Thursday 5 January 2012

Classic investment sales approach required?

Future diverse, affordable and resilient energy provision
I'm all for weaning us off our total reliance on current forms of fuel/supply and in particular those used for much of our electricity generation and distribution. Furthermore, I believe it is critical for a resilient and stable future for generations that come after us.


The Desertec vision is to be applauded and although ambitious it can revolutionise energy and politics in the region;  benefits from playing and winning at such a technology challenge go far beyond building and utilising industrial production and securing a more diverse and resilient energy base.
annotated DiiDesertEnergy - market development digram


Historical context
I realise that the diagram is simply indicative and not to scale. The fundamental flaws in high upfront investment for long-term private sector returns haven't changed from the time private companies created railways all over the UK in the 19th century - and then went bust later.


In the UK, there is a long list of these optimistically based projections to attract investment and achieve great results. The Channel Tunnel and the Channel Tunnel Rail Link in the past have on the whole been great for those involved in constructing and operating the facilities but not great for the people who were the ultimate providers of funds - certainly against the original business cases.

Maybe I'm reading too much into this schematic but the 'investment' case looks quite weak, even before it touches reality, unless you are a utility, technology or manufacturing company.  Based on the above schematic published by DiiDesertEnergy on 5 January 2012 

  • despite a circa 40% increase in the market price for electricity by 2050,  
  • ignoring the substantial displacement in cashflows that will crucify any estimates of Net Present Value
  • and making no particular statements on risks; for example on demand from cutting massive waste, introducing smart grids and off grid supplies. 

the long-term payoff for the 'mean' cost line for the range of technology specific renewables considered is a mix of

  • a 'self sustaining market' for the manufacturing and technology companies and other institutions who form Dii, Medgrid and other and who are presumably the main beneficiaries from the intellectual property derived from these proposed investments made over the next 15-20 years
  • (1) substantial loss on 'investment' in most cases or (2) massive taxpayer contribution (subsidy) towards any return for investors; if 2) occurs which is most likely what reward does the taxpayer receive and what real risk are the other 'investors' taking to achieve their return
Honesty in future returns
Do we really weigh up the pros and cons of this type of long-term investment with an honest appraisal of doing nothing? The opportunity lost from not investing in infrastructure rather than simply the opportunity lost in the use of capital against other uses of that capital. Surely, the functional and engineering success that is Sir Joseph Bazalgette's (and his teams) London sewer network legacy arises from a tremendous foresight, commitment and passion in knowing what great looks like rather than any prediction of the short-term return on investment. 


NB What I like most about the Dii diagram is its honesty - there will be certain technology specific renewables that will be real 'dogs' in terms of an investment proposition and unfortunately we will have no idea what they will be or why. But that is life..

A great case for investing in long-term sustainable and predictable energy from Tidal range (and stream) sources
Given the tidal power technology 

  • exists/works well, 
  • benefits arising fairly predictable and 
  • any environmental impact relatively benign and probably on balance positive to the overall ecology (unless undue weight is given to unscientific and emotionally based avian chirping from organisations that should frankly know better) 

we should have the bottle as a country to go for a Severn and Mersey tidal power (barrage) schemes as a minimum. 
Which leader will back that idea? It would certainly hot up the debate about what we need to do, and the choices that must be made, as a nation to really address the economic, social and behavioural challenges it will take to be a leading and affordable low carbon economy that's fit for a sustainable future.


NB 
Desertec stands for the overall vision of supplying a large part of the world with sustainable power, by tapping the energy potential of the desert. Dii (launched as "Desertec Industrial Initiative") is a private industry consortium working towards enabling this vision in Europe, the Middle East and North Africa (EUMENA)


Photostream http://www.flickr.com/photos/diidesertenergy/ 
Dii market development graphic http://www.flickr.com/photos/diidesertenergy/6635132251/
Dii indicative map of sites http://flic.kr/p/9t1AiG