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"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Jul 11th, 2010 at 02:21:32 PM EST
[ Parent ]
I've said repeatedly that offshore wind should be done by State owned companies under a long range coherent plan with the corresponding industrial policy.

That will not eliminate the technical complexity of the industry and the need to understand and allocate the underlying risks properly.

Project finance bankers and associated parasites have brought discipline to projects on that front, but whatever. Enjoy your utopia.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Jul 11th, 2010 at 02:28:43 PM EST
[ Parent ]
But surely Utopia is something we use to aim for,  not as an excuse for supporting the status quo. We'd all like a General Theory of Economic Dynamism, but we are a long way off still. Meanwhile, in such a circumstance, do scientists stop stumbling through possible steps to the General Theory? No, they continue to make asses of themselves.

But Utopia is in the back of their minds. What other motivations are there?

Your defence of what you do is at least as powerful as my own defence of what I do: but we are going to be superceded. And I suspect that will now happen quite some time before Keynes' mortality dictum applies.

You can't be me, I'm taken

by Sven Triloqvist on Sun Jul 11th, 2010 at 03:00:44 PM EST
[ Parent ]
Since you think I defend what I'm doing, maybe you could explain it to me, so that I understand what you think I'm defending, and then explain how it can be improved.

Otherwise these conversations are a bit surreal or silly or both.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Jul 11th, 2010 at 03:15:12 PM EST
[ Parent ]
Jerome a Paris:
I've said repeatedly that offshore wind should be done by State owned companies under a long range coherent plan with the corresponding industrial policy.

'State-owned company' might IMHO better be a partnership with State participation, but the rest is self evident, and none of it anything to do with my point.

Jerome a Paris:

That will not eliminate the technical complexity of the industry and the need to understand and allocate the underlying risks properly.

Agreed. But that was not my point. My point is that a partnership framework is probably an optimal way of allocating risks, which is why they are emerging in use. Upon the subject of risk, having been a director of a global exchange and for many years closely involved with the complexities of cross-border international clearing and settlement, I think I have some understanding.

Jerome a Paris:

Project finance bankers and associated parasites have brought discipline to projects on that front, but whatever

When have I ever said otherwise? I have never objected to bankers or professionals who add value and I certainly would not criticise rewards commensurate with skills and experience.

The more complex and difficult it is to bring these transactions together, the fewer the people capable of them; the more valuable their skills; and the more in demand they will be.

Would a simpler contractual framework be in their interests? Good question, and I suspect the answer is a trade off between financial reward and quality of life.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jul 11th, 2010 at 03:11:36 PM EST
[ Parent ]
the more complex contracts are those between the project company and the industrial contractors. The financial contracts are much simpler.

The complexity is not created by the financiers. And they don't cost much either.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Jul 11th, 2010 at 03:20:47 PM EST
[ Parent ]
Jerome a Paris:
the more complex contracts are those between the project company and the industrial contractors. The financial contracts are much simpler.

The complexity is not created by the financiers. And they don't cost much either.

Very good point, and the disastrous state of the Edinburgh Tram project could be an object lesson.

Trams scheme `took wrong route' - Herald Scotland | Business | Corporate & SME

A project originally expected to cost £250m is now expected to come in at £650m. The massive disruption that the work has entailed for businesses and consumers may continue until 2014.

But my fundamental point remains.

Partnership-based agreements are not by any stretch of the imagination 'utopian' but an increasingly important tool in the development toolbox, particularly now that conventional financing is increasingly difficult.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jul 11th, 2010 at 03:31:25 PM EST
[ Parent ]
I've said repeatedly that offshore wind should be done by State owned companies

Why?

Not that I particularly object to the sovereign taking an active hand in industrial development, but I was under the impression that wind actually was a sector where simply ensuring the correct market structure via preferential dispatch and fixed prices would be sufficient to permit private planning units to perform the actual industrial development. This not so?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jul 11th, 2010 at 03:12:10 PM EST
[ Parent ]
is two things:

  1. investing at a cost of funding which is that of the State rather than that of the private sector;

  2. having a long term investment framework which provides a stable environment for the manufacturers to build up the industrial capacity.

There are various ways to achieve this.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Jul 11th, 2010 at 03:18:48 PM EST
[ Parent ]
Jerome a Paris:
investing at a cost of funding which is that of the State rather than that of the private sector;

As QE demonstrates, the cost of State development credit is zero. Once productive assets are complete, then development credit may be retired and recycled by refinancing.

Securitisation would be a conventional way of refinancing: I advocate direct investment in energy production by 'unitisation' - ie monetisation of energy.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jul 11th, 2010 at 03:39:17 PM EST
[ Parent ]

As QE demonstrates, the cost of State development credit is zero.

short term funding is at zero, for now, but not long term funding. it's relatively cheap right now, but that may not last (cf "bond vigilantes).

But in any case, unitisation will cost more than the sovereign cost of funding, otherwise why would investors do it?

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Jul 11th, 2010 at 04:12:31 PM EST
[ Parent ]
Jerome a Paris:
short term funding is at zero, for now, but not long term funding. it's relatively cheap right now, but that may not last (cf "bond vigilantes).

I am not talking about State Debt, which is public borrowing: I am talking about State Credit.

That is what QE actually is: it is not debt, although that is the fundamental misconception of Keynesian and Monetary economists alike. It is akin to a non interest-bearing redeemable share.

State Treasuries may simply spend (under professional management like your good self of course) the necessary development credit either by writing cheques drawn on a central bank or by issuing Treasury notes (eg the US 'greenbacks').

Private banks already do precisely the same thing when they pay staff; other costs; dividends to investors; or when they buy (say) government debt. In other words they both lend and spend credit into existence, creating demand deposits as they do so.

That is how our deficit-based system works.

Jerome a Paris:

But in any case, unitisation will cost more than the sovereign cost of funding, otherwise why would investors do it?

Unitisation of energy is the issue of Units redeemable in payment for energy. (NB to avoid misunderstandings, Units do not secure supply).

There are many billions of dollars already invested in energy, typically through oil and gas Exchange Traded Funds which are generally served (and too often pillaged) by investment banks using structured finance and/or the futures markets.

These ETFs - like any other funds invested in commodities - are 'hedging inflation', and you will understand that like gold, energy offers no return on investment.

Unitisation creates an investment denominated in energy rather than in fiat currency. So it does not necessarily cost more: in fact, the beauty of funding renewable energy in this way is that the Units which are used to fund renewable energy projects or even energy saving projects cost nothing to redeem.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jul 11th, 2010 at 05:44:26 PM EST
[ Parent ]
True, but on the other hand we have existing industrial and institutional capacity in the private sector that has demonstrated its ability to actually build working wind farms. And there are a lot of projects where such capacity does not exist, has not been proven to be possible or has been proven to be impossible (railways being a very good example). Now, I'm not a big fan of the idea of "crowding out" or the idea that government has some fixed maximum size that makes government spending compete against itself, so to speak. But recreating under public supervision what already works reasonably well in the private sector strikes me as vaguely silly, in the same way as privatising well-running public services.

The first of the issues you raise can be taken care of by a public industrial development bank, no? That is a good idea in any case, and would have wider impact than "just" wind power. The second issue is one of liaisons with the grid operator, and there is a good case to be made that the grid operator needs to be heavily regulated and/or under direct sovereign control. Of course, there is a case for subordinating the generation of power to the grid operator rather than separating those functions, which I suppose would put the wind farm development indirectly under sovereign management...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jul 11th, 2010 at 06:27:28 PM EST
[ Parent ]

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