This brings us to our next point a weakened Dollar and strong Euro. With the renewable energy industry continuing to produce most of its equipment and installations most in three main currencies the Dollar, the Euro and the Yuan there is a great deal of interplay which could shift focuses. Contract books are full at the moment, now the question becomes what who will end up producing those and who will end up buying them. Taking legislation to be a constant for the moment, Eurozone economies will no doubt be able to leverage their relative buying power to purchase cheaper goods from the United States and China, conversely the United States will probably need to look to China for more production at the moment. On the demand side all three markets are growing immensely, however the problem of production and investment remains. Ramping up production will be difficult as runaway energy demand eats up any new capacity being brought onstream. With small to mid size firms forming the heart of the production arena there are still a lot of possibilities for scale as well as developing a multitude of technologies. China seems to be the nation which could profit the most with its pegged currency against a weak dollar, but exports could fall victim at a near term adjustment of the pegged rates or trade intervention moves by the United States to close the trade gap.
With the recent interest rate hikes around the world and cheap credit becoming a thing of the past , investors may have less free capital for projects. While the Cinderella story with the renewable energy industry will no doubt continue, there may at some point be a slow down in capital markets. With legislation continuing to be reformed at a rapid rate and risky investments becoming less rewarding due to higher lending rates and stiffer requirements investors may look for other products to satisfy their medium to long term goals.
In a rather unexpected side effect the price of ethanol has dropped to lows in the past months, after a spike in demand last summer (2006) during the biofuel craze in the United States, there seems to be a hard landing in store. Crop prices for commodities such as corn and sugar remain high, the new biofuel refining capacity of plants in the Midwest of the United States coming online is more then meeting demand. The bottleneck at this point seems to be transportation infrastructure which is making it difficult to move the product efficiently to the coasts and other locales where it is needed in the United States. Brazilian biofuels continue to suffer under a two fold limitation of 1) tariffs of 50 cents a gallon levied by the United States government as well as 2) a lack of efficient production and distribution infrastructure. The developments should come as no surprise to those who are familiar with the early development of petroleum markets and the challenges that kerosene at the time encountered when it went from local to worldwide distribution. The European market has been so successful by exactly avoiding this problem with production very close to consumption. Brazil has had many years to come up with a system to feed its domestic demands. The question now is whether it can produce something that could be it an OPEC sized exporter. What should make biofuel producers happy is that they are far ahead of their own projections and could soon and very conceivably meet targets set for years down the line. Even with the first technologies not quiet making the grade, the fact that the product has become a fixture in the energy markets should allow it to continue into further generations.
All and all the markets moving in the manner in which they have will provide a very exciting end of the years and start into the next one. Opportunities are abound in many segments and geographical regions.
