3/19/22

To declare the terms of transition to green energy is insane

It is obvious that the free market uses all information on every time horizon and digests it into the prices of stocks and commodities. If any (crazy) market agent declares transition to a new product(s) and the corresponding timeline everyone wants: 1) to get the highest profit, 2) to avoid any losses, 3) to force other players, including the crazy agent, to lose as much as possible. This is the framework to analyze the green energy transition as well. One can easily analyze this situation personally and I also have some simple thoughts:

1) The transition to new energy generation needs money, technologies, and commodities to build the corresponding facilities. Money is wisely taken from the population (higher tariffs) and transferred to the companies investing in green energy production. In some countries like Spain, money is not transferred to the green energy dealers because of the energy crisis. The beneficiary of green energy may lose their extremely high profits any time soon. 

2) Oil and gas companies have adjusted their production plans to the new energy as well and reduced their investments into fossil energy. This turn is irreversible and the decay in oil/natural gas production goes faster than the green energy growth because the faster is the transition from fossils to renewables the lower are the losses of the companies. It is a kind of market panic. It is counterproductive to blame oil producers for effective adjustment to the new era. 

3) Oil dollar is in danger. The biggest world producers adjust their plans as well. The US oil import was the driving force of the oil dollar. Currently, the oil price is high and it seems wise to sell as much as possible. But at a mid-term horizon, it is clear that the oil dollar will disappear. It seems to be late already to use US dollars and its subsidiaries like Euro as a payment currency. It is wise to change to the currencies of the future importers - China and India. Arab countries and Russia started this unstoppable transition. The US and Europe markets are already in the past and of no interest in the long run.

4) Energy renewables are highly vulnerable. The scattering of daily, weekly, and monthly wind speed and insolation is so high that quick compensation of sudden drops in renewable energy production will be a large challenge and thus will cost a lot. Speculations will be higher than the current ones observed in natural gas trades.

5) The need for commodities to build green energy facilities (e.g., lithium, steel, copper, etc.) will be increasing with time according to the supply/demand economic rule. This will result in increasing renewable energy prices. Without oil dollars and in the absence of appropriate resources it will be costly for the countries in transition. 


China, India, and Russia will do everything to make this transition as painful as possible and to get the maximum profit (e.g. money, political and financial power, strategic positions) from the situation. That's the reason Russia has started the expansion and China backs these efforts.  The countries in transition are the most vulnerable. It is time to strike. 



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