I follow developments in renewable energy and work in the space. 2021 has been a remarkable year for the decline in the cost of offshore wind. We are seeing something similar in the solar/PV space. It is ending with Vestas's surprise unveiling of an onshore wind turbine that can generate 7.2 MW, dramatically more output than anything we have seen to date. It is almost reminiscent of Moore's law.

We do not need any more advancements in wind and solar for them to be dramatically less expensive than any new facilities based on generation of electricity from fossil fuels. The US Department of Energy under Trump had indicated in 2020 that the lowest cost of energy by the middle of the decade would be from offshore wind, solar/PV and then onshore wind. It is now already here. New energy projects should only be wind of some sort or solar. (MIT is making advances in fusion, but they have also said that their next tests will be in 2025. Any full scale production remains several decades away; we cannot wait).

Against this backdrop, Twitter is now full of bots and maybe people on the payroll of the nuclear lobby who are advancing nuclear. They reason that nuclear is more durable than wind and solar, both of which are intermittent. They also say that nuclear is safe enough to prevent another Fukushima, Chernobyl or Three Mile Island now that it is dependent on small modular nuclear reactors (SMNR).

Unfortunately, after the entire situation where Emmanuel Macron got upset about the US and UK edging France out of an Australian nuclear submarine deal, we’ve started seeing US government officials try to appease France by bringing nuclear back into the mix in the US and other places where it has no business being. Biden's DOE officials who have spent their entire life researching wind and solar are releasing ridiculous videos on LinkedIn and Anthony Blinken got Romania to agreement to a nuclear deal that, if it were ever built, will make Romania the pariah of Europe for the next 5 centuries. To boot, people who should know better, including Obama's Secretary of Energy, are now advocating extending the life of existing nuclear facilities.

The pronuclear stuff is bought and paid for by an industry that has a lot to lose. There are certainly also banks that have extended credit to the nuclear industry that have a hand in this. But, the realities are clear. Not only is nuclear 4x the cost of wind or solar, but SMNR requires about 7x the lead time. Wind and solar have the durability of nuclear when paired with a long term storage solution and there are many that are now being brought to market that have a levelized cost of storage around 5 cents per kilowatt hour (those interested can check out Gridscale, Azelio's TES.POD, ESS Tech or multiple lithium-based solutions). Nuclear, including SMNR, simply should not be part of any discussions about new energy generation sources.

As far as extending the life of nuclear and Diablo Canyon in particular, the plant now requires a $4.50 billion upgrade to be cooled more efficiently and to be less environmentally taxing (but, even after this upgrade it will still require an extraordinary amount of the area's fresh water supply to be properly cooled and it will still be environmentally taxing). And dangerous (I have been in both Japan and the Ukraine and I do not think California wants the risk of becoming either one). Andrew Cuomo finally closed Indian Point that is only 35 miles from Times Square in New York earlier this year before he had to resign. Even so, it is estimated to take another 60 years before it is fully decommissioned and safe. With wind and solar being 100% safe and dramatically more cost-effective, we should continue along the course of removing all risks of a global catastrophe in our energy production system, not just those that release carbon into the atmosphere.

We can solve the climate crisis with wind and solar and without putting (prolonging) the ridiculous burden of nuclear onto future generations.

At COP26 in Glasgow, unlike before, the financial world showed up and a group of 450 financial institutions pledged to invest $130 trillion in the transition to a low carbon world.

But, there is so much to be done and it is now incumbent upon banks of all sizes in the US – and around the world – to become engaged in the necessary climate transition that must occur to ensure the world remains within what the Paris Agreement deemed acceptable climate change parameters.

The question is how. There is so much to be done. And, while banks come under heavy criticism for their lending to the fossil fuel and coal industry and commitments must be made now to reduce this funding over the next few years, banks must also need to figure out how to more actively engage in a transition.

At the consumer level, it seems obvious that banks can assist any federal and state incentives and require heat pumps and energy efficiencies in any mortgages and home equity loans they extend. Auto loans can be predicated on shorter payback periods with favorable terms extended if the car is removed from service in favor of a fully electric car.

Loans to industry can require immediately methane remediation and sourcing of materials from green carbon-neutral sources. Green steel, for example, could be immediately required, even if that now requires sourcing all steel from Scandinavia where Hybrit and Vow Green Metals are way ahead at this game.

Loans to agriculture can also demand methane procedures around livestock, but also better water and fertilizer practices.

But, the biggest challenge facing banks is that many technologies that have the potential to reduce carbon are still in their infancy and may in fact never materialize – such as the use of hydrogen as a fuel and carbon capture. And, banks and large financial institutions, which are inherently risk averse, will not be able to get comfortable with the risks of these projects.

One area where banks can easily become comfortable and where tremendous progress can be made very quickly is through investing in onshore and offshore wind projects. Wind projects are essential to the new energy infrastructure, offering not only the lowest levelized cost of energy for the next decade, according to the Department of Energy, but also a proven technology that banks across northern Europe have now been actively funding for the last 10 years. Other areas that banks can invest in today without technology risks are solar, energy storage and the laying of cables to expand the electrification of transportation networks.

These types of projects, particularly offshore wind projects, can require complex lending structures to protect the lending banks. The good news is that the repayment periods for the cost of funding are much shorter and collateral can be better securitized than was ever possible for oil and gas project finance structures that major banks were always so eager to fund worldwide. Banks of all sizes in the US can extend capital to these projects at the most senior or secure tranches where the cost of capital is the lowest. Other funding and guarantees can come in at less secure levels in the capital structure by long-term power purchase agreement (PPA) counterparties (utilities or direct partners) or by local and federal agencies. As a result of Build Back Better, there will be a healthy amount of capital available that will be released through these agencies in early 2022.

The highest level of risk in the project (and much higher returns) is then taken by sponsors, by OEMs, by developers or by a group of venture capitalists. Sponsors like NextEra, Brookfield, Orsted and Avangrid will have basically unlimited capacity for these projects in the US.

It is time for banks to begin to act.

Contact me through BestCashCow if you need further direction, advice or introductions.

The Federal Reserve has tapered its bond buying, beginning to contract its $120 billion monthly bond buying purchases that propped up the economy after COVID-19 struck in March 2020. The bond buying will be decreasing by about $15 billion a month.

The Fed’s actions – and other stimuli that have been introduced – served its purpose initially. Powell not only prevented a catastrophic recession in 2020; he also kept financial markets intact and maintained full employment.

But, these types of actions were designed to address an emergency and to keep things intact through 2021. They also, though not designed, created inflation that is by even the most conservative metrics running well above 3.50%, and by more realistic metrics as high as 7.00%. In short, we now have rampant inflation that is reflected in the price of everything from bread to mega-mansions.

After the Fed first lowered interest rates to its current range of zero to 0.25% on March 15, 2020, Chairman Powell guided that it would hold interest rates at this level until 2023 or 2024. Somehow, Powell has been unable or unwilling to process new information as it has come to him, and he has held the Federal Reserve to this pronouncement through 2021. In fact, Powell is unwilling to commit to any sort of schedule to raise rates in 2022.

The Fed and the Treasury Secretary insist that the inflation we are seeing is transitory. The new language released today is that inflation “is expected to be transitory”.

Regardless of whether inflation is transitory or not, it is here now, and the Fed is way behind the curve. Holding interest rates at this level is now creating a complete diminution of people’s purchasing power. $1000 that you earn today can be worth $1005 in one year if you put it in an online savings account or online CD, and that $1005 will buy you goods and services that today would cost you only $930, if you are lucky.

In emerging markets that have experienced this kind of currency depreciation, people would run to the bank and place their money in a high yielding account or switch it into dollars. This is not possible here, unfortunately.

In the US, our alternative currency has become Bitcoin, a virtual token that isn’t a currency at all and that has so far failed to emerge as a currency (except where it is used to pay off international hacks). It was established as a Ponzi scheme and it may now be forced through circumstances of the Fed’s creation to replace the US dollar as the most accepted means of exchange.

By just announcing a taper and failing to at least begin to address this reality by raising the Fed funds rate, the Fed is showing that it just doesn’t care.