ENERGY FINANCE


ENERGY AS GUARANTEE


There was a time (as in: only a few months ago) that state issued guarantees where the top level in guarantees. These days are over. The market demand for treasure bonds of a nation are the indicator of the value of state issued guarantees of that nation. As the market demand for western treasury bonds decline, also state issued guarantees of western nations have lost a lot of their attraction in delivering real guarantees. This decline of trust is due to several reasons: Western nations are debt burdened, have a greying demographics, lost their production economy, haven't been able to realize their dreams of superiority in knowledge culture and also western people are debt burdened (credit as steering wheel has become credit as motor and credit as motor is a model with a short life time). State issued guarantees of nations that are treasury bond market demand proven are a very powerful tool in finance. The western world has lost this very power fool tool. As said: economic decline combined with / hidden by over stretched credit situations leads to bank defaults, bank defaults/decline/collapse (if not handled right as in: compartmented solved) leads to governmental treasuries defaults/decline/collapse as governments needs too much capital for rescuing the banks and stimulus packages in an already lower tax income characterized times of economic headwind, which (if not handled right as in: compartmented solved) leads to currency decline/collapse. The capital market moves East, leaving the western world with no other option than printing money to purchase their own treasuries. A nuclear (as in: the game changing) solution that fix short time (week/month issues) only worsened the problem on the long (month/year) run. This is why the Greek treasury crisis is fought globally with huge amounts/guarantees. The Greek treasury crisis was de facto a global governmental bond crisis and by that a global state guarantee crisis. If not solved governments worldwide would instant have funding problems and would lead to instant worldwide governmental stop on any payments, bringing everyone who's depending on governmental payments in direct trouble and could lead to huge economic/social unrest. The response on the Greek treasury crisis was telling the world: don't go short on (bet on decline of) treasuries (as we will ruin your bets) while you want completely destroy governmental funding of any debt burden state/nation. There will occur a quality selection within the governmental bonds market. Just like by finance, state debt buyers will analyse more and more. Not only what is the debt and what is the GDP, but also more and more what are the economic future perspectives of that nation (including its banks and pension funds). In these terms the emerging/new assets holding states will get better ratings and still will have both sufficient governmental funding and the ability to use the tool of governmental guarantees which is attached to this. Worldwide local/regional/national/continental/global governments will gone use the Energy as ROI concept to insure further income on their investments and by this insure the trust in their credibility. Worldwide all Central Banks will gone use the Energy as ROI concept to insure further income on their investments and by this insure the trust in their credibility. The Energy as ROI model delivers them something nothing else can give them: rise instead of decline. For governments: rise of their debtor credibility. For Central Banks: rise of the market trust in their currency. Emerging states will certainly use their better credibility to seize improve both their own national energy situation, as well their global position on the high tech energy products/parts market. China will install governmental product guarantee plans to activate a national energy transition investment wave and it will work. China will install governmental guarantee plans to initiate an energy transition investment wave in its neighbourhood to insure more (by this mutual generated) renewable energy delivery to its fast expanding (and thereby energy hungry) economy. Energy as ROI is what will change the market of governmental funding (treasuries) and the valuation of governmental guarantees. The Energy as ROI model will become the main issue rating agencies will rate sovereign debt by. For large energy projects the project developer will be able to demand governmental (or inter company parental) guarantees of the contractor or supplier by making it one of the tender specifications. Although governmental guarantees don't have the financial value they had, they have still the value that a government will control the case and push the realization to prevent claims. The same can be said on inter corporate parental guarantees (where the mother company guarantees the actual delivery, specifications, function and maintenance of projects or project parts. Delivery and functional guarantees will ease financing severely. See also the Energy as Warranty model for this. Energy as Guarantee is still (if the Energy as ROI model is build-in) a concept capable of generating a massive energy transition investment wave.


Author: Gijs Graafland


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