GOT STEEL?
I’ll tell you what. The odds that any of the pointy shoes have sat down and worked out how much steel will be required to meet the construction requirements for all the offshore wind farm ambitions they keep touting is similar to the odds of winning the lottery.
The UK has installed 13.5 GW of offshore wind gross capacity so far in 2023, which includes 10.9 GW on monopile foundations. This translates into 2.2 megatons of steel required only for monopiles—a huge quantity that totals as much steel as 303 Eiffel Towers. Therefore, it can be deduced that to meet its 2030 target capacity of 50 GW, the UK is poised to require more than 1,000 Eiffel Towers’ worth of steel in monopile foundations for offshore wind alone.
Where does the money come from and at what cost? What effect on steel prices (and the price of almost everything else by default) will this have?
You see, you can’t upend an entire industry without considering the impact of additional demand and existing supply. This is basic basic thinking, which is where this has all gone wrong. Nobody has been thinking.
But wait, there is more. We have a global shortage of transformers.
Mess with an ecosystem and all sorts of unintended consequences will happen! All this expenditure on reconfiguring electrical grids to accommodate renewables is going to create massive shortages of not only electricity, but also basic materials.
Let me tell you what will happen as a consequence. We will experience a stagflationary firestorm!
Now, here is a self-defeating feedback loop.
A stagflationary firestorm will be accompanied by or will lead to higher interest rates and a higher cost of capital will render many of these renewable projects less competitive than they already are.
Most are completely uncompetitive and only stay afloat due to massive subsidies.
If we pursue this path, we are staring at a colossal misallocation of capital and a net destruction in wealth and living standards. That’s just how economics works.
Speaking of which, Ray Dalio seems to have come to the same conclusion.
Billionaire investor Ray Dalio said rising interest rates have made it harder to get climate projects off the ground.
“Is it more difficult to finance now that you might have an 8% cost of funds rather than free money? Yes it is,” he said at the Bloomberg Green summit at COP28 in Dubai on Tuesday. He added that lenders need a real return or else risk creating a bubble.
The Bridgewater Associates founder said the only way to unlock the up to $10 trillion a year needed in climate investments is to make green solutions profitable.
But how the hell do you make green solutions profitable?
Tax fossil fuels and more subsidies to “green” solutions?
Sure, we’ll just get more stagflation!
It’s idiotic and will inevitably lead to many countries simply opting for the rational decision.
In fact, we’re witnessing this take place now as mentioned earlier in this issue. It will mean that for us as investors we not only need to be aware of the sectors being impacted by these policies but also by the geographical and geopolitical ramifications and arbitrage that opens up.
What a time to be alive, heh.
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