Use-Credit Obligations

Use-credit obligations (UCOs), as pioneered by Island Power, is a generic term for pre-paid vouchers for future utility that can be used for savings, insurance, and debt-free capacity investment.

For example, if a community wants a solar farm, the company contracted to build and operate it can issue energy-credit obligations (ECOs, denominated in kWh of electricity) that can be redeemed as payment for power once the farm is up and running. These vouchers are sold at a discount to investors with more money than they need for day-to-day exchange, which is then used by the company to pay for labour and materials. Investors can be matched with different stages depending on their desired risk profile.

In the first stage, risk-tolerant investors with excess mutual credit use it to finance new productive capacity, receiving discounted ECOs (denominated in kWh of electricity) in return.

As the new infrastructure nears completion, the ECOs are sold on to (pre-arranged) investors with a lower appetite for risk. They are then sold to consumers at the going market rate for the relevant utility (in this case, electrical power). Finally, consumers redeem them in payment of their utility bill.

Once the farm comes online, the investors can either redeem their ECOs for electricity, or sell them at the current kWh market rate, realising a return from their prepayment discount. There is however limited opportunity for speculation as ECOs will never be worth more than the market price of the utility for which they represent prepayment (otherwise people would not buy them). 

Another example is a house bought by a community of interested parties which includes both tenants and investors, as well as two more classes, stewards and custodians. The purchase of the house is financed by the investors who buy rent vouchers, so nobody has to go into debt. The investors can then sell the vouchers to the tenants. 

UCOs can be denominated in any reasonably ‘objective’ unit appropriate to the value flows being monetised; square metres of occupancy rights, standardised veg boxes, or computational operations, for example.