Why the Energy Transition Is about to get Downright Sinister |
Friday, 10 May 2024 | By Nick Hubble | Editor, Strategic Intelligence Australia |
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[6 min read] In this Issue: Change your life to suit wind and solar energy, or else Would you pay the price for renewable’s intermittency? What if debt holders realised that the Fed was not really going to fight inflation... |
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Dear Reader, You already know that renewables are intermittent. It’s quite a problem. But did you know that you are personally responsible for providing 25% of the solution? That’s according to International Energy Agency estimates. They pondered how electricity grids will deal with renewables’ intermittency. And presume up to 25% of the grid’s future ‘flexibility’ will come from what they call ‘demand response.’ What is it? It’s you deciding to change your life to suit renewable energy’s vagaries. But will you? And if you don’t, what happens next? That’s what we’re going to find out. Not just in today’s article. But the hard way, too. Who’s in charge? The trouble with renewables is not really their intermittency. It’s the unpredictable and uncontrollable nature of that intermittency. Our electricity system needs to be able to handle it. There are two ways to do this. We can convert unreliable and uncontrollable renewable energy into something dispatchable. Or we can change our lifestyle to suit what renewable energy provides. As ever, the answer lies somewhere in between, right? Well, that’s not how we currently do things. I don’t give a second thought to whether it’s windy or sunny enough to turn on my washing machine. That’s because we manage power supply to meet demand. We have enough dispatchable power to make sure everyone can run their air con on a hot day. But we are not in control of renewable energy’s intermittency. And so our future energy use will have to be what is managed to suit supply. Smart Meters that track your power and surge pricing are how. I’m in favour of using the price mechanism to ration power. It’s better than the other form of rationing – political decision making by civil servants. But it’s got to be predictable to work. You can’t run a business if you don’t know what your price of electricity will be. Especially given the reliability of weather forecasts. Cue an excellent report from the ABC about a bakery in North Queensland: ‘At a time when Australians are being encouraged – in some cases induced – to shift away from gas appliances and towards electric ones, the Boscaccis are steering the opposite course. ‘Mr Boscacci blames a complex and little-known electricity pricing scheme known as a demand tariff for the decision. ‘Demand tariffs are based on the maximum amount of power a customer draws from the grid over any 30-minute period during peak hours in the evening. ‘Mr Boscacci says the family have tried to work out ways to reduce their demand at peak times, but the nature of the business means they have little room to move if they want to keep using power. ‘He describes the switch to gas as a last resort, coming despite the rising price of the fuel and its unpredictability.’ As dictated by the Cobra Effect, government policies have backfired once again. The program to encourage electrification has achieved the opposite. Over in Canada, they’ve already tried and tested surge pricing and time of use tariffs (TOU). The idea was simple. By passing on volatile energy prices to consumers, the grid’s demand can be managed to meet supply. The UK’s Telegraph newspaper covered the government report on the results: ‘“Consumption patterns of retail [fixed] and TOU ratepayers were about the same, suggesting that TOU pricing provided no more incentive to change usage behaviour than retail [fixed] contracts,” it said.’ In other words, charging people more for electricity at peak times doesn’t cause them to shift their power use. So charging people for electricity based on intermittent supply won’t either. Unless you have crazy prices… I suspect surge pricing and other ‘demand management’ policies will prove too unpopular anyway. They aren’t a viable means to manage the electricity grid in a democracy. People don’t want it. This means that governments will be robbed of a key source of grid stability. One they are relying on to manage our electricity demand. What happens without 25% demand response? What happens if people refuse to change their habits to suit renewable energy? The existing plans for the energy transition fall apart. What happens next is up for debate. We could build an even larger grid with even more renewables capacity. What would this mean for cost? The European Round Table for Industry took a stab. Their report summed it up like this for the EU: ‘A failure to fully active flexibility from buildings, electric vehicles, and industry in 2030 would require €11.1 billion–€29.1 billion higher investments annually in the distribution grid.’ That’s a blowout cost… Even that would leave risks. How was laid out by Texas’ electricity grid management company ERCOT. Last month it warned of an ‘immediate catastrophic grid failure’ for the electricity grid. Flaws in some solar, wind and battery storage resources were blamed. They’d left the system vulnerable to shocks. That’s because each part relies on every other part functioning. One lightning strike would take the whole thing down. That’s what happened in the UK in 2019. A lighting bolt struck one part of the grid and households in three different countries experience a blackout! Another possible scenario is called ‘Absolute Zero’. A group of universities called FIRES worked on it. Their analysis asked what Net Zero would look like under current technologies. And discovered you won’t be going on holiday or eating meat anymore. Of course, technology is constantly advancing. Just consider this rather extraordinary example. But punting our future on something that uncertain seems rather risky. I don’t know whether we’re in for a 25% curtailment to your quality of life, whopping energy bills, frequent blackouts or energy dystopia. But I know the energy transition is about to get downright sinister. Until next time, Nick Hubble, Editor, Strategic Intelligence Australia Nick Hubble found us at Fat Tail Investment Research in 2010 after a stint inside Wall Street’s most notorious bank, Goldman Sachs, during the 2008 GFC. That’s where he saw the true nature of the investment banking business. Since then, he’s been the editor of the Daily Reckoning Australia and the UK-based Fortune & Freedom and Gold Stock Fortunes. He’s delighted to work as Investment Director and Editor for Jim Rickards’ Strategic Intelligence Australia. Here he helps turn Jim’s big-picture views into specific actionable advice and ideas for Australian investors. Advertisement: ‘MY PREDICTIONS FOR GOLD IN 2024’ Fat Tail Editorial Director Greg Canavan sits down with the founder of The Australian Gold Fund for an exclusive interview about where the gold market could be headed in 2024. CLICK HERE NOW TO WATCH THE FULL INTERVIEW |
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All of the Biggies Want Inflation |
| By Bill Bonner | Editor, Fat Tail Daily |
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[3 min read] Like a depressed person at an open window, yesterday, we left an important question unanswered: ‘Why can’t we just muddle through the debt problem? Why does it have to end in crisis and disaster?’ Talk about muddled! The question was put to Jared Bernstein, Joe Biden’s top economic advisor. In an interview, painful to watch, he seemed to be doing an impersonation of Leslie Nielson’s inimitable Frank Dribben: ‘The US government can’t go bankrupt because we can print our own money... The government definitely prints its own money. The government definitely prints money and lends that money... The government definitely prints money...It then lends that money by selling bonds. Is that what they do? They sell bonds and then people buy the bonds and lend the money. Yeah...’ Yeah, that’s what they do. But why? Stephanie Kelton, proponent of Modern Monetary Theory, wonders: ‘Why does the federal government have to borrow its own money?’ A talk show host, interviewing her, leaped to the obvious absurdity: ‘Why don’t we just print up $1 trillion coins? We give one to China. One to Social Security, etc. We just pay off our debts in one fell swoop. Heck, we print the money anyway.’ It seems like a no-brainer. Debt problem solved. Stamp the invoice PAID... and move on. This is not just a ‘theoretical issue.’ Here’s the head of the Committee for a Responsible Federal Budget, Maya MacGuineas: ‘We’re less than a decade away from a massive solvency crisis that would slash benefits for over 67 million seniors and severely limit their access to health care soon after. But instead of running to fix this problem, our politicians are running away from it. Social Security’s retirement trust fund will be insolvent when today’s 58 year-olds reach the normal retirement age and today’s youngest retirees turn 71.’ Note to Kelton, Bernstein et al: Retired people don’t eat paper. Right now, the Fed is balancing itself on the ledge. It wants inflation... to stir animal spirits and repress the real level of US debt. But it would be suicide to jump off and lower rates immediately, with the whole world watching. The US owes $34.7 trillion. What if debt holders (and retirees) realised that the Fed was not really going to fight inflation... and that they were just going to ‘print up’ trillions in pieces of green paper? All the people who put their faith in the Fed and the US dollar with their lifetime wealth... what would they think? The Fed is supposed to be guarding the value of America’s IOUs — from its venerable 30-year Treasury bonds... to its green walking around money, in 1s, 5s, 10s... and more. Even our own housekeeper in Argentina, who lives in a mud hut up in the Andes mountains, a six-hour hike from our house, keeps her savings in green paper. It was an easy way to protect it from the Argentine peso. What if she knew that the US officials were no more reliable than their own jefes at the Banco Central de la Republica Argentina? The Banking Cartel So far, bondholders think they can trust the Fed to protect their money. Good luck. The Fed is a cartel of Big Banks. Its main purpose is to make sure the banks have enough money. If they run short, the Fed will swindle your children — with inflation — to give them more. All of the biggies want inflation. Big Government needs inflation to reduce the real value of its current debt... and allow it to continue confiscating the wealth of the nation. Big Money wants inflation because it owns the nations’ assets; ultra-low interest rates and deficits cause inflation, but they increase prices for their stocks and bonds. Big Business, too, thrives on inflation. Upstart competitors can’t get funding. Small businesses go broke. Big Businesses get bailouts. Even Big Media prefers inflation to ‘austerity.’ Inflation is a way to fund the wars and boondoggles that it loves so much. All of them want to survive and grow... concentrating wealth and power in the big, here and now, institutions of the entrenched elites. But the real key to the feds’ embrace of inflation is this: They have no other choice. TINA. Politically, There Is No Alternative. These powerful groups would never accept the drastic cutbacks needed to reduce US debt (budget surpluses!) You can’t muddle through a debt crisis. As in a train wreck or old age, muddling through won’t take you to the other side. The adventure has to end before a new one can begin. Social Security and Medicare are going broke. US debt is rising faster than inflation can cut it down. In another spell of high inflation, the Fed would be unable to raise rates sufficiently to bring it under control. The feds’ only option is inflation... more inflation... sustained inflation at levels high enough to reduce the real value of US debt. Wait for it. Regards, Bill Bonner, For Fat Tail Daily All advice is general advice and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment. |
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