Oil's energy contribution has declined by about 12% since 1999. The world's economies have also declined by about 12%. (Using conventional metrics, which are time delayed determinations, this will only be seen in hind sight). The massive destruction of asset values now occurring testifies to it happening.
Peak is well behind us, world economies have peaked and will continue to decline.
Joined: Aug 03, 2006 Posts: 4338 Location: Graceland
Posted: Tue Sep 23, 2008 2:06 pm Post subject: Re: Alternative Energy - R.I.P.
By RIP, I really just mean that until recently I was certain that at some point everyone would wake up and we would throw the kitchen sink at anything that could get us away from fossil fuels, including increasing efficiency in existing AE technologies (solar, wind), and accelerating the maturation process of new or currently non-scalable AE technologies (hydrogen, high-tech batteries, ultracapacitors).
I am beginning to think, though, that there is no kitchen sink to throw, even if we wanted to.
It really didn't occur to me that the economic situation could deteriorate this rapidly. This feels a little like the late 1970s-early 1980s, except I don't think we have any reason to believe that an enormous amount of cheap oil and cheap credit is in our future, which is what led us out of the funk we were in during that period. _________________
Posted: Tue Sep 23, 2008 2:22 pm Post subject: Re: Alternative Energy - R.I.P.
TheDude wrote:
Eventually if things are bad enough the government may have to step in to kick things along, as they (US Gov) did in the GD. With a bad enough recession or any kind of depression utilities will have that fewer customers to provide capital for them to engage in ventures like building wind farms, even when under the gun from mandates or drawn towards incentives. Irked populace will demand cheap electricity in any form and elect pols who will give them what they want, which is more likely to be cheap coal/NG than pricey wind/solar.
Fossil fuel energy costs have gone from ~$2.50+/MMBtu in 2005 to ~$4+/MMBtu recently, and this includes very favorable contracts wrt coal pricing. You can guess what happens to electricity if coal prices stay high as those contracts expire... The only way I'd put my money on coal would be a consistent and significant drop in price. Not even counting the premium from strong worldwide demand, the price of oil increased coal prices from ~20%/ton and up. Unless coal drops hard within the next decade that irked populace won't be getting cheap electricity from it. Natural gas prices are up as well, although that seems due to more expensive/intensive extraction techniques.
In short, w/ wind power averaging ~5c/kWh last year, with a tendency to be cheaper than natural gas for baseload, as well as the cold political climate and fuel cost increases looming on the horizon for coal, renewables don't look to bad, w/o even considering externalized costs. Even some solar, stuff like CSP and thin film, looks to be cost competitive compared to paying for natural gas peaker rates. And, as usual, regardless of how much more cheap electricity an irked populace wants, the cheapest thing to do is convince them to use less at a few cents/nillawatthour (). Granted, this can't continue forever, only the first ~10-50% may be cost effective, but it's definitely something.
TheDude wrote:
Localized power generation would be a better goal than attempting to continue to deliver electrons cross-country, as is the case with anything in a declining energy world. How that would compare in regards investment vs beefing up our existing systems I'm not sure of.
I looks like it's the opposite in most cases. Electricity has a high amount of exergy, and as such can be transmitted over longer distances and used with greater efficiency than most other forms of energy. Generating coal at the mine and sending those electrons cross country is probably cheaper than hauling it hundreds, possibly thousands of miles, before doing the same. Ironically enough, this could allow for better integration of renewables as well.
TheDude wrote:
This is just the way the cookie crumbles. Nothing worth arguing over. Declining GDP means fewer Fed dollars to spend on programs, and we're facing a big hill to get over simply to maintain existing entitlements and pay off debt. We could trim lots of fat like the DOD but that has problems of its own, not least the persistent existence of the MIC.
That's likely true, but regardless of what they Fed spends on, fossil fuels look to be outmatched for the time being given their costs compared to the costs of competitors. Considering the incredibly small amount spent (IIRC a hundredth of a percent of world GDP) on "green" tech, most of which is probably "dot-com" grade stuff, I imagine there will still be as much spent on meaningful AE research as their has in the past, and barring a large change in public policy or oil, coal, and NG prices, AE infrastructure will continue to expand at current rates or greater. _________________
Posted: Tue Sep 23, 2008 2:28 pm Post subject: Re: Alternative Energy - R.I.P.
BigTex wrote:
By RIP, I really just mean that until recently I was certain that at some point everyone would wake up and we would throw the kitchen sink at anything that could get us away from fossil fuels, including increasing efficiency in existing AE technologies (solar, wind), and accelerating the maturation process of new or currently non-scalable AE technologies (hydrogen, high-tech batteries, ultracapacitors).
There's no point to that, financially speaking. If we threw the sink at oil prices, by building a free EV for everyone in America for instance, that would effectively sink oil prices, but it would also make our solution the problem, since gas would be cheap again and we just "wasted" (better than a war) trillions on something we don't need now that oil prices are low again. In short, throwing sinks at anything is pointless. Higher fossil fuel prices will increase AE proportional to the forecast price increases. It certainly won't happen overnight, but neither will fossil fuel depletion. _________________
Posted: Tue Sep 23, 2008 2:40 pm Post subject: Re: Alternative Energy - R.I.P.
And lack of credit/capital may be that nail in the coffin not just for alts but for any other approach the US economy could apply to soften the effects of PO. I'll never pretend to fully understand the complexity of all those different investment structures. But I do know that a huge chunk of the equity behind all those ponzi like investments was the domestic real estate market. As that market contracts so goes the capital market. Cheaper credit and lower energy costs did fuel the economic run up in the 80' and 90's. But not all segments benefited. The oil industry took a big hit but that benefited the rest of the economy...for a while. But instead of using this lever to improve our dependency of FF it was used to increase our dependency through rapid growth. Now the situation has reversed...but not exactly: at the moment times are great in the oil patch. But only because the effects of PO are starting to be felt. And PO eventually means the eventual contraction of the oil industry. And where does that leave our economy? We're not a manufacturing economy as we once were. We're not even the energy producing economy we once were. We're a service providing industry where those services were being funded to a large degree by credit generated by the escalating real estate prices. Now we've seen much of that fuel disappear. And appears to be shrinking even faster.
So now it appears we're mutating into some sort of gov't financed society. I'm not sure there is a name for this development. It's not really communistic or socialistic. In some ways it appear similar to the Hugo is running Vz. He's financing the economy with oil revenue. The US gov't seems to want to finance our economy with credit from the rest of the world. Might work. But for how long? The debt has to be repaid otherwise no one will by our treasury notes. If it were 1986 maybe we could grow our way out of the situation with a gov't financed economy. But with PO right in front of us it certainly isn't 1986 again.
As I’ve said elsewhere I’ve never considered myself a true doomer. But with these latest economic upheavals I may have to reevaluate that position.
Joined: Nov 06, 2007 Posts: 759 Location: Illinois
Posted: Tue Sep 23, 2008 2:48 pm Post subject: Re: Alternative Energy - R.I.P.
Seahorse posted this over in the economic forums. I thought it relevant to our discussion so I'll repost it here:
Quote:
In the up leg of the bubble, the problem WAS too much liquidity (which helped take silly risks when these were not properly assessed); today's problem is massive deleveraging - that deleveraging is NOT caused by lack of liquidity, but by risk aversion (investors no longer want to invest in anything that looks even remotely risky). Throwing more money at that problem will do nothing to solve it. It will create simply a circuit whereby the government creates new Treasuries, hands them over to the FED, which uses them to create more cash, which it trades with the banks for dubious assets; the banks will use the cash to buy Treasuries. It's a closed circle which helps no one but the banks (and the Fed, see below).
The real worry is on actual economic activity, which is straining under the twin burdens of asset price depreciation (house prices crashing, leading to lower incomes for people, less construction activity and foreclosures) and the credit crunch (business no longer having access to credit to develop their activity). Given that companies and households are also deleveraging (reducing their debts or increasing their savings), or are about to be forced to do so, the real need is to inject actual revenues, ie wages coming from real activity, in the economy, and NOT debt. What government needs to do is to spur real economic activity - as it were, there are whole sectors begging for it, like investment in public transporation or renewable energy infrastructure.
Daily Kos _________________ The oil barrel is half-full.
Joined: May 26, 2008 Posts: 1190 Location: Chicago, IL
Posted: Tue Sep 23, 2008 2:54 pm Post subject: Re: Alternative Energy - R.I.P.
yesplease wrote:
There's no point to that, financially speaking.
Please name 5 financial institutions, private, governmental, NGO, or otherwise, with $1B in cold hard cash sitting in their vaults and investing in a proven and easily available AE technology.
yesplease wrote:
If we threw the sink at oil prices, by building a free EV for everyone in America...
300 million passenger vehicles? Yesplease, puh-leez. We can't even go from mph to kph to align with our neighbors of the north and south. I applaud your ability to live in a world shielded from reality. Is there room for one more?
Joined: Aug 03, 2006 Posts: 4338 Location: Graceland
Posted: Tue Sep 23, 2008 3:08 pm Post subject: Re: Alternative Energy - R.I.P.
Seahorse seems to be saying "here is what we should do." I agree that we should do that. The question is what will we ACTUALLY do, and I suspect that it will be something less enlightened.
If I am sitting on a billion dollars and I am trying to figure out the best place to invest it TODAY, what would scare me about AE is that I would be concerned that economic contraction leading to lower fossil fuel prices would render the AE un-profitable that wants my investment. Thus, I would either not invest in AE in favor of something that would be less speculative in a recessionary environment, or I would just hang onto my money and not invest in anything.
This line of thinking seems to reflect what the Japanese banks did with their capital during Japan's recent economic troubles.
Even for proven AE like nuclear and wind, aren't there still large up-front expenses that have to be capitalized? Unlike the oil and gas industry, which has the cash to finance exotic projects, where does this large up-front capitalization for nuclear or wind come from? Do you sell bonds? Who buys them? If the government is going to pay for it, who does the government borrow the money from? If you're a public company, we see what can happen when everyone gets spooked--you get left high and dry and Warren Buffet comes and picks you out of the bargain bin.
Minimally, I hope we can all agree that there are SOME marginal AE forms that MIGHT have gotten built back when we had the easy credit to soak up the enormous up-front R&D expenses, but that won't get built now because there isn't the same amount of surplus investment capital available.
I don't mean to be difficult here, but I think that this is an important point, and it is one of the significant changes to the energy playing field that we will have to deal with going forward.
I always assumed that we would have an alternative energy bubble similar to the internet and housing bubbles, but it looks like that may not happen. Maybe the hydrogen craze in the early 2000s was as close as we are going to get. _________________
Posted: Tue Sep 23, 2008 3:12 pm Post subject: Re: Alternative Energy - R.I.P.
BigTex wrote:
By RIP, I really just mean that until recently I was certain that at some point everyone would wake up and we would throw the kitchen sink at anything that could get us away from fossil fuels, including increasing efficiency in existing AE technologies (solar, wind), and accelerating the maturation process of new or currently non-scalable AE technologies (hydrogen, high-tech batteries, ultracapacitors).
I am beginning to think, though, that there is no kitchen sink to throw, even if we wanted to.
AE has always been a bit of a distraction. The only alternatives to oil are huge, slow, and unexciting. Coal liquefaction, which takes years to develop the infrastructure, tar sands, and shale oil are all known technologies but they take decades to come online. Nuclear generated hydrogen for synfuel plants is well understood but uncompetitive with coal liquefaction and bitumen, and possibly competitive with shale but its all a moot point until the coal price really starts to rise.
Oh sure, high fuel prices will stimulate some efficiency changes, but AE has allways been a dead end distraction. It'll be worthwhile sometime beyond fifty years.
Joined: May 26, 2008 Posts: 1190 Location: Chicago, IL
Posted: Tue Sep 23, 2008 3:22 pm Post subject: Re: Alternative Energy - R.I.P.
BigTex wrote:
If I am sitting on a billion dollars...
...you'd be writing these posts from your mega yatch anchored a 4-5 miles off a beautiful island, just off an atol or reef, enjoying your life, brother.
Say, when did "nucular" become alternative? It's 60 years old.
Joined: Nov 06, 2007 Posts: 759 Location: Illinois
Posted: Tue Sep 23, 2008 4:08 pm Post subject: Re: Alternative Energy - R.I.P.
BigTex wrote:
Even for proven AE like nuclear and wind, aren't there still large up-front expenses that have to be capitalized? Unlike the oil and gas industry, which has the cash to finance exotic projects, where does this large up-front capitalization for nuclear or wind come from? Do you sell bonds? Who buys them? If the government is going to pay for it, who does the government borrow the money from? If you're a public company, we see what can happen when everyone gets spooked--you get left high and dry and Warren Buffet comes and picks you out of the bargain bin.
Many AE startups are going the venture capital route. Basically, they give you a big wad of cash and want a big chunk of your company in return. They hope to make a big profit when they latter sell their stake.
Quote:
Question from audience: What kind of valuation criteria do you use for investments?
Lee: Early stage investors will want at least 30 to 40% of your company, regardless of what they are investing. It's the same whether you are raising $1M $2M or $5M.
BigTex wrote:
If I am sitting on a billion dollars and I am trying to figure out the best place to invest it TODAY, what would scare me about AE is that I would be concerned that economic contraction leading to lower fossil fuel prices would render the AE un-profitable that wants my investment. Thus, I would either not invest in AE in favor of something that would be less speculative in a recessionary environment, or I would just hang onto my money and not invest in anything.
Minimally, I hope we can all agree that there are SOME marginal AE forms that MIGHT have gotten built back when we had the easy credit to soak up the enormous up-front R&D expenses, but that won't get built now because there isn't the same amount of surplus investment capital available.
I don't mean to be difficult here, but I think that this is an important point, and it is one of the significant changes to the energy playing field that we will have to deal with going forward.
I always assumed that we would have an alternative energy bubble similar to the internet and housing bubbles, but it looks like that may not happen. Maybe the hydrogen craze in the early 2000s was as close as we are going to get.
IMO, easy credit leads to bubbles and unwise investment decisions. I don't think it is a good idea to throws gobs of easy credit at marginal projects, such as corn ethanol. I want investors to look at AE projects(all projects actually) with a cold eye and ask "Is this really viable? Am I really going to be making gobs of money on this investment?" Check out what some of the venture capitalists say on this point:
Quote:
Opening question from Wes Rose, Moderator: have things tightened up in vc funding?
John Occhipinti: things have tightened up a bit since last year, except for green tech investments. Some startups are needing six months to raise capital. Mobile computing very hot. Doesn't require as much capital to start a company now.
Carol Sands: there is a lot of money out there. But the days of coming to a venture firm with an idea and saying "I need $10M" are gone. We want to see lean mean operations and invest in great teams, not a single miracle person founder. We had a blip called the dot com bubble and unfortunately a lot of entrepreneurs grew up in that bubble. It used to always take six months to raise capital; the dot com bubble was the exception. We need time to get to know you and do proper due diligence. But if you have a quality idea you have an excellent chance of getting funding.
Anthony Lee: The venture industry is investing $30B per year, there is little impact of the IPO market conditions on investments.
Daniel Joensen: If you have to wait two to four years extra for the IPO market to open, it may mean your venture doesn't survive. We're looking for lean operating styles that are saleable without necessarily going public.
Venture Capital _________________ The oil barrel is half-full.
Joined: Aug 03, 2006 Posts: 4338 Location: Graceland
Posted: Tue Sep 23, 2008 4:08 pm Post subject: Re: Alternative Energy - R.I.P.
VMarcHart wrote:
BigTex wrote:
If I am sitting on a billion dollars...
...you'd be writing these posts from your mega yatch anchored a 4-5 miles off a beautiful island, just off an atol or reef, enjoying your life, brother.
Say, when did "nucular" become alternative? It's 60 years old.
I meant it as in "alternative to fossil fuels."
They say that the three nuclear power plants were worth more than Buffet paid for the whole utility he bought last week.
Why build new plants when you can just wait for the stock market to choke to death the companies that own the current nuclear plants and you can buy them for 50 cents on the dollar.
In "The End of Oil" Paul Roberts argues that the screw job that venture capitalists got from hydrogen a few years ago was enough by itself to scare investors away from alternative energy for quite a while.
First Solar will be an interesting test case for how the market is going to treat AE going forward. It's gone from $270 a share to $210 in about a month. That P/E of 74 just looks crazy in this market. _________________
Joined: May 26, 2008 Posts: 1190 Location: Chicago, IL
Posted: Tue Sep 23, 2008 4:12 pm Post subject: Re: Alternative Energy - R.I.P.
kublikhan wrote:
Many AE startups are going the venture capital route. Basically, they give you a big wad of cash and want a big chunk of your company in return. They hope to make a big profit when they latter sell their stake.
K, other than Warren Buffett, Bill Gates, Paul Allen and Marc Cuban, please name 5 institutions with "big wads of cash", ie, $1B, sitting around and investing in AE.
Joined: May 26, 2008 Posts: 1190 Location: Chicago, IL
Posted: Tue Sep 23, 2008 4:30 pm Post subject: Re: Alternative Energy - R.I.P.
BigTex wrote:
Why build new plants when you can just wait for the stock market to choke to death the companies that own the current nuclear plants and you can buy them for 50 cents on the dollar?
Good point. This is the dawn of the age of depressed assets.
Posted: Tue Sep 23, 2008 8:23 pm Post subject: Re: Alternative Energy - R.I.P.
VMarcHart wrote:
yesplease wrote:
There's no point to that, financially speaking.
Please name 5 financial institutions, private, governmental, NGO, or otherwise, with $1B in cold hard cash sitting in their vaults and investing in a proven and easily available AE technology.
What does having a certain amount in cold hard cash have to do with excessive and financially pointless "sink" tossing?
VMarcHart wrote:
yesplease wrote:
If we threw the sink at oil prices, by building a free EV for everyone in America...
300 million passenger vehicles? Yesplease, puh-leez. We can't even go from mph to kph to align with our neighbors of the north and south. I applaud your ability to live in a world shielded from reality. Is there room for one more?
VMarcHart, puh-leeze. I suggest rereading my post since it seems you didn't understand it. I posited a hypothetical statement to illustrate that throwing "sinks" at problems creates a whole set of other problems, not that the hypothetical statement was realistic. Change happens gradually. I applaud your ability to read a post without understanding it. Is there room for one more?
P.S. Not that we couldn't build 300 million electric passenger vehicles, since I don't recall mentioning a time frame, but the point wasn't that we could or couldn't do that, but that all in solutions are pointless because change happens proportionally to price/time in this context. _________________
Joined: Nov 06, 2007 Posts: 759 Location: Illinois
Posted: Tue Sep 23, 2008 8:35 pm Post subject: Re: Alternative Energy - R.I.P.
VMarcHart wrote:
kublikhan wrote:
Many AE startups are going the venture capital route. Basically, they give you a big wad of cash and want a big chunk of your company in return. They hope to make a big profit when they latter sell their stake.
K, other than Warren Buffett, Bill Gates, Paul Allen and Marc Cuban, please name 5 institutions with "big wads of cash", ie, $1B, sitting around and investing in AE.
I'm not sure what you are getting at. The average amount of venture capital awarded in 2007 was $7.7 million. Not $1 billion. And the venture capitalists I quoted earlier said there was plenty of venture capital available:
Quote:
Carol Sands: there is a lot of money out there. But the days of coming to a venture firm with an idea and saying "I need $10M" are gone. We want to see lean mean operations and invest in great teams, not a single miracle person founder. We had a blip called the dot com bubble and unfortunately a lot of entrepreneurs grew up in that bubble. It used to always take six months to raise capital; the dot com bubble was the exception. We need time to get to know you and do proper due diligence. But if you have a quality idea you have an excellent chance of getting funding.
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). Granted, this can't continue forever, only the first ~10-50% may be cost effective, but it's definitely something.
