Hi Frank -
"If these are topped out at this time, then your point makes double sense. But is this the case, where nuclear and many other forms of generating plant are concerned? And while you cite brownouts and shortages right here in the States as proof of a number of stress points already existing, are those the result of insufficient infrastructure and fuel supply, or are those situations the result of someone's hands on the controls to limit generation for other reasons?"
Assuming you accept the global warming trend as a fact (at least at present, and again without the endless arguments about causation), we're starting to see lighter snowfall in British Columbia and less headwater for hydro. As a matter of fact, we now buy on the spot market, just like everyone else. Never thought I'd see the day.
Perhaps that's just a local phenom, and it's unwise to push the example further. Still, with global warming, as IBM used to say, "results are unpredictable". Back to this in a minute.
"Dumb like a fox power cos and energy brokers engaging in games of hedging and arbitrage, where market prices of fuel and regulated kw-hr rates to end users take center stage, perhaps?"
Coincidentally, I'm preparing a position paper on weather hedging for my company - in this case, for the budget-busting snowfall or extended freezing rain.
How many realize that ill-fated Enron, and Aquila created a whole new industry? Enron may have failed, but as a result of their pioneering efforts in the face of power deregulation in the 90's, hedging and arbitrage have become widespread.
In less than a decade, risk management has been reshaped with what may be called Alternative Risk Transfer, or Contingency Capitalization. We recognize old insurance mechanisms such as Crop Insurance, business practices such as selling forward, and "cat bonds" (catastrophe bonds). Now derivatives, puts, collars, and a whole slough of market transactions have reshaped risk management. Unlike insurance, which requires a claim for payment, these are straight market transactions where money flows - or doesn't - on clearly-defined events.
ART now manages trillions in derivatives and hedging - and it's an important and functional part of power generation of every type, from every aspect.
Google some of this stuff - you may be surprised. I often detect a note of disapproval when people speak of it - as if it's a dubious practice. Not at all - it's a way to lay off risk for unpredictable events with possible huge impacts, especially when climatic change is rolling the dice every year. Hedging for fuel costs works for airlines, transit companies, and hydro generators. Hedging for weather works for ski resorts, beaches, and snowmobile manufacturers.
"Likewise, does doubling necessarily mean building new plant structures from scratch, or can doubling be achieved - in part, at least - by growing existing plants and capabilities in an organic manner (add-on) while alternative forms of energy are being slipped into the model slowly over time, as opposed to building discreet new entities and new generation capabilities from the ground up to make up the x2 difference?"
Any way you can, probably. Any way where a good business case can be made. The second half of your question would be the answer.
But looking at anticipated requirements, my own belief is that any head start would serve us well. In addition to solving some infrastructure and demand problems, it would favourably affect future capital requirements, present trade deficit problems, and some existing geopolitical problems, to boot.
Trying to tie this together, one could make the argument that efficient hedging tends to forestall proper reaction to climatic events and changes - by "evening out" or blunting financial impacts. The point is that ART may partially disguise the immediacy and extent of the problem.
I'll ask your leave to post some links on weather hedging, and some of the alarming forecasts from financial folk - not tree huggers, and not media hypesters.
It's an eye-opener, Frank.
Jim |
