Today, continuing from Smart money in alternative energy?Part 2: the solution or solutions configuration?, we will look at just one tiny facet within the complex energy problem?the generation of power. Assuming that in the long run, the generation of electricity through conventional fossil-fuel burning power stations is unsustainable due to environmental and fuel supply issues, what can be done? We do not really know for sure because we are not scientists and engineers. But we have some worthwhile ideas to offer.

Before we go into that, let us review the present conventional arrangements in power generation. Currently in most countries, electricity is generated centrally in power stations and then distributed to the rest. Let us call this the ?centralised power generation? model. One of the problems we can think of with this model is that a lot of energy is lost in the transmission of electricity from the power station to the destination.

There is an alternative (and more radical) model that we believe may possibly be a better idea for a world of scarcer energy and global warming. Instead of having power generated centrally, why not distribute the generation of power into a network of nodes? Let us call this the ?distributed power generation? model. The advantage of this model is that with locally generated power at the nodes (even homes can be nodes), there is no wastage of energy from the transmission of electricity. Also, from a security point of view, this model is not vulnerable to a single terrorist strike.

You have to understand that these two alternative models are not mutually exclusive. Think of them as a spectrum, with each end as one of the models. Now, the question is, which end of the spectrum will the future be likely to be? Those thinking in terms of the centralised power generation model will concentrate on technologies like nuclear power, clean coal, ethanol and so on. Those thinking in terms of the distributed power generation model will concentrate on technologies like solar, fuel cell, wind and so on. Therefore, your vision of the future will determine which alternative energy investments you are more likely to evaluate.

Which model do you think the future is likely to be?

Yesterday, in Smart money in alternative energy?Part 1: current energy quandary, we mentioned that:

Hence, the world is now facing a mounting energy problem, which if not solved, will sooner or later lead to a crisis. The good news is, opportunities are found where crisis are. As investors, we have to train our mind to see such opportunities.

Nowadays, as you keep your eyes and ears open, you will easily notice that energy seems to be a hot topic in the business world. Buzzwords including ?alternative energy,? ?renewable energy,? ?bio-fuels,? ?ethanol,? ?nuclear energy,? ?clean coal,? ?conservation,? ?solar energy,? ?wind energy,? ?geothermal energy,? ?hydro-energy,? etc are often mentioned in the press. No doubt, a lot of hot money are pouring into energy related projects and businesses. Therefore, when you see this, you should be under no illusion that we are still basking in a world of forever readily available and plentiful energy.

We (along with the above-mentioned hot money) believe that in the long run, with everything else being equal, energy is going to be more costly. This will have an impact on our current way of life. To put it simply, the problem is that there is not going to be enough environmentally friendly energy to satisfy everyone in the planet. For those who believe in the theory of Peak Oil, their views will be even bleaker indeed.

At this point in time, the world?s energy problem has yet to filter down into the consciousness of the average layperson on the street. When that day comes, it means that this issue is finally making an impact (whether positive, negative or neutral) so real and visible that its effects can be felt in everyday life. As investors striving after atypical excellence, it will be too late to do anything by then. Thus, now is the time to take action.

Now that we understand the problem, what about the solution? This is the tricky part.

Before we plunge into it, the next step is to understand the nature of the solution. Now, we wish to impress upon you one very important concept that you should remember if you cannot recall anything else in this article. That is, this problem is not simply the problem requiring the solution. It is a multifaceted configuration of problems (e.g. Peak Oil, supply constraints, geopolitical instability, environmental concerns, global warming, skyrocketing demand, costs, etc) that require a complementary multifaceted configuration of solutions. Thus, its complexity is not something we (nor anyone else, we believe) can fully understand, let alone address.

In the following articles, we will look further at the energy issue from the perspective of an investor. Stay tuned!