Friday, February 1, 2008

a silver lining?

if the more pessimistic/realistic economists are right about our financial institutions, the western world is in for a number of rocky years.

if the more pessimistic/realistic geologists are right about our oil supply, the industrialized world is in for a few tough decades.

so, what's the silver lining?

the renewable energy industry is poised to flourish. for the time being, this means wind power. and, depending on your definition of "renewable," nuclear power.

current solar technology is a farce at best, a politcal scandal at worst. same goes for tidal, wave, small-scale geothermal, high altitude wind, hybrid vehicles, and biofuels. some of them have interesting futures, but i have seen no good reason to pay any attention to them right now.

the conditions created by our financial system meltdown plus the belief that our oil production has peaked or will soon are excellent because of four factors:

1) low interest rates
2) low interest rates
3) low interest rates
4) politics

in a bit more detail:

1) low interest rates lead to a decrease in demand for USD, which leads to lower prices for USD, which means that each US dollar buys less than it used to. this causes the price of imported energy to rise, making energy from domestic sources more attractive

2) low interest rates make building wind and nuclear power facilities cheaper. as opposed to coal or natural gas plants, the vast majority of the cost of a wind or nuclear plant is up front. once the plant is built, the cost of fuel, operation, and maintenance is minimal. because of this, the lifetime cost of a wind or nuclear plant is strongly dependent on the interest rate

3) low interest rates cause people to expect inflation, so they look for ways to protect their wealth. traditionally, this meant buying gold (because it is the world's oldest currency). today, i think many people are buying oil futures instead of gold because they expect it to protect their wealth and also think that it may increase in value because of increasing demand from growing economies. this speculation accounts for around 30% of the price of oil today. Saudi Arabia sells oil for just over $60/barrel. by the time the markets are done with it, we end up paying over $90/barrel.

4) when the economy is bad, people generally want things to change. when it is an election year, this means whoever is presented by the other party will be elected. as it happens, the other party this year is the democrats. both democratic candidates have made strong statements about renewable energy mandates. Obama, the most likely democratic candidate (according to me) has said (according to cnn):

"Proposes reducing carbon emissions by 80 percent by 2050 by using a market-based cap-and-trade system. Would invest $150 billion over 10 years in clean energy. Supports next generation biofuels. Proposes increasing fuel economy standards and would require that 25 percent of electricity consumed in the U.S. is derived from clean, sustainable energy sources by 2025. Would create a Global Energy Forum and re-engage with the United Nations Framework Convention on Climate Change"

all of this renewable energy development will be great for people in the energy and construction fields and will go ahead no matter what. in addition to the plants themselves, the transmission of this energy will require huge investments in the country's electrical infrastructure.

for me, this equates to a silver lining. i'm an electrical engineer, though, so i'd naturally see things this way.

update: apparently, some talking heads have come to much the same conclusion as me. so, if you've got cash burning a hole in your pocket, infrastructure may be the next bubble. electrical infrastructure is a good bet. GE is a major player, but too diversified to make big gains. Clipper Wind Power is my favorite turbine manufacturer for boring technical reasons, has room a lot of room to grow, and is traded in the UK.

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