Eye on the Market | October 22, 2012 J.P Morgan The most important energy developments of 2012: how countries are planning for Independence Day adding up, it is unclear how Germany will accomplish all of its goals simultaneously. That’s probably why the ECB has been doing the heavy lifting in the European bailout: that approach doesn’t look like it will cost Germany any money (yet.....) A brief comment on investment opportunities in wind. A recent offshore wind farm project in Germany entailed a fixed sale price contract for electricity at a guaranteed rate of 119 Euros per MWh for 13 years. This compares to 45-50 Euros per MWh for electricity in shorter term German power markets. The investor takes operational and maintenance risks, and the risk of wind’s intermittency. With a large gap between the contract price and the spot market, there may be a “windfall” (sorry) for investors. However, wind investment risks have at times been under-appreciated. In a May 2012 report from Standard & Poor’s, the authors note that they had initially rated 7 portfolio and single-asset wind projects as investment-grade. All but one has since fallen below investment-grade, which S&P states is a result of “wind resource deficiency” (wind levels below what industry experts had cited as lower-bound estimates), and higher-than-expected operating and maintenance costs (repairing cracked foundations, jack-up rigs to fix gearboxes and blades, etc). On the latter point, S&P indicates that U.S. wind project O&M costs stabilized at rates that were 30% to 40% higher than forecast. II: Inherit the Wind: Japan’s energy dilemma after Fukushima Among the challenges Japan has faced in the wake of the tsunami and nuclear meltdown, one of the greatest relates to energy policy. Only 2 of its 54 nuclear reactors are now operating. While Japan may turn some back on temporarily, it expects to decommission all of them within 18 years. Like Germany, Japan plans to increase contributions from renewable energ