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Tag Archives: investment

New year, new nuclear: Hinkley fallout

A special extended bumper New Year edition

By Dave Elliott

The UK starts 2015 with a big new year headache- the Hinkley nuclear project. It is a huge uncertain project, and it is far from clear, if goes ahead, whether  it will prove to be a wise investment, given the fall in energy costs and the emergence of cheaper renewable alternatives. (more…)

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Green jobs 2

By Dave Elliott

It is claimed that a transition to green energy would create a lot of employment. As I noted in my previous post, there are methodological difficulties facing those trying to make realistic estimates, but economists do produce estimates of employment creation for various investments and the net job impacts. (more…)

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All change in Germany, the EU, and the US?

By Dave Elliott

Things are changing in Germany. With renewables booming, German energy giant RWE has suffered a massive loss of €2.8 billion, its first loss in 60 years. It has admitted it got its strategy wrong, and should have focused more on renewable and distributed energy rather than conventional fossil fuels: ‘We were late entering into the renewables market – possibly too late.’  A previous RWE CEO had gone on record with the immortal line: ‘Photovoltaics in Germany make about as much sense as growing pineapples in Alaska’.  www.reuters.com/article/2012/01/18/germany-energy-idUSL6E8CI12Y20120118

Now Germany has 36.5GW of PV, supplying around 5% of its electricity and at peak times much more!  And about 8% from its 33GW of wind.  (more…)

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Can the government get a return on risky energy technologies?

One current climate and energy bill in the Committee on Energy and Natural Resources of the United States Senate is S. 1462, the American Clean Energy and Leadership Act of 2009. The stated purpose of this bill is to:

” … promote the domestic development and deployment of clean energy technologies required for the 21st century through the improvement of existing programs and the establishment of a self-sustaining Clean Energy Deployment Administration that will provide for an attractive investment environment through partnership with and support of the private capital market in order to promote access to affordable financing for accelerated and widespread deployment of–
(1) clean energy technologies;
(2) advanced or enabling energy infrastructure technologies;
(3) energy efficiency technologies in residential, commercial, and industrial applications, including end-use efficiency in buildings; and
(4) manufacturing technologies for any of the technologies or applications described in this section.”

To achieve the goal of the deployment of clean technologies, not research, a Clean Energy Deployment Administration (CEDA) is proposed to be established in the Department of Energy. The agency will be an independent administration within the DOE with a Technology Advisory Council to advise on the technical aspects of new technologies. CEDA is to provide different types of credit such as loans, loan guarantees, other credit enhancements as well as secondary market support such as clean energy-backed bonds that are aimed at allowing less expensive lending in the private sector.

The mission of CEDA is to help deploy (not research) technologies that are perceived as too risky by commercial lenders. Thus, the agency aims to promote riskier technologies but with high potential to solve climate and energy security needs. At the same time, a portfolio approach is supposed to mitigate risk and enable CEDA to become economically self-sustaining over time after getting initial seed capital allocated by Congress (possibly up to $16 billion from existing funds reallocated to CEDA).

If other private investors are also pursuing balanced portfolios of risky and safe energy investments, what exactly might be the difference between the government CEDA and a private equity energy investor? Would it be that CEDA has a mandate to only invest in energy and climate technologies whereas a private fund can invest mostly in energy technologies or even change it energy-related portion of its portfolio over time? No doubt many would be skeptical that the government, even with private advice via the Technology Advisory Council, could make a profitable investment fund for clean energy, much less specifically having to invest in technologies that are too risky for the private market. It is also not clear how far $16 billion can go in this endeavor. For instance, for a wind turbines (not a risky clean energy technology) at a cost of $2000/kW, $16 billion could purchase 8 GW of installed capacity. Riskier and unproven technologies would be much more expensive such that the CEDA fund could invest no more than the order of 10s to maybe 100s of MW of installed effective capacity (via energy conservation or generation technologies) or less. If a new technology were deployed and operated successfully for a year or two at a scale of 0.1 – 1 MW, then it would begin to get established as less risky from an investment standpoint, and more business model and upscaling issues could take over in importance with CEDA divesting and hopefully handing the reigns to private capital. Thus, possibly up to a few dozens of technologies could get funding from CEDA to expedite their deployment.

It is not clear what the returns to CEDA will be in what will surely be rare cases of success. CEDA is meant to be more creative and flexible than existing government programs that have loan guarantees as the only funding and assistance mechanism. On the grand scale of problems and budgets, $10-$20 billion on CEDA may be a worthwhile bet. After all, that’s only about a dozen stealth bombers!

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Classic empire talk: marginal returns on investment

After most of the talk of major bank failures and bailouts had taken a hiatus since the last half of 2008 and early part of 2009, some writers are beginning to reflect back upon certain investments of the last decade or two. A couple of nice articles are listed here:

“How Dubai’s burst bubble has left behind the last days of Rome”

“An Empire at Risk” by Niall Ferguson

Additionally the highly notable writer and multidisciplinary scientist Vaclav Smil will soon have a new book on “Why America is Not a New Rome” that aims not to take the traditional view that the US is an analog to Rome, but rather a sufficiently different animal with less dominant characteristics.

Nonetheless, because humanity has effectively used fossil fuels to link the globe in trade, we have clearly seen how one country can facilitate unwarranted investments in another country. Sometimes these investments are intended for purely economic gain with foreign banks lending money to Dubai for creating some of the world’s most extravagant buildings and land forms in a country that is one of the least endowed with natural resources. In fact, the only reason that the Arabian Peninsula even has the relatively recent capability of fostering a large population is that fossil fuels power desalination plants to quench the thirst of the inhabitants. It is clearly not energetically-wise to air-condition a beach in the desert (as in one beach in Dubai). As noted in the articles above, because of the different rules about debt obligations, the lives of some expatriates from the EU that have invested in Dubai’s real estate bubble are being completely transformed. Pay debt on time, or go to jail. This is a little different than going through bankruptcy and simply raises the risk-reward ratio when investing in countries and societies not based upon the EU and US Anglo-Saxon model of politics and economics.

In speaking of investments in countries with a different political model, the US investment in Afghanistan and Iraq since 2001 is a case study in the type of marginal return on investment that can slowly characterize the collapse of a society. This topic of course could be debated until you run out of breath, but think about it from the following perspective. The US is investing money (as well as energy to fly around other countries!) to maintain the status quo of security. The events of September 11, 2001 started a chain of events in the US that have:

(1) spurred the creation of a new cabinet-level government agency – the Dept. of Homeland Security;

(2) induced a soon-to-be deployment of 100,000 troops in a country (Afghanistan) whose inhabitants the US already trained to fight insurgent/guerilla warfare;

(3) changed the US focus into that of nation-building a country that has never acted as a unified nation to begin with; and

(4) increased the amount of heroin flowing throughout the world as Afghanistan is now the major world supplier of poppy.

On the last point, we are now making investments and decisions for the “War on Terror” in Afghanistan that clearly, albeit indirectly, go against the US “War on Drugs” that has been on-going for almost four decades now. This is pretty much the definition of marginal return on investment when you attempt to solve one problem and it makes an equally ravenous problem become more untenable. All together, because of the minimal efforts by other countries of the world in Iraq and Afghanistan, the US is attempting to almost single-handedly maintain some order of world stability that is requisite for the continuation of globalization and international trade. All other countries have essentially been convinced that their investments can’t possibly make a difference, and they are likely correct.

Any investment in global stability has to start with the largest economic and military power. Of course, this is the same argument for the need of the US to lead in global climate treaty negotiations starting this week. So far, the US leadership chooses to act under uncertainty with the global military option more readily than under the uncertainty of the global climate/energy policy option.

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