ENERGY AS VARIABLE
All investments are seen from financial perspective by the return certainty and the reward on investment. These two therefore are the crucial facets. Investments with a fixed interest rate based ROI are not very attractive in economies with inflation: they deliver as their best just a hedge against inflation (interest rate = inflation rate). The interest rate based ROI covers in the best case the currency value decline caused by the inflation. Interest as ROI just gives liquidities a value maintenance at the cost of risk. Therefore the risks on interest based deposits should be low (directly -less exposure- or average -high return with high but spread risks-), as risk exposure delivers the change of even lose the whole investment. Of course everyone prefer the concept of growing values instead of just maintaining values (or even declining values). Capital is an asset that can work. Work that includes risk and will deliver gain/profits or decline/loses. Fuel less renewable energy investments are the way to profit. The fundamentals are good: increasing global demand by more people, increasing global demand by more wealth/purchase power,, increasing global demand by massive infrastructural and manufacturing investments in the emerging markets, declining global discovery of fossil fuels, higher exploration costs fossil fuels, higher refining costs fossil fuel, higher transportation costs fossil fuel. All these facets will contribute each and everyone to steady climbing energy prices. The perception of these fundamental facets are the perception of the future energy price. The perception of the future energy price is crucial for new energy investments. The current tendency of measuring new energy investments by old energy prices is forgotten that the global energy situation is severely changed (more demand, higher cost, less supply). In the 80ties there was enough energy reserves to even use them as political weapon as pushing the USSR into bankruptcy by flooding the market with cheap easy to explore oil. These times have changed. Easy accessible oil is over. Cantharell is almost empty and declines at high rate, the Continental Plate is has peaked and is declining, Ghawar (the main field of Saudi Arabia) is declining, etc. For actual data on oil fields see http://en.wikipedia.org/wiki/List_of_oil_fields. New fossil resources (like gas hydrates) have a completely complex exploration level (and by this a complete different cost level) than an oil well (see http://en.wikipedia.org/wiki/Clathrate_hydrate). Deep water oil has proven to be much more expensive than on-shore or near-shore exploration. Cheap to explore abundant oil/coal/gas is over. The energy price will rise. Exploration calculations for new energy investments based on old energy prices are as stupid as expecting that off-shore exploration is as cheap as on-shore exploration. It's the total of the status of the global energy reserves and the influences of the global energy market hat makes the energy price. Energy use in the western world is declining, but the Western World only counts 20% of the total global population. The Western World is also no longer the leading part of the world. China is already the biggest car user of the world. China will soon be the biggest nett car exporter of the world. Energy demand will rise and rise and rise, regardless the economic status of the Western World. What will be the price of energy in each year of the future for the next 30 years. That's the key data foundation for any energy investment calculation. The fact that renewable energy harvesting facilities don't need fuel makes the investment cases very attractive (as they will function in a world that will be dominated by fuel deficits). The holy grail for every energy investor is a look on further energy prices. This can't be delivered as facts, but can be the calculation of each own individual view on the energy price of the future. This open calculation model is currently in development within Planck Foundation and Open Foundation. It will give each new energy investment case calculator his own energy price forecast model based on own data input. This advanced (but also very simplified) tool will change the view of the capital market towards new energy investments completely. Is will become the boosting power behind energy transition investments. Energy as Variable is a concept capable of generating a massive energy transition investment wave.
Author: Gijs Graafland
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