We've written quite a bit on this blog about the future of energy and how decentralization and democratization will affect us all. In this article we'll focus on how to do it!

It's time to cooperate

Today we will be talking about Energy Cooperatives. In the EU, there are 1500+ Energy Cooperatives united under REScoop.eu, in the USA - Americas Electric Cooperatives have $48bn in yearly revenue and serve 19 million people.

To start, what are cooperatives?

Cooperatives are a special form of business. Like corporations, they are groups of citizens working on a common goal. Unlike corporations, the owners of the cooperative use the products and services provided by the cooperative and vote on the distribution of assets and funds.

Wikipedia actually has a great, easy to understand, definition of a coop so I'll just quote it here:

A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise"

The key word here is democratically-controlled! Unlike corporations, in cooperatives each member has an equal voting power. The amount of money you contribute doesn't scale your voting power. This creates a wholly different set of incentives for cooperatives.

While cooperative members have financial incentives to join - they do it differently. How?

Energy cooperatives

Since our topic is energy cooperatives, we'll use an example of a classic electric utility and an energy cooperative to paint the difference and show you why you should join your local energy cooperative!

Classic Energy Utility

The classic energy utility is a corporation which is either privately owned or traded on a stock exchange. In either case, the corporation has some equity which is owned by its shareholders. The shareholders invest their money into the company, which then uses those funds to buy energy, employ people, build power-plants and run marketing campaigns to get you to join them.

When the corporation does good business, they earn money and divide some of it among their shareholders. This makes the price of the stock or the value of equity go up. The shareholders are usually large funds, banks, equity firms and similar big-shot players. Sometimes the shareholders are smaller private investors, but overall the number of customers is several orders of magnitude larger than the number of shareholders.

The grim reality this creates is that energy companies use most of the money you pay for electricity to pay dividends to their shareholders. The money is drained from the surroundings of people who pay for the electricity into the pockets of faraway investors, funds and other fat cats. There is absolutely nothing morally wrong with this! This is the free market at its finest.

However, with cooperatives we can make the free market work for all - not just the big players!

Energy Cooperative

Unlike the energy utility corporation which is owned by shareholders, the energy cooperative is owned by members! The members are actual users of the energy utility (the people paying the electricity bills) and they do not receive dividends for when the cooperative makes money.

They money earned is reinvested into the cooperative, not given to the shareholders. Functionally this is much different than a corporation. In legal lingo a corporation is an association of capital while a cooperative is an association of persons. Note that these persons can be both people and companies.

The incentives people have in cooperatives are still financial - either to save money or earn some extra. It's the incentives system on how to achieve this which is different.

As a person, when you join your local energy cooperative - you are able to vote on decisions which steer the flow of cooperative capital into the projects you find useful (for example - a wind farm in your city which would create 100 jobs) and you can offer your services to the cooperative (for example - sell the excess energy from the solar panels on your house). You are also the owner and the customer at the same time - this makes the cooperative likely to provide much better customer service than a traditional company.

Additionally, you might need a loan to build those solar panels - which an energy cooperative would be more than willing to give.

Another way in which the cooperative enables you to make money is by enabling you to invest into projects. When the cooperative wants to invest into a wind farm or populate the roofs of their members with solar panels - they call upon their members to invest money into these endeavors. The members earn a return on investment and make the cooperative bigger - multiplying the impact of their vote and their capital.

The money earned and invested is not funneled into large banks and funds - it stays in the community making everybody participating wealthier in the process in a very real financial way. The development of the supply, distribution and metering systems get modernized and the price of electricity drops.

Renewable Energy Cooperative

An increasing number of energy cooperatives are branding themselves as "renewable energy cooperatives" - meaning they only invest into renewable and clean energy sources. Cooperatives are one of the best ways to accelerate the energy transition from fossil to renewable. Due to their already decentralized nature - they are primed for investments into solar and wind.

The folks over at REScoop are doing a fantastic job pushing the energy transition in Europe.

Cooperatives cooperate

While cooperatives have an incentive to improve and innovate (if they don't they'll lose members and disappear), they have very little incentive to engage in toxic competition practices such as price dumping and scorched earth tactics like stock takeovers.

The best growth strategy for an energy cooperative is to expand their network and join other energy cooperatives. Cooperative A becomes a member of Cooperative B and Cooperative B becomes a member of Cooperative A. At that point, their interests become aligned and they are able to work as a much larger organization.

With this knowledge - go and join your local energy cooperative. You'll make your community better while creating wealth for yourselves and your neighbors.