The Energy Sector
The Energy Sector
By Gabriel Potter, AIF®, MBA | Westminster Consulting
What powers the modern economy?
Oil.
What is the most universal cost for
a business? We could make a good
argument labor costs are the most
basic expense for any business. After
that, I think we could make an equally
compelling argument energy is a nearly
universal expense. In our early history,
we generally relied on muscle power—
human or animal—to get the job done.
After the creation of basic tools and our
earliest cooperative ventures, energy
costs become fundamental at every
level of a value chain. Pre-industrial
cottage industries and post-industrial
revolution energy sources were usually
some combination of wood and coal.
Since the industrial revolution, these
materials made it possible for energy
sources to exist separately from the
natural energy powered industries
(water-mills, windmills). However,
when we talk about the modern energy
sector, we’re solidly focused on oil
and natural gas. For the past 100
years, most modern machines—and by
extension, modern economies—depend
on petroleum products.
Alternative energy is growing in
importance, but not a full replacement
for oil yet
We can already hear the naysayers
challenging us, “what about alternative
energy sources?” Broadly speaking, our
electrical grid is sophisticated, flexible,
and it can accept power generation from
many sources. Nuclear energy, coal
plants, hydro (river & wave), wind,
and solar are established alternatives
to petroleum with varying degrees of
importance and potential. For instance,
France relies heavily on nuclear, while
other European countries are expanding
clean energy sources. The United
States still uses coal widely. Brazil
invests heavily in biofuel (sugarcane)
while other ethanol solutions (notably,
corn) vie for widespread adoption.
The widespread proliferation of solar
technology has pushed the costs for
generating a kilowatt of power from
solar to parity with traditional natural
gas, with promise of even greater
efficiencies in the future.
This is all very well and good for
utility companies and the support
of an electrical grid which keeps
our smartphones charged and the air
conditioners running. Sadly, none
of these alternative energy sources
is yet a fully viable candidate for
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