03 Oct 08 Eddie's Blog Global

Simple supply and demand

Thank God for the Internet! The most democratic medium on Earth.

I mentioned my great buddy Shimon Awerbuch. He was a great – no, make that the greatest economist on electricity sustainability.

He did a study on Mexico. He showed that if they made 10% of their electricity from wind, the price of fossil fuels would reduce by 9% there. Simple supply and demand. More wind energy means less demand for other types of energy (the stuff we pay for).

So the effects of wind on the price of electricity go way beyond replacing the most expensive generated unit of electricity.

Every other unit of electricity became cheaper because the raw energy (coal, oil gas, uranium) got cheaper. It got cheaper because demand for it went down.

If there was no other reason for building as many wind or other renewables as possible, than to reduce the price of fossils, then this makes it a good idea.

Beware of the other so called energy economists. Have you ever seen any group get future pricing so wrong. In fact, most of them have stopped predicting future prices. There is one company, I know, very much quoted in the energy industry that were confidently predicting $60/barrel as a higher price for oil from 2008 onwards.

Indeed the EIA, the Energy Information Agency of the US Dept. Of Energy are predicting oil will drop to $55/barrel by 2016!!!

I often wonder what planet they come from.

China will grow at 10% each year to 2016 – just as they have done every year since 1978. At their stage of development this should mean that their energy grows at 20%. Of course it can’t because there isn’t enough energy in the world to allow this growth.

China adds a new Germany to world demand every year. It built 103,000MW in 2006. Germany’s installed MWs are 86,000 and the UKs is 65,000.

This is without thinking about India, the world’s biggest democracy. The population will outstrip China’s by 2025 and according to Goldman Sachs, its growth rate will move up from 7 to 10% in the coming period.

It will be adding another new Germany at least.

We will come back to China and India in future Blogs.