ENERGY FINANCE


ENERGY AS TRANSPORT


Energy harvesting investments project developers will like be build on locations with the best ROI (lowest investment, highest return). This are often not the demand locations. This different location issue bring a transport demand into the energy sector. Energy transport makes it possible that supply meets demand , if there are power exchanges that can handle/invoice this demand. By good energy infra power surpluses can be send to areas with the highest energy deficits (and thereby give the best spot market price). Therefore energy transport is market wise (and thereby commercial) very attractive. The financial world start to understand this. An example: In Holland the state owned national grid operator (Tennet) needed E 1.5 billion, they tender this capital demand and gets offered E 11.5 billion within a week. Such a capital supply situation is a dream scenario for almost all investment cases anywhere any time. The financial world starts to understand the perspectives of energy finance each month better and they often begin on the energy market by looking for energy transport investments. Energy investments will take over the capital feed that now goes into state debt bonds. This a simple line with huge monetary consequences. State debt bonds will become very unattractive. States will need to balance their budgets completely as their access to the capital markets will be lowered. The unlimited capital flood of PeakCapital is behind us. Pension funds will have more appetite for energy generating and energy transport investments that each year will gain in value, than for state bonds (treasuries) that each year will decline in value. Energy transport investments have the huge benefit that they are energy source independent, this why most financials start their energy investments in energy transport lines: it delivers them a safe start point into energy finance. But they must not overweight this energy source independent facet of energy transport (as in: hedge against sources variables). An insurance against other variables don't make a product/service perfect in its own class. A focus on transport also could be a by lack analysis/knowledge driven misconception on where the lines are needed. An example: The above mentioned capital tender of Tennet will be used to realize a backbone from new remote coal fired power plants to the central cities. Coal fired power plants will no deliver power as they fuel cost (coal) will become to expensive and coal fired power plants are not as flexible (quick start, short online during demand peak, quick offline as the peak is over) as gas (a natural gas fired plant produces almost direct power after 'turning it on'). Energy transport is attractive but that was data transport also, still the fiber companies haven't made any money as they all did the same routes or did stupid route. An example of not profitable projects realized by companies that need to perform profits are the so called 'routes to nowhere' like the so called 'deer instead of dark fiber' to the less populated north in Finland. KPN Quest has several of those kind of 'investments'. Of course energy transport investments will have less competition as data transport as the CAPEX per mile is much higher and current capital supply is much more different than during the dotcom bubble (when all the fiber companies build lines on the same routes). The example above (ask for E 1.5 billion, get tendered E 11.5 Billion) certainly tells the story that there is too less investment demand in energy transport. But that will change as fossil energy prices will rise and thereby energy as molecules (fossil energy) declines, energy as electrons (kWh) will rise. Power transport by lines make it possible to live export for money by kWh surpluses, and to live import/purchase by kWh deficits. As the energy price rises power/current/am prices will become more flexible/variable. Companies and households with old fashion power/current/am meters will pay the maximum price and people with new digital XML based power meters that delivers live data will get live prices. Live prices as in: variable depending on location and time. This will lead to intelligent power use base on the price. For example: charging electric cars will be done with cheap energy. Industries will do energy intensive processes as the power is cheap (is in the power intensive aluminium commodity industry already happening). The first thing that's need change in energy transport is the unwanted subsidy of state owned national grid operators to connect each power plant anywhere. This make it possible to build huge coal fired plants in the middle of nowhere and give economies the bill of connecting them. The concept of privatizing profits and socializing costs build into the business model. This regardless the fact that coal fired plants will become the bleeders of their owners and/or operators as global coal prices will spike due to huge demand increase from China. The economic problem of the concept of fuel driven energy will be most visible by coal as fuel in times of PeakDemand in combination with soon occurring PeakCoal. All stories about huge coal reserves are just stories. The reserves are there, the exploration prices of deep coal are 'only' 3 till 4 times of the current surface coal exploration. Deep coal will be harvested with in-situ technologies and transported as kWh by powerlines. So the subsidizing of the energy wrong direction (delivering new coal fired power plants in the middle of nowhere national grid connectivity) must stop. Certain as off-shore wind doesn't got these free grid connection. This not-equal not-fair situation needs to changed by adjusting grid legislation to no forced by legislation infrastructure investments by the national grid operator for new power plants. The local grids should go to the municipals. Privatizing them equals stupidity. Any inter-local power line should be privatized (as in: sold to the market). Governments needs to capital this deliver them very much. If the lines are in separated corporate identities they can be sold with the attached finance (if the financier agrees with this). Smart governments don't consume this capital but invest it in Energy as ROI models that would give them better future perspectives and thereby better ratings. Supporting their financial status and their currency value by this. Inter local/city/region/national powerlines can be best addressed by the market. New power lines should be underground and HVDC based. Existing HVDC tower attached powerlines could have on one side of the tower HVDC instead of HVAC. New power lines also will have fiber lines on/in it, creating also income by the fast growing demand for digital communication if television on demand and video calling/meeting will get traction. Active component suppliers (like ZTE and Huawei) certainly are interested in offering finance schemes for the needed active fiber components. Municipals will design their own external powerline redundancy. Municipal grids will connect each other municipal grids (as part of their redundancy plans). Municipal grids will connect each other municipal grids (as part of their redundancy plans). Regional grids will connect each other regional grids (as part of their redundancy plans). National grids will connect each other national grids (as part of their redundancy plans). Continental grids will connect each other continental grids (as part of their redundancy plans). If the market doesn't perform, governments will fill the white spaces the transport suppliers have left. Power lines will be attached to new rail roads. The Beijing to London railway that China wants to initiate is a perfect example of such a new combination, certainly as air travel and air cargo will become too expensive due sharp rising fossil energy prices and the to this attached declining air networks. When governments interfere in energy infra it gets politicized, making it more difficult to initiate/realize/operate. Power is like money: it has no political opinion. Other methods of power transport are a) embedded (by products that have high energy demanding production processes like aluminium or solar cell crystals), b) by hydrogen and c) by wire (as extended described above). Embedded energy will be solved by the market and needs no help from any government what ever. Hydrogen will be used in energy surplus location on moments where there is not enough power demand or power transport capacity. This will be done as close to the market/harbours as economic possible (as power is much more easy to transport than hydrogen). A global hydrogen market will emerge very fast. To think that there are enough rare metals to store the daily energy needed for the daily mobility is only a demonstration of absence of knowledge regarding the global supply/reserves/exploration of these rare materials. Cars will be driven by power, the power will be generated by fuel cells that will transform hydrogen to power. The current hydrogen production technology is not good: it leaks a lot energy on unwanted warmth. See Energy is Hydrogen in Energy Politics for the directions the hydrogen technology will go. The business model of energy transport is simple: there is capacity and there is demand. Certain capacity volume will be contracted by reservation and price, other by reservation only and the rest will be auctioned on an full automatic energy transport exchange model that also automatically will manage the transport to the line. All these will be XML live data driven. Energy as Transport gives local available energy, that's not locally needed a market somewhere else. By this it increases the ROI on energy investments. Energy as Transport is a concept capable of generating a massive energy transition investment wave.


Author: Gijs Graafland


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