have operating and capital costs and treat operating costs as different to capital costs. We treat Capital as a product that produces income. It generates income with interest, dividends, or various forms of Capital Gain. Because Capital is a product that generates income, we create Capital Markets as a way to move Capital between entities.
Capital in this form is expensive to operate, and we need more than necessary to produce products. Changing its form can increase its productivity, so we need less to produce more.
Prepayments for unspecified products are a form of Capital called Public Capital. Giving an investor a discount when purchasing the product is a way of providing a return on Public Capital without requiring extra money. Transferring the Public Capital included in the price of a product to the buyer removes the need for Capital Markets. Dropping the value of future prepayments replaces the need for depreciation and the likelihood of stranded assets. Allowing prepayment owners the same rights as shareholders spread ownership to the general public along with the care that ownership brings.
Public Capital reduces the amount of money needed to fund long-lasting assets by about half over the lifetime of the assets.
In particular, Public Capital is a much lower-cost way to provide the Capital needed to rewire Australia. It will remove the need for Australia to import Capital to move to renewables by increasing the productivity of existing Capital. Making existing Capital more productive can provide most of the funds to rewire Australia.
Funding Community Batteries with Public Capital demonstrates how to provide the funds to build storage into the electricity network without the need to increase electricity prices to pay for the Capital works. Rather than finding new overseas funding to rewire Australia, we can fund the new infrastructure by reusing the Capital in the existing system.
Converting existing Capital into Public Capital
There are many ways to organise Public Capital. One way is to form a Non-distributing Cooperative and for members to sell some existing assets to the Cooperative and receive Public Capital in return. For example, a group of residents on the same low voltage line could form a Co-op and sell some of their solar panels, batteries and inverters to the Co-op. It provides an asset base to exchange Public Capital for no cost between members. Removing this cost reduces the cost of electricity produced or stored by one member and consumed by another member.
The direct saving is the Cost of Capital. Let us assume this is 5% per annum, and the asset lasts for ten years. This funding reduces the cost of electricity exchanged between members by half. Members can use the savings to purchase more electricity assets or energy-saving assets and reduce costs further. Governments can supply interest-free loans to communities safe in the knowledge that the funds will be repaid and benefit all members.
Public Capital can provide the money needed to Rewire Australia without the need for governments to increase taxes.