ENERGY AS SOVEREIGN
Project developers that build investment cases on new energy finance models that use guarantees or CDSs that are covert by the local, regional, national, supranational governments or by the central banks of that nations or supra nationals should reward these governments or central banks if they sale the case. The guarantees could be even only issued under this condition. This would be smart behaviour as it rewards the risk taker for his exposure and preventing third parties to leave with the profit and left the risk taker with only the risk. Due to the Energy as Variable tool (combined with all the other described value adding new energy finance tools), the market value of new energy investment cases will be 150% till 300 % (one and a half to three times) of the nominal value. A part of this profit should we returned to the guarantee or CDS issuer, they could insure this sales profit sales by fixed sales price kick back regulation. It's important to know that all regulation can always be out ruled by smart financial engineering, which left the guarantee or CDS issuer one again with only the risk and not the profit. Therefore the bonus for the guarantee or CDS issuers should be just an initial and/or annual fee (the Energy as Fee model), or based on the Energy as ROI model. Each guarantee or CDS issuer could make their own price for issuing it, a price that the market will value as good (or too cheap or too expensive). Energy as Sovereign offers each nation (also the ones that have no fossil assets) the benefits of energy income: turning each nation into an energy harvesting nation, giving both all nations and all central banks energy based Sovereign Funds. The time of privatizing profits and socializing loses is over, the resistance against this public robbery is getting tough and this resistance is right: privatizing profits and socializing debts is just parasitical to economies, societies and governmental structures. It's polite white collared packaged hard corruption that undermines any good structure. Time for a model that replace parasitics with symbiosis. Time to make public finance more healthy instead of more worse. Any state and any central bank will issue guarantees on a) or energy investments or on b) export of energy facilities made by their own industry. As said before: all economic liabilities (so also of states) should be administrated more transparent. States will do right if they publish their guarantees and risk analysis on these guarantees. Central Banks should do only CDSs and will do right if they publish their CDSs and risk analysis on these CDSs. Publication gives public/media research and delivers critic if data is not right. Critic that takes care of always having the right data. Always having the right data is something that insurers the future of every governmental and central bank official. Transparency has a small price (sometimes some critic), but a huge benefit (knowing that that the road is OK and the direction right). A new type of export guarantee will occur: the functional guarantee. Most governmental export guarantees are mainly to cover the payment risk caused by the foreign counter parties, but more and more the foreign counter parties also wants or manufacturer delivery / builder realization guarantees, or manufacturer/builder warranty (or functional, or specification) guarantees. The demand for these guarantees will emerge severely as economies get into more turbulence due to the Credit Crisis/Crunch and the Energy Crisis/Crunch. What yesterday seems to be solid as a rock, can today default completely (mainly due weak auditing and false reporting, something that therefore should be declared illegal and law enforcement should be realized). So there are guarantees and warranties that will be issued by (local, regional, national, continental, global) governments and CDSs that will be issues by (national, continental, global) central banks. All of these guarantees, warranties and CDSs have a value adding influence case on projects. It should not be fair if the project developer will take the profit (or in project operation, or in project sale) and leave the governments and central banks with the liability. Value adding needs a fair pricing that reflects the value that's added. To be clear: guarantees, warranties and CDSs have a severe value adding effect. This should be priced and reimbursed. How will this be priced? As percentage of the sales price? History in financial engineering shows that in that case administrative cases will be build that leave the governments and central banks with no income on their value adding. Don't blame this on the financial engineers, blame it on the pricing model developers. The pricing model should therefore be fixed in amount, not in percentage. Than the value adding gets a price and that price will be too low, just right or too high, but the market will determine that and by analysis of the cases adjustments can be made for next cases. Pricing than gets market matched and payments of the value adding is insured. Payments can have only one type: Energy as ROI (transfer of part of the energy harvested). The Energy as Fee model (delivering a part of the project sales price as fee) is not a valid model (as it can be out-ruled by simple financial engineering based on simple legal like sale of use instead of sale of facility). So the Energy as ROI model is must be. The collection of these ROIs must be placed in a separate entity for the government or the central bank. By this the Sovereign Funds based on carbon free, fuel free energy systems will growing in all nations. It's a misconception that governments and central banks only can spend/water money (but yes, they are good at it). It's a misconception that the governments and central banks can bury any burden (by that they would just pile it up or watering it down and than collapse). It's a misconception that the governments and central banks can't make profit (and yes, they are often bad in it). What is the purpose of the these Sovereign (or Central Bank) Funds? First: they will bring the governmental balance sheets back in balance. Central Banks their balance sheets are always in balance as they can create money to do so. For Central Banks these funds are very functional in supporting the currency value: these funds are the perfect method to stop to process of currency value decline and support the process of currency value maintaining /conservation. These funds also can be the motivation that governments try to inflate themselves out of debt by currency value decline at the cost of the value of savings and pensions. These funds are thereby a perfect tool in creating sustainability in prosperity. In this concept the governments and currencies are mentioned as separate units, with separated tools and agendas. This is according the situation in almost any nation and regarding any currency in the world. The governments thinks the central banks are doing it bad (always covering the misbehaviour of the weak/bad financial institutions) and the central banks thinks that governments are doing it bad (always funding war by the use of quantitative easing). We have no opinion on this (as that would be a political opinion and we don't want to have these), but the Credit Crunch has made both parties clear that they need each other more than before and that they should work together more as they did. Together they deliver a better model and together they keep each other in balance. What are the funds used for? The funds (mainly feed by ROIs of large projects) will be used as guarantee funds for local banks to support them to issue mesa and micro (corporate and household/domestic) energy transition investments. So large investments support small investments and the whole range of macro, mesa and micro is covered. This can be done with the Energy as Equity model with the Energy as ROI reward. By this equity fund, all the local banks can have turnover (is income) again and act as the grass rooted level of change. Each nation than will be able to realize energy transition on all levels of their economy within 5 years. And this is why Energy Finance paper with all it energy finance models is developed, written and communicated. Energy as Sovereign is a concept capable of generating a massive energy transition investment wave.
Author: Gijs Graafland
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