The Sark Green Deal is an action plan or manifesto to mobilise Sark resources and people to a common purpose of energy independence for Sark. The aim is to continuously reduce cost and carbon intensity of Sark’s energy in all its forms, commencing with Sark electricity, and the means is through genuine partnership between Sark’s energy consumers, investors and managers.
Sark electricity is not the only expensive form of energy on Sark: fuels such as propane, heating oil & diesel used for heat and power are also extremely expensive and carbon intensive. During several visits to Sark, I found almost complete support for Sark energy independence. Once the electricity dispute has been resolved, it will therefore make sense for all Sark’s energy services (electricity, heat, power and so on) to be provided by a single Sark Energy utility.
Following the 1973 Oil Shock, when the oil price rose by 400% from $3 to $12 per barrel, Denmark (with an economy > 90% reliant on oil) faced an existential threat and implemented a new bipartisan energy strategy in order to achieve energy resilience, security and independence.
The organising principle of Denmark’s energy strategy was that for any given use of energy as a service, Danes would minimise consumption of fossil fuels. Denmark therefore invested massively in renewable energy such as wind, in heat & power infrastructure; a switch in mobility to cycling and efficient public transport; investment in buildings and so on.
So Danes put energy cost before financial cost and the outcome, strikingly illustrated below was to transform a centralised Danish national grid to a localised Danish natural grid
The great Scottish inventor, James Watt, did not sell his new and much more efficient steam pump to Cornish tin mine-owners in 1778 but instead supplied the use of the pump in exchange for a third of the coal that was saved. Watt continuously improved his pump’s reliability and efficiency through an energy partnership with mine-owners delivering pumping as a service.
A capital partnership is a production or revenue sharing agreement between users of investment (capital users) and investors (capital partners), with a trusted third party managing partner.. Shared accounting records are maintained by the operating partner, and no single class of member has dominant rights over another. Sark Energy will be incorporated as a Guernsey Limited Liability Partnership (LLP).
Prepay funding is complementary to the conventional company shares and secured debt which Sark’s unique legal system does not accommodate. Prepayment of energy at a discount offers consumers and investors an energy return on investment, while enabling energy suppliers like SEL to access working capital.
So Sark Green Deal’s Energy Partnership legal design will use capital partnership to fund assets and energy prepay to finance operations. Online implementation and electronic record-keeping lead to the result of simple energy financial technology or Energy Fintech which serves people, not machine processors.
This Sark Green Deal manifesto envisages three phases: Resolution, Transition and Operation. Through the partnership approach it is self evidently unnecessary to own productive assets to share or control their use.
The first step is for Sark Energy Holdings Ltd and Sark Electricity Ltd as founder members to incorporate Sark Energy LLP.
- Control – Sark acquires nominal ownership of SEL from SEH. Surplus sharing between SEL (capital user) and SEH (capital partner) replaces the current asset lease agreement.
- Management – Guernsey Electricity (GE) has for many years provided informal technical and other assistance to SEL. A simple service level agreement as managing/operating partner may be negotiated and included in the LLP agreement. .
- Working Capital – discounted consumer prepayment for electricity enables settlement of legacy debts (eg legal costs) and thereby finances compliance with the Energy Price Commissioner’s price control order at 53p /kWh.
So through Sark Energy LLP, assets and business may be re-integrated; power may be shared equitably between investors and professional managers, and new working and fixed capital may be introduced without diluting the interests of SEH shareholders. This purely legal and financial Resolution requires financial audit but no examination or due diligence in respect of the physical energy assets under dispute. This potentially enables rapid implementation, probably by 1st February 2020 at the latest.
Driving transition an agreed energy strategy will frame a rapid programme of investment in solar, wind, energy storage and smart grid updates. Meanwhile a detailed plan for decarbonising other modes of Sark energy use will be developed.
This investment programme will be funded by additional capital partners, including equipment suppliers, who will share in the value of increased production and/or energy efficiency savings. While the target date for transition will be two years, suppliers will be incentivised by the partnership structure to complete the transition earlier and below budget.
During transition Sark Energy LLP membership may be extended to include energy users as a whole while a legal framework for long term custody of assets is developed. Meanwhile, diesel-powered generation will be drastically reduced from 24/7 operation as the high carbon/financial cost Sark grid is transformed into a low carbon/ financial cost Sark natural grid.
Following the transition, low cost, long term funding may be raised from a public offering of prepaid energy to risk-averse investors, enabling capital partners to exit their investment if they see fit.
For Chief Pleas and Sark Electricity shareholders the Sark Green Deal aims to resolve the dispute in respect of legacy assets and enable control of this essential utility to pass to Sark through simple, equitable partnership finance and governance which shares risk, cost and power in all its forms.
For consumers, the Sark electricity price determined by the energy price commissioner of 53p/kWh will be applied throughout a transition period of up to two years beginning as soon as possible, and will be followed by a continuing long term process of further Sark energy cost reduction.
For investors, whether in the transition or in the long term the Sark Green Deal assumes pessimistically that energy demand remains flat. However, to the extent that currently empty hotels and residential properties are reactivated and demand increases, then the return on investment will be higher.