ENERGY IS CAPITAL
The energy sector always has been a capital intensive industry. Even in the old on finite resources based model where the energy fuel had to be brought in from somewhere else. The old business model of finite resources based energy generation was facilities (CAPEX) + interest (OPEX) + fuel (OPEX) = energy (ROI). In renewable energy business models the fuel component is absent. The business model of renewable energy generation is facilities (CAPEX) = energy (ROI). From the perspective of an economist are renewable energy business cases there for very attractive, as there is no fuel demand and thereby almost no OPEX part in the cost price. Our current energy model is based on finite resources and therefore can't deliver sustainable prosperity. Our future energy system will be based on renewable resources and therefore can deliver sustainable prosperity. Importing finite fuels is just filling a bath with water if there's no plug in the drain. Importing finite fuels is just operating a capital (wealth/prosperity) drain. From the perspective of an economist, importing finite fuels is just harming the future economic health of a nation (as economic production leaks away). The old energy system only functioned well when energy fuel was cheap and abundant available, but definitely doesn't produce prosperity if the energy fuel becomes expensive and scare. Due the absent need of from somewhere else brought in energy fuels the new energy system is a full capital (and thereby credit) driven industry. Thereby Energy = Capital is a very valid statement. The new not base on from somewhere else brought in fuels based energy system just needs 1) good ROI calculations (equals good business cases) and 2) good capital (equals cheap interest rates). From the perspective of an economist the absence of fuel demand is very attractive, as fuel is the wild card in any old energy model business, as the cost price of the fuel is of an uncertain price level. Uncertainties (and certainly huge ones) are not good for business cases. What is the future of the fuel price? Is a projection based on historical price data a valid model? Let's do the math: More people on earth combined with more purchase power per capita delivers huge energy demand (for example: China has become in only just a decade a bigger cars market than the US). So demand is growing exponential. See the graphs. Supply is not growing in the same speed as demand in growing, there's a growing disparity between supply and demand. Any economist can tell you the effect on the price even while sleeping. On top of that supply is declining and exploration is becoming more expensive each year. Connect the dots: We're running out of cheap fuel and thereby out of cheap energy. The energy fuel based model is not a valid business model any more. Calculating the price of fuel on historical data is closed to stupid, is just showing don't knowing the pricing facets of fuel at all. In this perspective is it for example totally not logical to build a huge coal fired power plant. China opens each 14 days a new one and the energetic quality (mass to energy) of coal decreases each year: we're running our of the high grades. The old finite fuels based energy system doesn't make any sense to anyone that analyses it economics for more than hour. The new energy system (due the lack of fuel need) is much more attractive. Energy generation just equals capital investments in the new energy system. No wild cards. Just investments (CAPEX) and interest (OPEX). It's very sad that we don't have done this in the 80ties. In the 70ties we know that we have to do it. But we followed a Hollywood actor his economics. Just check the source was a too hard to get wisdom for us all. As result of that we used the energy reserves we had available and need for the transition time (Prudhoe Bay, Cantarell, Mexican Gulf, European Continental Shelf, etc, etc) in just one generation in one big unsustainable prosperity one-time-possible party model. Our attitude was something like 'Tomorrow will take care of tomorrow' or 'Our kids must figure it out by themselves'. On top of that we demolished our credit system gradually but effective as energy prices started to rise in the 90ties. This is where we are today: no more cheap energy reserves at home and a debt burden financial system. Quite a perspective. If we don't want to live in prosperity the next decades and we don't want to deliver what our parents have give us to our children. The fact that the capital system is broken is very serious for our energy perspective, as in the new energy model just capital was needed to generate energy. There is no economics nor viability left in the old from somewhere else brought in fuel based energy model. The new just capital based energy model is the only viable model. As said: from economist's perspective the new model is much more attractive. Just the business case needs to be good (see Open Foundation on www.openfoun.org) on the Internet and the capital must be available. Capital that is sure of a ROI in an economic ambiance where almost any other investment seems to be nearly vanished. Energy is Capital is a very valid statement.
Author: Gijs Graafland
Back to index page of Energy Economics | Energy Politics
Download the full Energy Economics report in PDF