On a similar topic to yesterday’s post, a German-led consortium may be about to commit €400 billion to building a huge solar farm in North Africa, and shipping the electricity back to Europe.
This is the Desertec project we told you about in November, and about which a key meeting will be held in July.
The idea, based entirely on existing technology, is to build a a new grid of high-voltage transmission lines from the Maghreb desert to Europe. Similar power plants have operated in the American west for years, and work on other plants has already started in Spain, Algeria, Morocco and the United Arab Emirates. But the feasibility of this scale of project depends on the price of oil: if oil is still cheap, the return for investors on putting their money into this venture is less than putting it into oil-based projects.
My bet, however, is that the price of oil is about to become irrelevant. Given the petrol price rises we’ve seen in recent weeks, I’d say that the price of oil is certain to pass the threshold point either this year or next. And it’s not going to come down. That means that whether or not this project is a good investment no longer depends on the price of oil. That is a given. What determines the probabilty of good returns is whether it is cheaper than other projects, such as google’s, and which of them has sufficient scale to provide the energy that the world will still want to use at a price it is willing to pay.
The price of oil is no longer the driver. The driver of success is now traditional competitive competence in bringing new services to market, and maintaining their market dominance. How fast can it be brought on-stream? At what scale? And how long can it maintain an advantage over newly emerging technologies?
With such a clear driver for change, and so many investors looking for new ways to provide the world’s energy, this is an era in which a lot of money will be made, and a lot will also be lost.
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