On today’s show we are taking another look at energy markets.
Many of you might know that my professional training is an electrical engineer. I understand physics, and energy in particular at a deep level. This is an area of such importance that I continue to study it deeply.
When we look at the economy, there is a direct correlation between every unit of economic output that forms our gross domestic product, and an equivalent consumption of energy somewhere in the world.
The food we eat is correlated directly with energy. Energy is required to manufacture fertilizer. Energy is required to transport food from production to your dinner table. Energy is required to manufacture the clothes we wear, the houses we live in, the trip to that sun destination. Virtually everything we do, eat, buy, consume and experience, has energy consumption at its core.
Today, 85% of global energy production involves the burning of some kind of carbon based fuel. It could be wood, coal, oil, natural gas. 85% of our energy production is based on burning something.
We clearly need to reduce this and replace it with more sustainable sources of energy production.
On today’s show I’m here to tell you that this decade we will experience another global energy crisis that is unavoidable. That energy crisis will translate into higher energy costs for everyone which will have an inflationary impact. It will also directly impact everyone’s quality of life.
So why is this important? We are after all real estate investors, not oil and gas investors. Well, since energy cost in a major input variable to anything we do, we need to perform sensitivity analysis on energy costs as we develop our real estate projects.
You might perform a sensitivity analysis that says it will take 10 years to break even on an investment in solar panels on your house. But what if electricity prices double? Now your time to break even is five years instead of 10. Would that change your decision? Would you rather make that investment now so that you are ahead of the curve, rather than having to make a crisis decision? You can bet that those panels will be more expensive in the middle of a global energy crisis. There is a window, a small window in my opinion for you to take advantage of incentives and subsidies that will make an investment in solar infrastructure seem like a genius move.
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Host: Victor Menasce
email: podcast@victorjm.com