Solar: A Great Hedge Against Hyper-Inflation

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Many economists think that a financial Armageddon is on the horizon in the United States and Europe. While don’t necessarily agree that a meltdown would result in an end-days scenario, doomsday prepper-style, there is certainly an argument to be made for inevitable inflation if out of control deficit spending by governments continues. How can solar energy help? Individual and business decisions whether to invest in solar energy are often...

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  • Eric LEric L Solar Expert Posts: 262 ✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation

    From the article:
    Since there is little risk of deflation or decreasing energy costs, and the energy produced by solar electric systems is predictable and reliable, wouldn’t the “gamble” based on possible future inflation be a safe bet? It’s really not a gamble at all – you can’t lose and you might win big!

    In fact there remains a considerable and ongoing risk of deflation, as anyone who has been paying attention to the bond and securitized debt markets for the past five years should know.

    Trying to use solar power as "hedge" against inflation is a terrible idea in any case, and it smacks of desperation that the solar industry is pitching this. If for some reason you badly want to hedge against inflation, buy TIPS. If you're confident enough to bet on the energy price increases that the article imagines are coming, buy gas, oil or coal futures. They'll return far, far more if you're right than a solar array will.
  • mtdocmtdoc Solar Expert Posts: 600 ✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    Eric L wrote: »
    From the article:

    In fact there remains a considerable and ongoing risk of deflation, as anyone who has been paying attention to the bond and securitized debt markets for the past five years should know.

    Actually there has been ongoing inflation in things you need (food, energy, medical care, education) and deflation in things you want (fancy houses, consumer electronics, etc)

    Currently, the bond/debt markets are not a good indication of inflation - since the pricing mechanism has been severely distorted by central bank intervention - and yes, I do pay attention - I actively trade debt futures.
    Trying to use solar power as "hedge" against inflation is a terrible idea in any case,
    I disagree for the reason above - it is a good hedge against rising energy prices.
    If for some reason you badly want to hedge against inflation, buy TIPS.
    Well - sort of. The problem is TIPS returns are based on the CPI which is a highly suspect number whose calculation has been jiggered many times to underestimate true inflation.
    If you're confident enough to bet on the energy price increases that the article imagines are coming, buy gas, oil or coal futures. They'll return far, far more if you're right than a solar array will.
    Well - yes, but most people do not have the sophistication or resources to trade energy futures and the volatility involved when doing so is something that few people can deal with - financially or emotionally.

    Fact: Energy prices will be higher in the future.

    Solar power is not the answer to all, but a well designed solar system, while having a relatively high upfront cost, will continue to produce energy for a long time and act as a hedge against higher future energy prices. Just MHO of course.:cool:
  • bill von novakbill von novak Solar Expert Posts: 891 ✭✭✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    mtdoc wrote: »
    I disagree for the reason above - it is a good hedge against rising energy prices.

    It's a good hedge against rising _electricity_ prices but that's about it. Most people use a lot more energy in transportation than they do in electrical usage.
  • mtdocmtdoc Solar Expert Posts: 600 ✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation

    The thing is - energy is semi fungible - so electricity prices are ultimately correlated with the prices of all other forms of energy. In addition, the cost of solar panels (and other equipment) have embeded liquid fuels costs. It takes oil to mine the elements and oil to manufacture and transport the finished goods.

    As the price of oil continues to rise - this will impact the price of solar power equipment for these reasons and for the simple reason that there will be more demand for alternative energy sources.
  • solar_davesolar_dave Solar Expert Posts: 2,395 ✭✭✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    It's a good hedge against rising _electricity_ prices but that's about it. Most people use a lot more energy in transportation than they do in electrical usage.

    We did this by getting a pair of Chevy Volts and charging them off Grid Tie Solar. Boom gasoline purchases reduced to near nothing. Cost to drive on day to day basis near nothing. Flexibility to still travel beyond all electric range if we so decide.

    Fuel inflation, try flying lately?
  • mtdocmtdoc Solar Expert Posts: 600 ✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation

    That is awesome SD. I am seriously considering getting a Volt. I wish there was an AWD EV or plug in hybrid available. What I really want is a 4WD pickup with the Volt technology. Via motors is building one but $80K is just too much. I've thought about converting an ICE truck but I just don't have time to take on a project like that right now.
  • bill von novakbill von novak Solar Expert Posts: 891 ✭✭✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    solar_dave wrote: »
    We did this by getting a pair of Chevy Volts and charging them off Grid Tie Solar. Boom gasoline purchases reduced to near nothing.

    Yep. I have a Leaf and I do the same thing. But most of the energy I use comes not from driving my too-lazy-to-bike butt around, but in flying myself, in the energy used to transport the water I use, the food I eat, the products I use etc. And we even make some effort to eat local foods (via a CSA) - but we still use a lot of energy on the balance.
  • mtdocmtdoc Solar Expert Posts: 600 ✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    But most of the energy I use comes not from driving my too-lazy-to-bike butt around
    :D:D

    Do what I did and build an electric bicycle. It's my only EV. 1000 watt hub motor and a 48V 20 AH LiFePO4 battery pack gets me up my 6 mile, 1800 foot climb home commute with only moderate pedalling (none at all if I'm feeling real lazy..) Now if only it didn't rain and snow here for 9 months at a time perhaps I wouldn't need an electric car...:roll:
  • Eric LEric L Solar Expert Posts: 262 ✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    Currently, the bond/debt markets are not a good indication of inflation - since the pricing mechanism has been severely distorted by central bank intervention - and yes, I do pay attention - I actively trade debt futures.

    There's still a huge unwind taking place in the MBS market. The estimates I've seen based on International Swaps and Derivatives Association data (the best source of data about this particular kind of securitized debt, IMO, since most of this debt was produced outside the normal banking channels) put the total loss number at a little over $5tn, and that will take another good two decades to be wound down. That's a huge and ongoing drag on the broad money-supply measures which is why, despite six years of 'stimulus', we see no sign of the real, wage-price style hyperinflation that the article was speculating about (and there's not going to be hyper- inflation if the price increases are are confined to the commodity/metals/risk assets). The inflation guessers have been very, very wrong (Bill Gross, etc.) since 2008 and they will continue to be wrong for years to come. IMO, of course.

    I'll get worried about hyper-inflation when we see at least four consecutive quarters of significant RE price increases.
    Well - yes, but most people do not have the sophistication or resources to trade energy futures and the volatility involved when doing so is something that few people can deal with - financially or emotionally.

    O.k., then a pair of well in-the-money LEAP call options on your preferred energy index have low extrinsic, are going to be only a couple thousand dollars (so less than the pv array), and will still likely make a lot more than a solar array will save you if we see significant energy price spikes. Buy and forget.
  • mtdocmtdoc Solar Expert Posts: 600 ✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    Eric L wrote: »
    There's still a huge unwind taking place in the MBS market.
    Agreed.
    That's a huge and ongoing drag on the broad money-supply measures which is why, despite six years of 'stimulus', we see no sign of the real, wage-price style hyperinflation that the article was speculating about (and there's not going to be hyper- inflation if the price increases are are confined to the commodity/metals/risk assets).
    Yep, we agree there too.
    The inflation guessers have been very, very wrong (Bill Gross, etc.) since 2008 and they will continue to be wrong for years to come.

    Well - no, not IMO. The price of commodities suggests otherwise - at least over the last several years (starting at the 2008 commodity speculative peak is a straw man argument). Hyperinflation - no, but inflation of most commodities - yes. (And of course Pimco's returns would say Bill Gross has been right - but that's a whole different discussion and we're already way off topic)

    BTW - a also agree with your general point that we've not seen any Hyper inflation. Whether that happens in the future - I doubt it - but it is one possible outcome.
    O.k., then a pair of well in-the-money LEAP call options on your preferred energy index have low extrinsic, are going to be only a couple thousand dollars (so less than the pv array), and will still likely make a lot more than a solar array will save you if we see significant energy price spikes. Buy and forget.

    But you'd have to roll these forward every few years and after 30 yrs (expected PV lifespan) you'd have spent much more money. And of course if you buy energy Leaps and energy prices do go up - then what? do you sell them? Sell front month calls against them to lock in some profits?, Roll them to out of the money Leaps ? this all takes skill, luck, timing and capital. Meanwhile a PV system is keeping the lights on and the food cold.....
  • bill von novakbill von novak Solar Expert Posts: 891 ✭✭✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    mtdoc wrote: »
    Do what I did and build an electric bicycle.

    Got one of those too - but again, most of my energy usage doesn't come from moving me around. I'm all for reducing our conventional energy usage (and using renewables) but in terms of the energy used to support _me_ I can only directly affect a small fraction of it.
  • mtdocmtdoc Solar Expert Posts: 600 ✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    most of my energy usage doesn't come from moving me around. I'm all for reducing our conventional energy usage (and using renewables) but in terms of the energy used to support _me_ I can only directly affect a small fraction of it.

    Excellent points. Few people think about the tremendous amount of energy required for an average person in a developed country to maintain their "average" lifestyle - even when you exclude things like automobiles and big screen TVs.
  • Eric LEric L Solar Expert Posts: 262 ✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    But you'd have to roll these forward every few years and after 30 yrs (expected PV lifespan) you'd have spent much more money. And of course if you buy energy Leaps and energy prices do go up - then what? do you sell them? Sell front month calls against them to lock in some profits?, Roll them to out of the money Leaps ?

    You can do those things, but if the trade has worked as a hedge then the index is higher and you can also roll them up and out to the first strike that gives a credit. This buys time without more investment. Remember that if the index is up the original calls are nearly stock-equivalents and it won't cost much to move them out. (If the trade is a loser than energy prices are down, but then the solar pv hedge was a loser too).

    We should request an energy and bond derivatives sub-forum. ;)

    You're right that it takes knowledge, timing, and capital ('luck' I'm less sure of -- if it's a hedge you hope it doesn't work out). But then so does installing a pv system for a good price. And if you hire someone to do that (at considerable cost), you can equally hire someone to manage your energy hedge.

    But just to be clear, my original objection was to the idea of solar pv as a hyper-inflation hedge, which is what the article tried to sell it as. The values of pv in conservation, energy independence, and (for me) enjoyment are all values I endorse.
  • mtdocmtdoc Solar Expert Posts: 600 ✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    Eric L wrote: »
    You can do those things, but if the trade has worked as a hedge then the index is higher and you can also roll them up and out to the first strike that gives a credit. This buys time without more investment.
    Yep, that's another way to lock in profits.

    My point was more that trading energy markets whether using futures or options is beyond the reach of most people and ultimately involves the risk of losing all of your trading capital.

    Installing a solar system can work to hedge energy inflation and even if it turns out energy prices do not go up much - well you still have a solar system which is saving you money (as well as decreasing carbon emissions, etc - as well as making you more energy independent if you do the battery back up thing). It's a win-win IMO.
    We should request an energy and bond derivatives sub-forum.

    No, No - Been there, done the trading forum thing - I'd rather have a sharp stick in the eye :roll:

    But thanks for a nice discussion here! A very pleasant, well moderated forum! Yeah NAWS and mods!!:D
  • CariboocootCariboocoot Banned Posts: 17,615 ✭✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    mtdoc wrote: »
    But thanks for a nice discussion here! A very pleasant, well moderated forum! Yeah NAWS and mods!!:D

    All of whom are extremely happy that these RSS feed threads simply disappear after a few days. :p
  • PhotowhitPhotowhit Solar Expert Posts: 5,974 ✭✭✭✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation

    I'm the kid who stayed up all night playing poker before the economics final and had one of the 7 - A's in the lecture room class (200+) then had a nice quarter over the summer with "The Guy Whoe wrote the Book" while at FSU, but I have no clue how we can continue to buy our own debt, which is basically printing money and not have run away inflation. More debt coming next week, month, year to me it's very frightening.

    At the very least I will have my electric mostly paid for, until they decide to tax my array to death.

    Still haven't done the electric bicycle, found a scooter that will support my weight, but not sure what rural Missouri deputy's would think about me riding it on our 55mph rural roads. Technically it isn't legal, but if it was a moped (could be pedaled in any way) it would be legal...
    Home system 4000 watt (Evergreen) array standing, with 2 Midnite Classic Lites,  Midnite E-panel, Magnum MS4024, Prosine 1800(now backup) and Exeltech 1100(former backup...lol), 660 ah 24v Forklift battery(now 10 years old). Off grid for 20 years (if I include 8 months on a bicycle).
    - Assorted other systems, pieces and to many panels in the closet to not do more projects.
  • BB.BB. Super Moderators, Administrators Posts: 32,921 admin
    Re: Solar: A Great Hedge Against Hyper-Inflation

    I am tempted to move this to another forum (where it should not get deleted)...

    I have some more re-reading to do.

    Issue I have with Grid Tied systems as a hedge against inflation--They are only "legal" and "profitable" as long as the state and companies have rules that support GT solar--As soon as it get unprofitable for them (i.e., the subsidies cost too much and the management of variable power fed into a regional grid makes it too unstable)--I would suspect that GT will either "go away" or look quite different than it does today (billing, central control, less subsidies, etc.).

    -Bill
    Near San Francisco California: 3.5kWatt Grid Tied Solar power system+small backup genset
  • solar_davesolar_dave Solar Expert Posts: 2,395 ✭✭✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    BB. wrote: »
    I am tempted to move this to another forum (where it should not get deleted)...

    I have some more re-reading to do.

    Issue I have with Grid Tied systems as a hedge against inflation--They are only "legal" and "profitable" as long as the state and companies have rules that support GT solar--As soon as it get unprofitable for them (i.e., the subsidies cost too much and the management of variable power fed into a regional grid makes it too unstable)--I would suspect that GT will either "go away" or look quite different than it does today (billing, central control, less subsidies, etc.).

    -Bill

    The utility subsidy here is all but gone, we are now talking pennies per watt.
  • CariboocootCariboocoot Banned Posts: 17,615 ✭✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation

    As I've mentioned before we don't have any feed-in tariff, rebates, et cetera here for GT and electricity is still really cheap. (They are planning on upping the per kW hour rate to thirteen cents.) If one were to install a GT system on BC Hydro lines now you would lose money for quite a while before there was any possibility of return. And that would depend on the rules changing in favour of GT which, as Bill said, is not necessarily how it will go.

    So once again much depends on your actual location as to how good a hedge this would be.
  • PhotowhitPhotowhit Solar Expert Posts: 5,974 ✭✭✭✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation
    solar_dave wrote: »
    The utility subsidy here is all but gone, we are now talking pennies per watt.

    "Net Metering" in itself is a tarrif/subsidy likely worth 2x the cost of electric or more, if not supported by the goverment, I doubt too many power companies would support it. It makes sense and that is what goverment is all about...

    ...Gosh, did I really say that?
    Home system 4000 watt (Evergreen) array standing, with 2 Midnite Classic Lites,  Midnite E-panel, Magnum MS4024, Prosine 1800(now backup) and Exeltech 1100(former backup...lol), 660 ah 24v Forklift battery(now 10 years old). Off grid for 20 years (if I include 8 months on a bicycle).
    - Assorted other systems, pieces and to many panels in the closet to not do more projects.
  • waynefromnscanadawaynefromnscanada Solar Expert Posts: 3,009 ✭✭✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation

    Well I can see the day coming when my independent off grid system will pay for itself far faster than I had first thought. Not kidding. I'm seeing it more all the time, as one of the best moves I've ever made in my life.
  • ggunnggunn Solar Expert Posts: 1,973 ✭✭✭
    Re: Solar: A Great Hedge Against Hyper-Inflation

    Reading threads like this reminds me of what I think is a major thing that has gone wrong with this country in the past few decades. There are far too many folks making money by moving money around and far too few earning it by making something.
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