Wednesday, May 12, 2021

European energy prices will go to the Moon

Notoriously enough, Austria organized its nuclear energy referendum in 1978. 50.5% voted against the Zwentendorf nuclear power plant plans and Austria became a hysterically anti-nuclear country, a fact that has often complicated the life of Czechs whose majority loves Austrians. This was an example of a referendum that should have been rigged by the sane people. The tiny edge of the Luddites has had far-reaching, long-term consequences.

Isar Zwo in Bavaria which we visited (as students) in 1992.

Germany remained nuclear (although not as much as France which makes 70% of its energy from the nuclei, and it used to be 80%) up to this nation's hysterical reaction to the 2011 tsunami-inspired glitches in Fukushima. Germans decided to obediently agree with their leaders' decision to ban nuclear physics in Germany. No \({\rm MeV}\)s allowed there; applied nuclear physics was rebranded to just another pseudoscience promoted by the groups that the Germans have the "right" to bully. Well, the moment when the last power plants should be stopped is coming closer.

A Nasdaq article included a simple schedule for the last terminations. I am going to add the power figures copied from the power plants' Wikipedia pages:
  • 1x 430 MW: Grohnde, at the end of 2021
  • 1x 1440 MW: Brokdorf, at the end of 2021
  • 1x 1284 MW: Gundremmingen C, at the end of 2021
  • 1x 1485 MW: Isar 2, at the end of 2022
  • 1x 1363 MW: Emsland, at the end of 2022
Note that some of these places (Gund., Isar) had several independent reactors, often with differing designs, and the units A,B or 1 have already been decommissioned. At any rate, check my arithmetics. Germany wants to eliminate 3154 MW at the end of 2021 and additional 2848 MW a year later. Two years from now, six damn gigawatts will be missing. The Czech nuclear power plants in Dukovany+Temelín produce 2+2=4 GW only (which is about 1/3 of the Czechia production, well above 10 GW at every moment now); Germany plans to phase out "1.5 times nuclear Czechia" within 20 months.

Well, Germany has a lot of installed capacity, almost twice as much (over 200 GW) as what is running (just over 100 GW) at one moment. But it would have to turn on all these sources. Assuming that new coal will remain a taboo, and you agree that during much of the time, the intermittent wind+solar cannot be relied upon, it means a lot of natural gas power plants (natural gas has about 50% of CO2, the gas of life that makes the leftists obsessed, per kWh relatively to coal).

Meanwhile, the actual demand for electricity is almost certainly going up – and perhaps very quickly. And I am not talking just about the post-Covid natural recovery. Germany is switching cars to electricity. Check the registrations of electric cars. In 2020, 194,000 electric vehicles were registered, three times the 2019 figure. In previous years, each year meant a doubling-to-tripling, too. In the first 4 months of 2021 which were almost certainly slower than the remaining eight, 88,000 electric cars were registered. I believe that the total number of active electric cars will surpass 500,000 by the end of 2021 and 1,000,000 by the end of 2022.

Now, these electric cars need quite some electricity from the grid. The batteries may be 60 kWh or 80 kWh or similar (for the range 300 or 500 km) and I think that it is realistic for the average electric car to need 24 kWh per day (per 24 hours). That yields the average power 1 kW at every moment, hours cancel (yes, that's why I chose 24 kWh, the details won't matter much). One million cars times 1 kW needs an extra 1 GW (kilo-mega-giga-tera etc.). Instead of removing 6 GW, Germany would need to add one GW rather soon; and the figure "one" will probably double or triple in each following years for a decade. If Germany wants to replace its 47 million cars by electric vehicles without returning to the Stone Age, it should better find the extra 47 GW of power somewhere. ;-)

Note that the same-year price elasticity of electricity demand is -0.1 which means that an expected 7% increase in the "demand minus supply" must be matched by something like a 70% increase in the prices. You may check the website of PXE, en electricity market for Central European institutions. The wholesale price of 1 MWh has already went from €45 to €70 in half a year (the small end consumer pays 5-10 times more). I expect the growth to continue. In recent days, the growth really seemed accelerating (click at the "year" in the graph, or play with other buttons).

As I said, Germany could start the spare sources but I think that there will be a widespread political desire in this disciplined, brainwashed, fanatical nation to say that the huge growth of the electricity prices is actually a great thing because it suppresses all the evil things (such as pleasures of the human lives). It is possible that the prices will double or do something even more dramatic. These comments will become even more urgent if the Green Party wins the election – they are even more fanatically left-wing than Angela Merkel.

You may want to buy some stocks of utilities, like the Czech dominant ČEZ (60% is owned by the Czech state), because the sensible ones still have quite some potential for a doubling of the price, too. Note that only some 10% (or a bit more) of the wholesale electricity revenue ended up to be a profit in recent years. It may mean that a 10% increase of these electricity prices may very well mean a doubled profit – the changes of the price are amplified by a factor of (almost) ten. And we have already seen increases by several dozens of percent while the reasons above indicate that this evolution will continue. Well, this estimate is too optimistic: a substantial part of the increase of the energy prices is the growth of the carbon indulgences which are extra expenses of the average power producers, not a free profit.

Germans may pretty much deliberately increase the electricity prices in much of Europe – and it will affect the other nations like mine that don't really want to have expensive electricity. The expected growing energy prices are just a part of the expected accelerating inflation. To fight the economic devastation caused by the lockdowns, the governments have poured lots of the helicopter money everywhere (most of the people who got a lot of cash for free were different than the people who really needed it and whose businesses and dreams were demolished by the Coronazi hysteria). The money supply has increased by more than 10% almost everywhere. A big fraction of the people have a lot of cash to waste it for overpriced products or commodities (and energy); and for investments that may grow into larger bubbles. The increased money supply hasn't been translated to the actual inflation yet but I think that it has to be.

I already told you that you should have joined the stock market in March 2020. Needless to say, March 23rd was the minimum of the stock markets and everyone who has strictly listened to me (I only partially listened to myself) has seen more than 50% returns in those 14 months or so. Now the conditions for buying stocks are worse (the drop due to the panic has already been erased) but I think that they're still great and the inflation will repel many additional people from cash – even the people who still think that it is natural to have cash today.

Update: The looming strong inflation is a global phenomenon. U.S. April inflation (CPI) figures show a 0.8% increase month-on-month; and 3.0% and 4.2% (core, headline) year-on-year, respectively. Both annual figures beat the expectations by 0.6-0.7%. Ten percent inflation really cannot be excluded, it would match the one-year growth of the money supply in the economies that didn't really expand in the real terms, and with some irresponsible policies, even hyperinflation could become possible. It's really irrational for any stock of a profitable company to go down in price in such situations. The surprisingly accelerating prices are primarily translated to substantially higher, unexpected profit margins (profit margins are much more sensitive on the relative change of the products' and services' prices than one!); on top of that, it is clear that savers-or-investors will consider stocks safer than cash in the situation with significant negative real interest rates (high inflation, low yields on saving accounts etc.).

Check these stories about the German hyperinflation in 1923: a price doubling in 4 days; coffee for a wheelbarrow of banknotes; a higher lunch price once the slow waiter arrives etc. Just appreciate how much right Czechoslovakia's first finance minister, the conservative hawk Alois Rašín, was. He insisted on a strong crown policy. We had almost no inflation. Some companies struggled for a year and Rašín was assassinated by an anarcho-communist in the same year of 1923. But we kept the policy and our companies could adapt and did adapt and Czechoslovakia was close to a (present) Switzerland-like economic paradise by 1929. The Great Depression harmed us (but especially the Sudetenland Germans) a bit more than others but it was still right what we did. Also, Adolf Hitler did rise to power partly because of the genuinely wrong and "weak policies" like those that allowed the German hyperinflation of the 1920s. We didn't have the Hitler-style extreme attitudes because we previously avoided their similarly extreme opposite things, too.

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