Fuel for Thought – Dec 2nd

02 Dec, 2011

Central bank induced rally: Co-ordinated central bank intervention this week to boost liquidity has led to a substantial rally in commodity prices along with other ‘risk assets’.   But the central bank action is unlikely to have any long term impact on the resolution of the Eurozone sovereign debt crisis.  Instead, the increasingly disorderly gyrations in asset prices would appear to indicate time is running out for the European governments to stem the crisis.  The nature of the announcement coming out of the EU leaders summit on Dec 9th looks set to determine how the crisis will unfold into 2012.

Gazprom on the back foot: Gazprom has attacked the EU’s 3rd Energy Package, claiming that third party access to its pipeline infrastructure undermines its incentive to invest.  Gazprom’s business model is built around fierce defence of its monopoly positions, but these are increasingly under attack from a range of angles.  In addition to third party access, the rapid economic downturn in Europe threatens to compromise Gazprom’s position in negotiating oil-indexed gas contract prices with major suppliers.

Offshore wind faces enormous challenges: The European Environmental Agency has published a report this week predicting offshore wind capacity will grow 17 times from current levels by 2020. But upbeat predictions on the prospects of offshore wind from EU agencies ignore the reality of the challenges around offshore wind delivery.  Projects require substantial financing, increasingly difficult in the current environment.  Offshore wind will also become increasingly constrained by lack of a co-ordinated approach to upgrades in transmission infrastructure.

Financing coal-fired power:  With the European decarbonisation debate focused around the financing and delivery of renewable energy, it is easy to forget that emissions from coal-fired generation are the biggest challenge on a global level.  In this context,  a number of banks have been embarrassed this week as their green credentials have been challenged by a report highlighting their financing of coal-fired generation capacity. 

Picture of the Week:

Looking like a scene from a bleak science fiction movie, this stunning picture is of the Svartsengi geothermal power plant in Iceland.  The 170 MW station sits along side and feeds the popular Blue Lagoon geothermal reserve with mineral rich water.  It’s possible to bathe in the reserves warm waters under under the shadow of ths station.   A proposal has been made to build an interconnector from Iceland to Scotland to take advantage of the isolated counrty’s abundance of renewable energy potential.