On 25-27 February 2009 I attended the RETECH 2009
conference in Las Vegas. With thousands of attendees, 240+
exhibitors and 230+ speakers this was a busy conference. The focus was
on the renewable energy industry which composes about 2% of the world energy
supply with about 29.3% of that from wind and .6% from solar. Renewable
energy industry leaders from all over the world attended and revealed some of
the latest technology. This was a very professionally administered
conference with high quality presentations.
The next RETECH conference will be held 17-19 March
2010 in San Jose and there will be a Renewable Energy Finance Forum in New York City
23-24 June 2008.
MENTAL CALCULATIONS OF VALUE
The role of money and currency are extremely
important to humans in performing mental calculations of value or the pricing mechanism.
Because gold is the world’s monetary commodity and because oil is
the world’s primary energy source therefore The Gold to Oil Ratio Does Matter. Additionally, I
have argued the vital nature of using sound money to protect the environment.
As I wandered around the exhibits, talked with
various experts and attended seminars I noticed one common deficiency:
there is no attempt to determine whether projects are viable
economically from an Energy Return On Energy Invested metric (EROEI).
By analogy, if a banana provides 50 calories and it
takes a monkey 75 calories to procure the banana then the EROEI would be
negative and the venture of procuring bananas would be unprofitable for the
monkey. If the monkey engaged in the activity for too long then it
would starve to death.
It is my understanding that an extremely rare
element called tellurium is used for solar panels and could pose a
significant constraint to photovoltaic companies such as First Solar. I regret being unable to find anyone
to answer my questions regarding tellurium use.
I was also unable to find a single person in the
industry who has attempted to thoroughly calculate the EROEI of the projects.
As I began questioning concerning the lack of EROEI calculations and
narrowed in on the issue invariably the excuse would be the impossibility due
to vagaries within the supply chain.
THE GREAT CREDIT CONTRACTION
I can sympathize with this because the entire world
economy is built on a derivative illusion. By analogy, for the most part
no calculations of value are performed for how many calories the banana
provides or takes to procure. As the great credit
contraction grinds on the importance of performing accurate mental
calculations of value will become more and more important. The
world’s reserve currency and every major country uses a fiat currency
illusion as their legal tender. This system does not so much collapse
as evaporate and the evaporation is continuing at an accelerated
rate.
Murry Rothbard explained on page 18 of America’s Great Depression, “It is
true that credit contraction may overcompensate, and, while contraction
proceeds, it may cause interest rates to be higher than free-market levels,
and investment lower than in the free market. But since contraction causes no
positive malinvestments, it will not lead to any
painful period of depression and adjustment.”
THE RENEWABLE ENERGY INDUSTRY
President Obama campaigned on a New Energy For America policy. He wants to create 5
million Green Collar Jobs, put a million plug-in hybrids on the road, reduce
dependence on foreign oil, invest $150 billion over ten years to build clean
energy, provide tax relief to Americans, reduce greenhouse
gas emissions and many other lofty goals.
According to Christopher O’Brein,
Head of Market Development in North America for Oerlikon
Solar, grid costs are rising about 6% per year and the price of
photovoltaic energy is decreasing and they should cross between 2012 and
2016. Additionally, with the removal of the $2,000 Individual Tax
Credit a $40,000 project now yields a tax credit of about
$12,000.
Tax law generally plays an important role in
implementing policy. But as Steve Chadima,
Vice President of External Affairs for Suntech America, said
“When you have no one paying taxes it is hard to take advantage of tax
credit.” With individuals and corporations facing extreme
pressure during the great credit contraction being able to take advantage of tax
credits for investments in renewable energy will be more difficult. This
may be a reason Suntech has recently had large
layoffs and their factories are running at 50-60%.
With the failure of Lehman, Merrill, Wachovia and
other single digit midgets like Citi
and Bank of America there are fewer players in the tax equity pool.
John Eber, Managing Director of Energy
Investments for JP Morgan touched on this issue tangentially. The
smaller pool coupled with strong demand will result in higher yields.
Another common complaint was the lack of debt financing. The
bottom line is that finding capital to fund renewable energy products will be
difficult.
CONCLUSION
The goals of providing cheap, clean and renewable
energy is admirable. Surely humans can be better stewards of their
planet. But government is the largest polluter of all and
in conjunction with the central banks is the chief cause of gross
misallocations of capital and malinvestment.
Epic excesses are being liquidated and the inmates running the asylum,
all infected with the Financial Insanity Virus, want to continue huge
budget deficits to fund renewable energy projects which may or may not be
profitable from an EROEI standpoint.
Unfortunately, despite the governmental support I
doubt this industry will do very well over the next few years. Sure,
some politically connected companies will do fine but it is almost impossible
to perform the proper mental calculations of value on the projects and
therefore their success, like the bailed out banks and automakers,
is unsustainable. Wall Street and national banks are capital impaired,
both human and economic, which will make more difficult capital raising.
A much better use of capital would probably be to stockpile tellurium.
After-all, it has gone from $10/pound in 2004 to about $130-180/pound in 2005 and is
currently pretty cheap around $55/pound. While tellurium is not very
liquid, in multiple ways, it is extremely safe, from an investment
standpoint, because it is a very rare commodity and therefore it should do
fine during the great credit contraction. While tellurium is much rarer
than gold I would not recommend touching it!
Disclosures: Long physical gold, silver and
tellurium. No position in STP, FSLR, C, BAC and JPM.
Trace Mayer
RuntoGold.com
Trace Mayer, J.D., holds a degree in Accounting from Brigham Young
University, a law degree from California Western School of Law and studies
the Austrian school of economics. He works as an entrepreneur, investor,
journalist and monetary scientist. He is a strong advocate of the freedom of
speech, a member of the Society of Professional Journalists and the San Diego
County Bar Association. He has appeared on ABC, NBC, BNN, many radio shows
and presented at many investment conferences throughout the world.
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