Friday, June 4, 2010

Follow up Thought on Renewables

The case I laid out in the previous piece isn't ideological, even though some of you seem to be taking it that way. It's simply fact-based reasoning. The math of renewable energy is highly problematic.

There are investment implications to this that everyone should consider. Consider that the U.S., Europe, and Japan are functionally broke (see Currencies - the Race to the Bottom). Where do you think they will start cutting first? Yes, they'll have to start cutting entitlements, but that always leads to nasty street demonstrations (see: Greece). When politicians look at the cold hard facts, I think all the subsidies and tax breaks for renewables will end up on the chopping block. You may not like this fact, but you would probably like many of the other prospective cuts even less.

I had a meeting with a German bank about six months ago, and they said they had financing available only for Germany related projects...except for alternative energy, for which they had a huge financing appetite. This was a quasi-state bank, so the mandate was coming from politicians. Of such stuff bubbles are made.

Some European countries such as Spain, which went solar-happy, have already started to cut back. This counter trend will likely prick the investment bubble in alternative energy, which will once again have to make it on its own, non-subsidized, merits. I would be very leery of these investments right now.

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