China, and Overdone Green Energy Hysteria

China, and Overdone Green Energy Hysteria

This strikes me as a tremendous investment opportunity if you can find a firm that is a pure peaker power play. If there is no such thing I could see a REIT type structure that purchases, builds and operates these plants. All signs point to continued political manipulation of energy markets so that the consumer/regulated utility is forced rely on unreliable renewable energy sources. This to me logically means that there will be more of these so called peak moments where demand exceeds supply because supply will be less stable and less available. Since this is the case holding an assets that is highly profitable at peak usage/demand moments could be an excellent investment/business. Now if I only had several hundred million to play with :>)..

China, and Overdone Green Energy Hysteria

By Steven Hayward

Of all the verses in the "China-is-Awesome" hallelujah chorus, none is chanted louder than the fact that China is leaving everyone in the dust in "green" energy, especially wind and solar power. The latest Clean Energy Report from the Pew Charitable Trust gushes, "Private investment in China's clean energy sector increased by 39 percent in 2010 to a world record $54.4 billion. China also is the world's leading producer of wind turbines and solar modules. In 2009, it surpassed the United States as the country with the most installed clean energy capacity."

On the surface the numbers sound very impressive: "With a staggering $45 billion invested in wind, China was able to drive installation of 17 GW of additional wind energy generating capacity. Another $4.7 billion was invested in the solar sector, as China begins reaching for its new goal of 20 GW of installed solar energy by 2020. It also has a target of installing 150 GW of wind power by 2020." And if you look at the numbers compiled in BP's recently released Statistical Review of World Energy, it sounds even more eye-popping.

China's wind, solar, and biofuel energy output increased 1,545 percent between 200 and 2010, while their coal-fired energy output only grew by 132 percent. Green energy is obviously rocking the Middle Kingdom. (Never mind that there are reports that many of China's new windmills aren't even connected up to their electricity grid; like their ghost cities with empty high rises, office buildings and malls, China apparently is putting up windmills just for practice.)

Anyone with a single wit of statistical sense will smell the obvious rat in these numbers, as they are the simple tricks of radically different baselines. If someone with ten units of something increases to 11 units, they've had a 10 percent increase, while someone with 100 units of something who goes to 102 units only has a 2 percent increase. But who has the larger real increase in output? The person who went from 100 to 102.

In the case of China, the real action is revealed when the absolute numbers are posted up. Buried in the data tables of BP's energy report is the staggering fact that new energy supply from coal alone was 85 times larger than new energy from wind, solar, and biofuel. Add China's growth in oil consumption, and old-fashioned energy accounted for more than 100 times as much new energy as the "green" sources.

Here are the actual numbers, as measured in the common unit of Million Tons of Oil Equivalent (MTOE) in BP's report: Between 2000 and 2010, China's total non-hydro-renewable energy increased 11.4 MTOE, while their coal energy output increased 976.4 MTOE, and oil increased by 204 MTOE.

Figures for how much China spent for new coal and oil energy are hard to come by, but one suspects that $45 billion spent for wind power looks like a poor return on the investment compared to coal. Pew and other China cheerleaders trumpet the fact that China added about 50 terawatts of new renewable electricity production over the last decade, but they leave out that China's new coal-fired electricity built over the last decade amounted to 4,200 terawatts - 84 times as much as renewable electricity. China now accounts for 48 percent of the world's total coal consumption. Does this sound like an authentic "green" energy juggernaut?

The right term to apply to the whole green energy scene, whether in China or in the U.S., is ironically the favorite green term of art: unsustainable. Right now the green energy cheerleaders trumpet falling costs for renewable energy, wind power especially, with figures showing that some onshore wind power is almost competitive with coal and natural gas electricity the basis of what the trade calls "levelized cost," that is, the total lifecycle capital cost of equipment and fuel cost over a 20-year time horizon. Wind (and solar) power is more expensive to build than coal or natural gas, but has no fuel cost once built, which would seem to be in its favor.

However, this assumes a chalkboard world of uniform electricity demand and pricing, like the market for gasoline or diesel fuel, which varies little from producer to producer or time of day. While wind power might compete with coal and gas at the average price of electricity, the actual market price for electricity varies widely by time of year and time of day, with huge spikes in demand occurring in circumstances like last week's heat wave. At such times of peak demand, spot electricity prices are often ten to fifteen times the average price. This is why "peaker" gas power plants can be profitable even if they only operate a few days per year.

And it is exactly under these circumstances where intermittent wind and solar cannot compete with coal or gas, because they are not reliable sources of dispatchable, peak-demand power, and never will be unless someone invents a magic battery. For investors, this is why a gas power plant promises higher returns than a wind or solar facility, even allowing for the subsidies wind and solar power enjoy. And this is why China is going to continue to build fossil fuel energy over renewable energy at a ratio of better than 50 to one for the foreseeable future, even as they create a new export industry to sell wind turbines and solar panels to politically driven markets like ours.

This crucial distinction between average and peak period prices and the need for dispatchable baseload power is lost on most of the public, let alone politicians who want to meddle endlessly to "level" the playing field between renewables and fossil fuel energy with subsidies and mandates. But investors and analysts who want to understand where the real energy action is in China should look at where they're really getting their new energy supply from, rather than getting excited about the hype about "green" energy.

Too much, too young

Too much, too young

Watch your wallets: the baby-boomers are beginning to retire

WHEN MOST LABOUR was agricultural, people generally toiled in the fields until they dropped. The idea of formal retirement did not become feasible until work moved from farms to factories. In 1889 Otto von Bismarck famously introduced the world’s first (modest) pension scheme in Germany. In the 20th century, when universal suffrage became widespread, a period of retirement after work was seen as a mark of a civilised social democracy.

After the second world war pension provision increased markedly, but the number of elderly people was still quite small (see chart). In the 1970s and 1980s caring for them seemed easily affordable. Many countries even reduced their retirement ages.

The demographic picture looks different now that the baby-boomers are starting to retire. In 1950 there were 7.2 people aged 20-64 for every person of 65 and more in the OECD. By 1980 the ratio had dropped to 5.1. Now it is around 4.1, and by 2050 it will be just 2.1. In short, every couple will be supporting a pensioner.

There are ways of reducing the burden. The current generation of workers could save more now. If they put more money into funded pension schemes, the extra saving might encourage more investment and thus boost economic growth. A wealthier society would find it easier to afford paying pensions. Countries with PAYG schemes could raise taxes now, reducing the deficit and thus the debt burden on the younger generations.Europe and Japan are facing the biggest problems. The average dependency ratio in the European Union is already down to 3.5, and is heading for 1.8 by 2050. In Italy it is forecast to be nearly 1.5 and in Germany nearly 1.6 by then. Japan is on track for a startling 1.2. Since the average pensioner currently draws a total of about 60% of median earnings, from government and private sources, the system is likely to become unaffordable. In a sense, it does not matter how the benefits are paid for. If they are unfunded, they come from workers’ taxes; if funded, they come from investment income. But the income has to be generated by someone.

We want it now

But more savings or higher taxation now would require those currently at work to defer consumption. They may not be willing to do so. And given the weakness of developed economies in the wake of the financial crisis, governments may not want to see consumption go down in the immediate future.

In the OECD public spending on pensions benefits has been growing faster than national output, rising from 6.1% of GDP in 1990 to 7% in 2007. It is forecast to reach 11.4% of GDP by 2050. Those forecasts already take into account the planned rise in retirement ages and a likely drop in replacement ratios and thus assume that voters will approve of pension reform even as the baby-boomers become a potentially powerful voting block of retired people.

But that assumption may not be safe. Turnout in elections tends to be higher among the elderly than among the young. As Neil Howe and Richard Jackson of the Centre for Strategic and International Studies in Washington, DC, have written: “In the 2020s young people in developed countries will have the future on their side. Elders will have the votes on theirs.”

Are we better off?

The number I find most startling here is the number of food stamp recipients, 43,200,000, that is a much larger number that I ever imagined.  Overall, I would say Obama's management of the economy, based upon these numbers, looks very poor.

	January 2009	TODAY	% chg	Source
Avg.. Retail price/gallon gas in U.S.	$1.83	$3.104	69.6%	1
Crude oil, European Brent (barrel)	$43.48	$99.02	127.7%	2
Crude oil, West TX Inter. (barrel)	$38.74	$91.38	135.9%	2
Gold: London (per troy oz.)	$853.25	$1,369.50	60.5%	2
Corn, No.2 yellow, Central IL	$3.56	$6.33	78.1%	2
Soybeans, No. 1 yellow, IL	$9.66	$13.75	42.3%	2
Sugar, cane, raw, world, lb. Fob	$13.37	$35.39	164.7%	2
Unemployment rate, non-farm, overall	7.6%	9.4%	23.7%	3
Unemployment rate, blacks	12.6%	15.8%	25.4%	3
Number of unemployed	11,616,000	14,485,000	24.7%	3
Number of fed. Employees, ex. Military (curr = 12/10 prelim)	2,779,000	2,840,000	2.2%	3
Real median household income (2008 v 2009)	$50,112	$49,777	-0.7%	4
Number of food stamp recipients (curr = 10/10)	31,983,716	43,200,878	35.1%	5
Number of unemployment benefit recipients (curr = 12/10)	7,526,598	9,193,838	22.2%	6
Number of long-term unemployed	2,600,000	6,400,000	146.2%	3
Poverty rate, individuals (2008 v 2009)	13.2%	14.3%	8.3%	4
People in poverty in U.S. (2008 v 2009)	39,800,000	43,600,000	9.5%	4
U.S.. Rank in Economic Freedom World Rankings	5	9	n/a	10
Present Situation Index (curr = 12/10)	29.9	23.5	-21.4%	11
Failed banks (curr = 2010 + 2011 to date)	140	164	17.1%	12
U.S.. Dollar versus Japanese yen exchange rate	89.76	82.03	-8.6%	2
U.S.. Money supply, M1, in billions (curr = 12/10 prelim)	1,575.1	1,865.7	18.4%	13
U.S.. Money supply, M2, in billions (curr = 12/10 prelim)	8,310.9	8,852.3	6.5%	13
National debt, in trillions	$10..627	$14..052	32.2%	14

Just take this last item:  In the last two years we have accumulated national debt at a rate more than 27 times as fast as during the rest of our entire nation's history.. 

Sources:

(1) U.S. Energy Information Administration; (2) Wall Street Journal; (3) Bureau of Labor Statistics; (4) Census Bureau; (5) USDA; (6) U.S. Dept. Of Labor; (7) FHFA; (8) Standard & Poor's/Case-Shiller; (9) RealtyTrac; (10) Heritage Foundation and WSJ; (11) The Conference Board; (12) FDIC; (13) Federal Reserve; (14) U.S. Treasury

The Dependence Economy

Very interesting data.  The axis lines are a bit misleading but overall an interesting look at dependency in the U.S.     

The Dependence Economy

By CATHERINE RAMPELL

Over the weekend I attended a talk by Credit Suisse’s chief economist, Neal Soss, on the structural and cyclical challenges facing the economy. The cheekily titled chart below — showing how much more dependent Americans have become on government money, including in many cases Tea Partiers — is taken from his presentation:

Source: Bureau of Economic Analysis, Credit Suisse

The red line shows what share of personal income comes from wages — that is, what Americans earn from working. The blue line shows what share comes from  transfer payments, which are made to individuals, usually by the federal government, through social benefit programs like unemployment insurance, disability insurance and Social Security. (Note that the two lines use different scales, shown on the vertical axes, and that the scale for wages does not start at zero.)

As you can see, the share of income that Americans earn by working has been falling, from more than two-thirds of their income in the mid-1950s to just over half of their income today. Meanwhile, they have been growing more and more dependent on money from social benefits programs, growing from about 4 percent in the mid-’50s to about 18 percent in February 2011.

Certainly part of the reason Americans have been getting more dependent on government money is that the job market is so poor. Unable to find work, many Americans are getting most, if not all, of their income from unemployment benefits.

But the lousy job market accounts only for the spike at the end of the blue line (and likewise the steep slide at the end of the red line), where the numbers correspond with the Great Recession and its aftermath. The chart shows that the overall trends long predate the financial crisis.

These underlying trends are partly because of demographic changes; an aging populace means that an ever-smaller share of Americans are working, and so a larger share are receiving Social Security benefits and Medicare, which is also getting more expensive. Policy changes, more Americans’ going on disability and growing inequality, which in some cases may be leaving more Americans on the dole, are also likely contributing to the growing Dependence Economy.

Whatever the causes, these  trends are not infinitely sustainable. The money for transfer payments has to be transferred from somewhere, after all — and if not from other people’s wages, then from China and other foreign creditors. But foreign creditors won’t foot the bill forever without an exit strategy.