HOW PRE POWER REDUCES COSTS
Pre Power reduces costs versus increasing money
Pre Power One reduces costs to members. It does not make a profit and distribute the profit. Instead, it takes the same system of producing power and looks for ways of reducing costs. For any community the two big costs in the production of energy are:
The cost of debt.
The cost of profit when we use markets based on price.
For long-term assets, the cost of debt is about half the total cost. The cost of profit is about half the remaining costs or about one-quarter of the original cost. These are real costs that cause money to leave a community and happen because of the way we frame the economic narrative. If instead of thinking of the production of energy as a money making activity we think of it as a system to produce the most energy for the least cost for a community. When we think this way we can organise our finances differently.
Instead of creating debt and paying for the use of the money we create credits and prepurchase electricity. Prepaying saves the cost of debt. Giving discounts when a member of the community pays for electricity with prepayments gives the prepayer a return on investment and the return on investment stays inside the community as lower cost electricity.
Markets are meant to work by many suppliers competing with each other on price and quality and buyers get the benefit of competition from lower prices. When the product is a commodity and the cost of production is dominated by the cost of debt the market becomes a market in money rather than electricity. Because prepayments have removed the cost of debt the market now becomes a market in the operating costs of producing energy. With clean energy fuel is free and the operating costs are always lower than fossil fuel. The cost of operating a small Co-op with standard software is less than the cost of administering the Australian Energy Market. There is no need to have a market based on price to lower costs and gain efficiencies as it is in the interests of the community to reduce costs.
As we have removed the need for markets based on price we remove the cost of profit from the community. Instead, discounts give customers lower-cost electricity. Members still have a choice as they are free to move between Co-operatives.