Jeremy Grantham Investor Information Letter

Climate Progress pointed to a recent newsletter by Jeremy Grantham, an investor managing close to $100 billion.

There are a couple of interesting statements on long term energy developments:

They, the hydrocarbon companies, are in turn protecting the value of their huge current and future reserves in the ground, which often represent all of their market value.

This is the central issue. If hydrocarbon companies protect the value of their reserves in the ground by delaying renewable energy, large forces will try to do exactly that.

If, in contrast, these resources increase in value by selling less, those forces will work in the other direction.

Again, under basic market theory, selling less will lead to higher prices. And higher prices should lead to higher evaluations of reserves.

I assume Jeremy Graham knows a lot about these issues. Therefore, his assertion that “reserves in the ground often represent all of their market value” is probably correct.

That, in turn, means that this central issue becomes even more important. It should receive some more attention.

Then there is this point on China and renewable energy:

My colleagues worry that the Chinese save and invest too much, approximately half of all their income, a level never before reached in history. (…) But for undertaking a completely renewable energy system, what a set-up! If the Chinese feel they must maintain a 50% capital spending ratio (or at least come down gracefully to avoid an outright depression), there are few projects big enough to both absorb the giant quantities of money available and have a good return on investment at the societal level in the long term. Building a renewable energy system achieves both aims.

China would profit the most from a large source of renewable energy in the Gobi desert. They would also be in a position to contribute some of the funds.

And on the costs of solar:

Solar costs have unexpectedly crashed in the last three years, down by over two-thirds, and finally today, in ideal conditions (even without coal carrying its full environmental costs), solar is competitive. In a happy variant of Moore’s Law, solar costs, driven by scale and engineering as much as new technology, will continue rapidly downwards.

“Crashed” feels about right, and down by two-thirds in three years is rather remarkable.

And, in the “summary”, on the long-term strategic importance of renewable energy:

14. On paper, though, the energy problem can be relatively easily addressed through very large investments in renewables and smart grids. Those countries that do this will, in several decades, eventually emerge with large advantages in lower marginal costs and in energy security. Most countries including the U.S. will not muster the political will to overcome inertia, wishful thinking, and the enormous political power of the energy interests to embark on these expensive programs. They risk being left behind in competiveness.

In the long term, having a large percentage of renewable energy in the mix means having a large percentage of free and domestically produced energy. The first aspect means low costs, the second security. Both aspects are important and will get ever more important with rising costs of hydrocarbons.

But this is written only from the perspective of industrialized countries, like Germany (which has both the most solar capacity and the best export record of the World right now).

There is also a race on for the countries who will export most of the renewable energy in a couple of decades. As anyone looking at Near East oil money will easily understand, exporting energy is a lucrative business. Those countries that get up their large-scale renewable energy projects first may have an edge in delivering the surplus to countries that were less alert.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003,

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