Optimum energy mix has been used to transforming from fossils fuels to renewable energy sources. It has corresponded to the combinations that achieve defined targets with the minimum total capacity.
Why should we invest in optimum energy mix?
We should invest in optimum energy mix simply because its an easy and the cheapest way to extract energy from the fossils. It is compatible with preserving the underlying integrity of essential natural systems, including averting dangerous climate change. It extends basic energy services to more than 3 billion people worldwide who currently lack access to modern forms of energy and reduces the security risks and potential of geopolitical conflict that could otherwise arise from an escalating competition for unevenly distributed energy resources. Energy of fossils nuclear and renewable resources can be destroyed or converted in usable energy be it chemical reaction (burning), nuclear reaction (fission and fusion) or mechanical and photovoltaic conversion of renewable sources. Also optimum energy mix approach minimizes the carbon emission while conserving the energy, many companies today like IBM, Google and Facebook have embraced the use of renewable energy and within two to five years there will be a lot of potential opportunities that are vibrant. When you invest on this strategy you not only reduce the price of the energy but you increase the security of the energy supply to the market.
Why we should not invest?
The main reason for not investing in Optimum energy mix strategy is because it takes long before it pays back (the return on investment takes time), also other risks such as financial safety, regulatory environment and also lack of proper expertise. Renewable energy requires specific sites or space for investment which might not be easy to acquire depending on the area of investing the project.
Energy mix is considered a strategy issue for big corporations in the world as it requires a high level of attention from the board executives ,renewable energy experiences stiff completion as new technology arises everyday hence the need to adapt the fast changing market share, also renewable energy represent a small portion of energy in the world. Optimum energy mix faces pricing factor as few people are willing to pay a premium rate for it, the cost of initial investment is too high as setting up the required resources for generating energy causes financial constraints.
Optimum energy mix is not so popular as most people have not embraced the green energy so it will be hard to convince people that it is reliable form of energy, it is also the oldest method as compared to the modern form of energy such as nuclear energy that is more sustainable. Supply and demand is also another risk of investing in this approach as a lot of capital and time is needed to operate hence if the prices go down it can dry up all the capital or it will concurrently affect the industry, also if the supply increases it will be straining the available materials in nature of production.
Investing in innovation and R & D
What is innovation?
Innovation is the process by which new ideas can generate economic and social value, it is important in delivering the productivity gains that are often associated with investment and offers a roadmap to developing new tools and new approaches for tackling challenges and improving the quality of life
Why we should invest?
Investing in innovation and R&D offers many potential opportunities at the company level through government encouragement and creation of sustainable environment. Investment in the Research and development is the most important factor to be considered in innovation performance as through R & D that many companies have been able to stay in the market despite the stiff competition and the fastest growing demand for energy. Companies have increasingly challenged the barriers and overcome it by making advances in the subsea oil, and geothermal gas technology which has been the greatest achievement in the innovation industry, innovation has enable the researchers to use a software that guides the accurate results of tests. Innovation pays off more than oil and gas.
With traditional energy becoming more hard to find, investing in new technology and innovation will be of need to meet the rapidly increasing population and demand of clean energy and also to combat environmental challenges that may arise, government has continuously supported innovation through the research and development tax credit hence new innovative trends will flow from the upstream sector to the midstream sector, the upstream operators will focus mostly on harvesting value from their recent discoveries through more efficient approach of operation as it measure the risks the industry is facing.
Investing in innovation, research and development will always return the initial investment as with new technologies being used in extraction of energy and the ever growing demand for energy in all industry sectors. Many nations such as china, japan and Pakistan have increased the investments in the Research and Developments which clearly shows that investing in innovation is not a waste of resources and time.
Why we should not invest?
Despite innovation, research and development there are many risks that comes with it that should be clearly known in the development of this strategy such risks include: operation cost of research can be a challenge if there is no adequate resources to finance the project, through this approach disasters can occur which may cause a significant change in the industry, many companies today have realized that is only through innovation, research and development that they can make high return of investments which has brought the stiff competition in the market and also new technologies have become so expensive to acquire.
Creating, developing new products and processes requires strong skills and entrepreneurial skills. There is an increasing demand for the availability of highly skilled labour in particular highly skilled human resources in science and technology which has become a challenge in innovation world. Strong technology skills facilitate the uptake and use of new technologies which drives innovation throughout the economy.
This brings about both the quantity as well as the quality of highly skilled labour in the economy. But as, innovative activity may arise from any part of the production process, not only from the research and development laboratory, more intangible skills such as entrepreneurial ability, communications skills, adaptability etc., also contribute strongly to innovation, especially in services and in organizational innovation. As a result, in many of the successful education systems there is now less emphasis on the reproduction of subject matter knowledge, which develops skills that are easiest to understand, automatize and offshore, and more focus on teaching and evaluating skills in the context of real-world complexity, such as expert thinking the ability to structure problems, complex communication, learning strategies and self-concept are the factors that may hinder innovation
Investing in Reserves at Time of Price Volatility
Energy companies operate in a very competitive business environment, which means that accurate and timely decisions must be made based on the evaluation of available information. As a result of this competitive nature of the business, decentralization of decision-making became essential for many energy operations.
Why should we invest in reserves at time of price volatility?
By looking into the cost breakdown of gasoline, a refinery product, we can see that its retail price can be broken down into: costs of crude oil, taxes and seller mark-up. In the case of the U.S., these components are approximately 50, 30 and 20 percent of the total retail price, respectively (Lewis, 2005). Given that the largest proportion of cost is associated with the cost of crude oil being $50 and that taxes are relatively stable, seller mark-up observed any unexpected changes in crude prices.
However, a closer look into crude oil supply suggests that economic incentives and market perception related to the Organization of Petroleum Exporting Countries (OPEC)s supplies of crude oils are different from those related to non-OPEC supplies.
Commoditization of the energy market has increased the importance of real-time information, reduced the product cycle, narrowed margins and contributed to increasing price volatility (Lewis, 2005). For example, crude oil price volatility plays a very important role in decisions regarding inter-fuel substitution
Why we should not invest in reserves at time of price volatility?
Refiners, on the other hand, have the concern that future price increases will be translated into higher oil input costs. If these high oil input costs cannot be passed on to customers, the refiners will receive less revenue. In this case, crude oil prices could negatively affect the refiners crack spread, which is the risk/reward coefficient for each product that can be aggregated to form a composite refinery margin. As a result, some oil companies have offered specially-structured products to meet the needs of its clients. However, analysis of the correlation between the product margin and crude price is crucial in an effective implementation. Chemically, crude oil is made of many different types of molecules. On the other hand, natural gas is made of few molecules. In order to keep natural gas in the gaseous state, pressure must be applied at ambient temperature, which increases the costs for storage and transportation.
Finally, the possibility that OPEC and non-OPEC crude oil prices may behave differently contributes to the ongoing discussion of whether the oil market is a truly integrated global market or not. Adelman (1984) originally stated that the world oil 16 market is one great pool, very similar to the worlds oceans. Adelmans idea of the great pool was challenged by Weiner (1991), who used different correlation and regression techniques to test whether long-term contracts would indicate an integrated oil market. He explained that sellers can possibly engage in price discrimination. Bourbonnais and Geoffron (2007) said that Weiners results are consistent with the long-term strategies of securing energy supply adopted by many oil-importing countries. In other words, the global oil market is far from being a unified market, because many importing countries use long-term contracts to secure energy supply.
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