Crisis or not, Renewables are (stil) Hot
Despite the economic downturn, now is the time for action, it said the PWC report “Crisis or not, Renewables are hot”. The investments required in renewables could contribute to reverse the economic down trend. Today, November 2011, we live on the brink of a period in which probably big changes in the monetary world will happen; where currencies, countries and properties will be re-evaluated. A necessary correction as things simply got out of control. This means that money in the bank will soon be worth less than ever. How to anticipate on this doom scenario? Sit back and see what happens or take action?
Action needed, but which action?
Never sit back, many will say. Others might say that it is better to postpone investments til markets stabilize. We tend to agree with the first option; take action. ”To provide a sound basis for that action, PWC examined Europe’s future renewable energy marketplace through the lens of progress towards the 2020 goals. the study considers the market’s potential, compares approaches in various countries, and puts forth some high-level recommendations for how governments and companies can reap the rewards.” PWC says in its report.
Making renewable energy 20% of total energy consumption in the 27 countries of the EU will require an investment of €1.8 to €7.3 trillion over the next decade depending on the type of renewable technology. In practical terms, that will mean building more than a million windmills or installing enough solar panels to cover an area twice the size of Belgium.
Building such huge facilities cost an enormous amount of money, money that has become very scarce. At least in this crisis situation banks need to clean up their balance sheet and do not do that by adding loans to it. On the other hand investors do not invest in the markets, that is why almost everything goes down on virtually any market. Investors pull out and therefore are sitting on a huge pile of cash.
Investing rather than keeping the money in the bank.
Keeping money in the bank has two bad sides: fist of all one has to choose a currency and none of them seem to have a stable future ahead, at least not for the short and mid-term. Secondly, interest for keeping the money in a safe place does not offer any returns as interest has almost reached an all time low while the risks of the high yield sovereign bonds are sky-high. So it is better to buy something. This reminds me of my early times in Romania, when we had inflation of 300% (1993). One of my business partners understood that he needed to purchase something rather than keeping the LEI in the bank. He bought a second-hand Porsche 924 (…..).
We have to face that real estate, land and many other investment objects such as a yacht or car will face a correction in their market value as they are overvalued. I am sure that there will not be many objecting to this view, even when it hurts very badly (in the pocket).
Risks have to be taken but how to limit the damages in case things do not work out the way we thought.
We believe that one should invest in an asset that produces something that we cannot do without. Right, a house produces shelter but houses are overvalued and there is in many cases no relation with the costs of production of the asset and the value it now has and unfortunately there are many of those examples today. too many.
“The idea of factors of production is typically used as an explanation for income as duly paid to owners of each means of production” Karl Marx (1818-1883) offered a historical explanation that it was the cultural practice of Ownership of the Means of Production that gives rise (in wealth) to them (the individuals in human societies). Am I a Marxist? Well not really. But one can’t deny the he figured out some things that are still valid. What people did with it is an entire other story. What we do agree with is that only the ownership of means of production will bring wealth while all the other ownership of assets consume it.
So buy a factory! Purchasing a factory in order to produce and sell something means that there need to be a market; people who buy the product. That involves a risk because maybe you produce the wrong thing and people will not buy it. So why not invest in the production of something that all people need, regardless what the trend, fashion is.
We need to go back to the most elementary products that are the source of most products, for which the demand does not depend on trends and fashion, luxury or access of wealth. We believe that one of them is electricity. At the time of Marx things were still quite in development. He grew up with the and he saw manpower was the main asset and the second was . At that time the steam as source of power was just coming up and therefore he (Marx) saw human force as major production facility. Today’s society evolved to one that uses electricity. So a good investment is investing in energy, in an electricity plant to be more precise.
More reasons to take action
While the hunt for profits (or fear for loosing money) has shown a good motivator to invest in Clean Energy there are even better reasons to invest in renewables: Turning around the Global Warming. Although we have to mention that not all scientists will agree on the exact causes of recent , the fact that it is indeed changing is very well supported. The twelve warmest years over the past 150 have all been within the last thirteen years. Sea levels have risen an average of 4 cm from pre-industrial times, and the average global temperature has increased .76 degrees Celsius.
Most production facilities for electricity are fossil fueled or nuclear installations. Both of them lay under fire not in the last place because of recent events. Events that took place after Price Waterhouse Coopers wrote their report:
Fukushima – Deepwater Horizon – Extreme weather
- Fukushima made Germany to decide to close down all nuclear facilities
- Deepwater Horizon showed us how vulnerable nature is and what a threat the oil industry causes to nature as directly us human beings.
- In the United States, Americans have endured a record-setting series of extreme weather events in 2011; Over half of all recorded waterborne disease outbreaks in the United States have been preceded by extreme precipitation.
Renewables: still a long way to go
The European Union has chosen to cap the CO2 and other GHG’s emissions by a 20% clean energy target by 2020.
Crisis or not, this target has to be achieved as we now (anno 2011) know that even the 20% will not prevent a global rise in temperatures having a disastrous effect on civilization. Some claim that this is not new and that over the millennia global temperature raises and drops as a natural phenomenon. What they don’t tell is two things:
1. The last time global temperature raised we were at the beginning of our modern civilization and now we built for trillions worth of buildings in place that will be flooded even with a small increase in temperature.
2. It is proven that the global warming we address with the GHG’s is caused by human pollution and not by acts of God. The gap in the ozone layer is only one of them. Polluted air in urban area’s another, shall we continue with the list….
In times were even investing in gold does not offer any security anymore (does it?) our opinion is that investing in vehicles that produce something that is needed for living is the most secure, no matter what currency we have or what we produce and something cannot be replaced. We see two elementary needs: The Need For Water and the Need For Energy.
The opportunity lays in the fact that although electricity prices may fluctuate and governments might have to reduce the financial support for them, renewables still will offer a fair return on investment with a limited risk, especially when seen against huge losses that may occur in the next few years when investing in many other assets.
Our statement therefore is: In times like this one should avoid to invest in highly volatile markets and stick to the basic needs (for surviving). Investing in renewables is one of them.
Author: Markus J.B. Vrieling, CEO of Lamar Company
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