Why I have little faith in the build-out of renewables and nuclear

[GliderGuider]

I know this isn't a financial board, but the massive expansion of alternative energy sources required to replace depleting oil will require equally massive amounts of capital. It may not be available.

RBS issues global stock and credit crash alert

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

"Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.

"The Fed is in panic mode. The massive credibility chasms down which the Fed and maybe even the ECB will plummet when they fail to hike rates in the face of higher inflation will combine to give us a big sell-off in risky assets," he said.

Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.

It looks like we may only have until the end of July to prepare for this. Forewarned is forearmed.

[On the Road]

1. Capital is One of the Few Things I'm *Not* Worried About

The increasing wealth of the top 1% has resulted in trillions of dollars of cash floating around looking for a good investment. It's actually destabilizing in some cases, and exacerbated the spikes in stocks, real estate, oil, and commodities. The money is there as long as the opportunities are good.

The big question is the breakeven point for alternate sources. The longer oil prices stay high, the more people will judge wind farms and other alternate ventures to have long-term profitability and invest. That's the kind of bubble we need right now.

The danger is more that oil prices will drop for awhile and place in doubt the future profitability of alternate sources. Having another period of $30 will help consumers now, but it will suck all the money out of alternative until the next crisis.

[kristopher]

2. Just goes to show how effective the conservative disinformation campaign has been

If y'all think the rest of the world has the same outlook on global warming that the evangelically inspired masses in the US has, you don't know what is going on.

For example, Germany just enacted a strong feed-in tariff for offshore wind. A policy that ensure full development of their offshore wind resources.

[On the Road]

3. The Question is About Whether There is Sufficient Capital

to generate the kind of investment in alternate sources that's needed right now.

The original poster was concerned that an economic crash would rob new energy projects of potential investment. That is a realistic concern (which I actually didn't really speak to). Suffice it to say that the stock market collapse seven years ago left plenty of money to fuel the real estate boom with money left over. It would take something unprecedented to result in a shortage of capital. A much greater concern is profitability vs oil and coal.

No matter what government mandates are in place, the bottom line is going to be whether alternatives are less expensive than oil. Alternatives are not going to realize their potential until they are. On the other hand, once investors gain a comfort level that these projects will remain profitable over the next decade or two, money is going to pour in.

[kristopher]

4. You are making exactly the error I'm pointing to.

"No matter what government mandates are in place, the bottom line is going to be whether alternatives are less expensive than oil."

The price of fossils are directly linked to government policies. There are a variety of ways to capture the costs of carbon and that is the expected policy reaction to global warming. The feed in tariff in Germany is an alternative approach where the infrastructure is directly targeted for development by direct financial stimulation. Raising the price of fossil fuels is an indirect policy that doesn't target the development of a specific technology and is therefore more subject to manipulation based on anticompetitive practices of entrenched fossil fuel and nuclear industry interests.

[On the Road]

6. Be That as It May,

subsidies and inefficiencies can exist for very long periods of time. There's no guarantee that governments will change policy as you desire.

In the meantime, investors are going to put money into alternate ventures based on their estimates of return over the next decade or two, not on the overall social impact.

[kristopher]

7. Talk about short sighted.

investors are going to put money into alternate ventures based on their estimates of return over the next decade or two, not on the overall social impact.

They are going to invest based on expected ROI. True.
The expected ROI is linked to demand.
The demand is linked to government policies. (note this weeks debate on extending the investment tax credit)
Government policies are linked to public perceptions of climate change consequences.
Thus ROI is a consequence of "social impact" and investors know it.

[On the Road]

8. We Are Talking Past Each Other

This is not a post about public policy. The OP questioned whether a recession or bear market would result in investment money for alternate projects drying up. I am arguing it is unlikely to do so, and that private investment will be driven not by the availability of capital, but by the perceived long-term profitability of the projects. This in turn depends upon the price that the energy will command relative to oil and coal.

That has absolutely nothing to do with indirect costs borne by the public unless government policy changes the equation.

[kristopher]

12. Everything is about public policy

The rules that govern commerce are a matter of public policy.
No matter what government mandates are in place, the bottom line is going to be whether alternatives are less expensive than oil. Alternatives are not going to realize their potential until they are. On the other hand, once investors gain a comfort level that these projects will remain profitable over the next decade or two, money is going to pour in.

Your attempt to divorce public policy from the relative prices of the commodities produced by the competing technologies is simply wrong.

The OP opines that a capital shortage will cripple "a build out of renewables and nuclear." The PRIMARY reason for building renewables and (considering) nuclear are the externalities of fossil fuels - principally global warming. Your perspective and the claim of the OP totally ignores the public concern - and consequent willingness to take action - on energy issues related to global warming.

Your claims were simplistic in that they ignored (until your last line above) the input of of government policy on the economics of energy production. We aren't talking past each other - your assertions were true as far as they went and I understood them. However they were and are predicated on the economic perspective authored by conservative movement in THIS country over the past 30 years.

You still seem to lack an appreciation for the depth of sentiment around the world regarding global warming and the degree that sentiment is at variance with the perspective you expressed. It IS NOT a matter of economics - it is a matter of survival.

[GliderGuider]

13. The implicit claim in the OP

is that there may exist a set of physical and economic circumstances (aka constraints or limits) that render public concern and public policy moot insofar as nuclear power and major renewable projects are concerned. The likely public sentiment and policy position in the face of shrinking oil and gas supplies plus a global capital supply that has declined by 50% may simply be, "Sixth Great Extinction be damned. More coal, please!"

My position is that we are looking such limits in the face right now, and the world's public policy options will be more and more constrained by them as the next decade unfolds. Of course public values will change with the circumstances, but when faced with the choice of getting either more or less energy from a shrinking pool of money, I think the public will, in its wisdom, choose the "more energy" option, externalities be damned. YMMV.

[kristopher]

14. That ignores too much information, IMO.

We've covered this before; if there were no alternatives, your point of view would have merit. However, there ARE alternatives that can be used to substitute for increasingly expensive fossil fuels. On the face of it your argument simply doesn't make sense from a couple of perspectives.

ribofunk pointed out one weakness in the example of the collapse of the tech bubble where massive amounts of 'wealth' vanished. What you are saying is that more expensive fossil fuels are going to result in the general public's demand that we not only continue to rely on an increasingly expensive energy sources, but we will ignore sources that provide price stability while offering the promise of decreasing prices as economies of scale make production less expensive.

It just doesn't make sense that people are motivated that way.

[GliderGuider]

16. No, what I am saying

is that the increasing cost and decreasing availability of oil and gas are going to cause people to look around for alternatives. Those alternatives will include such things as wind, solar, tidal, geothermal, biofuels, nuclear power and coal (conservation is also probable, but operates under different rules). One of the factors people will use when deciding between those various alternatives is the capital cost of each.

That assessment may be done in the context of a sharply declining capital pool. In that case, if the capital cost of coal is significantly less than the others then I claim it will be preferentially adopted because it will replace more of the utility of oil and gas for a lower capex than nuclear or renewables. I also claim that if the capex difference is significant, then due to the constrained capital pool people will opt for energy ROI over environmental protection.

Remember, I'm not talking about something as mild as a global recession. I'm talking here about a reduction of perhaps 50% in global wealth, a deflationary contraction of up to 50% in the global money supply. That's what I think is going to unfold over the next decade.

[kristopher]

18. Ok, there is still a problem with your information

The capital costs for extracting coal are not what you claim. The easy to extract coal is rapidly being depleted and the bulk of remaining supplies are in narrow, hard to mine veins that require completely new technologies to locate and extract.

Add to that the EROI of the differing energy sources and the decision still strongly favors renewables.

[GliderGuider]

19. Where do i claim any capital costs for extracting coal?

I specifically qualified my relative capex statements. I know the EROEI of coal is declining, and I also think we're close to Peak Coal. Opinions about the eventual relative capital costs of coal versus other sources at this point remain largely that -- opinions (plus a bit of spin).

According to the paper by Nathan Lewis pointed out by bluedawg12 in another thread, coal has a total cost of production of around $0.04 per kWh (Total Cost of Production) vs. $0.07/kWH for wind or nuclear. Both wind and nuclear of were assessed granting the most favourable assumptions about conditions and scale, and the costs of storage or smart grid upgrades for wind were not included in that analysis. Solar PV was evaluated at 5 times or more the cost of wind or nuclear. Even accepting the necessarily fuzzy nature of such analyses it's hard for me to accept your statement that "the decision still strongly favors renewables", at least at this point.

Circumstances may change of course, which is why I qualified my original opinion. However, given that we cannot know the future, it's just as possible that the economic balance will tip further in favour of coal than in the direction of renewables and nuclear. That would suck, but reality rarely operates based on our preferences.

[kristopher]

21. You are, again, driving through your rear view mirror.

The article you point to is pretty good, however it is not a study that is predictive. It lays out some challenges and options the author sees to meet those challenges. As a reference for future prices of energy it is a poor choice. Also, IMO the presentation isn't a detailed examination of the options listed. Of course, it makes no pretense that it is, but I wouldn't use it to predict the the types of scenarios you are presenting.

For example in your argument you exclude the costs of storage and transmission as if that were meaningful. It isn't particularly. The retail costs of electricity are around $0.10 /kWh for residential and $0.08 or so for commercial; and that includes everything over the entire energy mix. I can't point you to a source right off the top of my head, but the calculating renewables (at present prices and not accounting for declining costs as manufacturing ramps up) places the renewable premium at 20% penetration as something like a 5% increase in overall delivered costs.

Also let me point out that the information on V2G is brand new. There is little likelihood that anyone making an analysis of renewable potential before 2007 would have a reason to consider the storage problem to be largely solved.

[GliderGuider]

22. Again, you get lost in the details.

All I'm claiming is that if you lose a shitload of money -- whether you are a family or a world -- your options become constrained. Families that run out of money and can't pay the heating bill freeze (at least once they have burnt all the furniture). I expect the same rules apply to the world at large.

[kristopher]

23. Solar and Wind Power for Gas-Rich State

http://www.iwpr.net/?p=btm&s=b&o=345285&apc_state=henh

Solar and Wind Power for Gas-Rich State
Russian

18-Jun-08


While the Turkmen authorities have started talking about creating renewable energy, there is little prospect this will come about in the near future since the country lacks the research facilities, staff and technology required, say NBCentralAsia experts.

On June 12, President Gurbanguly Berdymuhammedov marked national science day with a speech in which he urged scientists to focus more on new alternative energy technologies.

“We have huge opportunities for conducting research in this area, and the state will offer its full support for this,” said the president.

The authorities are currently working on a national strategy for developing renewable energy sources with a focus on solar and wind power.

Turkmenistan is classed as extreme continental, with 86 per cent of its territory consisting of arid desert. Officials believe that creates

[On the Road]

25. So Your Position is That

investors around the world are going to put billions of dollars into projects regardless of whether they will make money or go bankrupt. Wonderful. We will see whether that pans out.

[kristopher]

26. Maybe you could burn that strawman and get some useful energy

Your response:
So Your Position is That investors around the world are going to put billions of dollars into projects regardless of whether they will make money or go bankrupt. Wonderful. We will see whether that pans out.


I believe I was clear. My post:
Everything is about public policy

The rules that govern commerce are a matter of public policy.
>deleted your prior post<
Your attempt to divorce public policy from the relative prices of the commodities produced by the competing technologies is simply wrong.

The OP opines that a capital shortage will cripple "a build out of renewables and nuclear." The PRIMARY reason for building renewables and (considering) nuclear are the externalities of fossil fuels - principally global warming. Your perspective and the claim of the OP totally ignores the public concern - and consequent willingness to take action - on energy issues related to global warming.

Your claims were simplistic in that they ignored (until your last line above) the input of of government policy on the economics of energy production. We aren't talking past each other - your assertions were true as far as they went and I understood them. However they were and are predicated on the economic perspective authored by conservative movement in THIS country over the past 30 years.

You still seem to lack an appreciation for the depth of sentiment around the world regarding global warming and the degree that sentiment is at variance with the perspective you expressed. It IS NOT a matter of economics - it is a matter of survival.

Added on edit: The point is that government policies determine to a very large degree who the winners and losers are. If policies are designed to make a profitable market for renewables, then investors will make billions on renewables and, indeed, will pour their money into the technologies. If the policies are designed to make a profitable market for oil and coal (by perhaps ignoring relevant costs or allowing relevant costs to be externalized) then that is where investment money will flow.

[On the Road]

27. Actually, Reading Over the Thread,

I think neither one of us is addressing the original question, which was about the future availabilty of capital.

My responses were geared more the willingness to invest. Yours were directed more towards the extent to which the profitability is determined by government policy.

For the record, I think capital will not be an issue. Governments, many of whom are highly motivated as you point out, will provide some of it. Governments may change the incentives. But the majority will probably come from the private sector and operate by whatever set of rules are in place.

[kristopher]

28. A genuine meeting of minds. nt

[ElectricGrid]

15. Get a grip pal...

i know alot of conservatives and christians that care as much about our energy policy as your or I. Stop with the talking points and start doing something.

[kristopher]

17. What are you talking about?

I didn't say that conservatives don't care about energy policy, they care a great deal. However, it is well documented that the basis of their decision making is provided by a systematized disinformation campaign that has been ongoing for over 30 years. Google "conservative war science" and see what pops up.

Environmental Skepticism is another term to become familiar with as it pertains to conservative think tanks and propaganda. It is a well funded and coordinated anti-environmental movement that produces, among other things, all the disinformation on global warming. Do you think that crap just popped up out of thin air?

[GliderGuider]

20. In that case we're reading different blogs :-)

Try this one: http://theautomaticearth.blogspot.com

Like those authors, I fully expect a wealth collapse over the next decade -- a deflationary spiral that will reduce the amount of money in the global economy by perhaps 50%. And all the while oil prices will continue to climb, possibly in absolute terms, certainly in relative terms.

I do not think this is going to be your grandfather's Depression.

[bluedawg12]

5. Investors may pull money out of the stock market

and sit on the side lines in "cash positions" for a while.

buit, there are big institutions that have to eventually reinvest.

For example, retirement funds that manage near billions in capital.

Plus, big money and even little money will have to return to investments in short order...there is little profit in a money market cash position.

Energy as a sector for investing may be just the ticket if--market driven companies come up with a better mouse trap. i.e. new technology is driven by profit and investors will plunck money down if the technologyis there.

I am thinking of the 1990's tech stocks and how that sector exploded once IT exploded..OK later it burst..but later...

I think the money is and will be out there...we just need the energy technology explosion to attract money.

I know we can do it..especially now that everyone has cottoned on to big oil, their profits, and their possible "peak" production. I think emotionally, the average guy and gal, is ready to move on from big petro.

[GliderGuider]

9. There's a good chance this won't look like any recent market correction

I fully expect a lot of money to simply evaporate. I worry that the big institutions won't pull over to the sidelines in time, and a lot of their positions will be decimated. I worry that a lot of funds are prohibited from resting in cash and must stay invested to the bitter (gallingly bitter) end. I worry about a deflationary coupled with rising energy prices creating a monster that will make the stagflation of the '70s look like a mewling kitten. I worry about a global crash of housing markets, with 75% of the value disappearing within a few short months in some places.

My concerns may be overblown, but when a conservative institution like RBS warns of a "full-fledged crash" and Morgan Stanley warns of a coming "catastrophic event" in international banking, I think it's time to start worrying.

[NNadir]

10. We can either sit on our ass and do nothing and die or we can do what we can.

It's really that simple.

It is a very poor approach to do nothing because one has convinced one's self that one cannot do everything.

[GliderGuider]

11. Who's advocating doing nothing?

Not me, that's for sure. We clever monkeys can't keep ourselves from doing stuff. Which may be part of the problem, but that's a topic for another thread.

My message is that we are more likely to succeed (aka come up with appropriate, sustainable approaches) if we are aware of and respect limits, whether they are ecological, energetic or economic.

[NNadir]

24. Bacteria usually have their limits found for them.

In fact, most species are like that.

It is sometimes claimed, not by me, that human beings are distinct from other organisms.

I don't think so.

Frankly though, your point, if I understand it, comes down to something like Lady Astor claiming that the lifeboats on the Titanic are cold and wet, and therefore she'd like to think the matter of using them over, on the grounds that she paid for better accommodations.

[stuntcat]

29. but

but this world's not really comparable to the Titanic, it's not a 2-day disaster, it's a mess that was started at least 4 decades ago and we're still deciding whether or not to take care of it. Personally, I'm not eating meat or making babies and I think my choices make a big difference for the rest of the world. I'm also losing hope in people but it doesn't mean I'm not doing what I can. The mass-extinction is my biggest concern and the news about that has helped suck the hope out of me. If any other humans are offended by that or think it's just a defeated feeling then that's their opinion.

If I could jump onto a dingy life-planet I would but I can't so I do my part to buy a few more minutes. I think G-G does too.

[NNadir]

31. In fact, this mess did not begin four decades ago.

In 1957, Admiral Rickover gave a fabulous lecture on many of the topics being debated here.

If you look carefully, you will see that the focus is now, as it was then, on the future and not on the present. Our problem, of course, is that we are Admiral Rickover's future. He is dead, and thus we are living with the inability of his contemporaries to face the music and choose among the options he offered. Incredibly, the options have not changed. Not one whit.

This is not about "doing what one can."

This is about doing what one must, and all of the dithering talk has simply made the matter more dire. The problem is that no one was willing to make sacrifices in the past, and it is, we, the children of those times who will be compelled to sacrifice.

Even so we still have dithering morons pretending that this about picking and choosing.

The Titanic/Lifeboat analogy is pretty accurate I think.

[stuntcat]

32. and I agree

Sorry for pulling 'at least four decades' out of the air, I've read about his long enough to know it's the way humans have lived since they stood upright that's really lead to what we face now. I too have read papers from the 60's and 70's telling exactly what's happening :)

It's just.. I've gotten the impression that everyone who posts in E/E believes 100% in doing what we must, I think picking apart each other's feelings on this isn't so productive.. excuse me, I've just been let down since I came to DU at the time we spend pushing at each other. And I admit I am sad about the news on this particular subject, even though I do what I can.

peace please

[Dover]

30. What does he mean by 'cash'? Literally holding cash in hand or socking virtual cash away in saving

If one is NOT heavily invested in stocks nor holding any debt, with money primarily in savings....how 'safe' is that?