Not only Cuba has electric problems
- From: periodistalibre@xxxxxxx
- Date: 14 Jun 2006 09:59:38 -0700
Our US nation's economy is changing. After years of artificially low
energy costs, thanks to tight government controls and subsidies, prices
are starting to climb to their natural range.
As rates climb, American consumers and businesses are forced to adjust
their expenditures accordingly. As they do, the economy suffers.
There is no doubt the latest market "correction" is due in part to
the nation's energy reshuffle. Energy costs are high and it is
cutting into bottom lines. Investors are taking a hit.
Just a few years ago, electricity costs were nominal and were rarely a
business consideration. Today, on the other hand, they are a major
factor in where a company locates and how it does its business.
For some industries, rising electricity costs are extremely worrisome.
Profit margins across the globe are shrinking each time the price for a
kilowatt of electricity rises. For one industry in particular, the
situation is dire.
According to CIO magazine, the Internet and data industries are facing
monumental hurdles as the cost of doing business rises. The computers,
processors and servers used to store and transmit Web traffic and
business data consume huge amounts of electricity.
Data centers are becoming extremely important in today's economy.
Because of intense levels of outsourcing and offshoring, information
needs to be transmitted across the globe instantly.
The only way to get it done is through large warehouse-type buildings
filled with servers. Unfortunately, these buildings can use up to 10
times as much electricity as a large office building.
In fact, one data center can use more electricity than a small city of
40,000 people. One small town in Washington state was recently startled
when Microsoft and Yahoo announced they would be moving to town to take
advantage of its cheap electricity.
The two tech giants will consume roughly a third of the county's
power, over 90 megawatts of electricity per year.
With costs soaring, companies with huge power demands have no choice
but to locate in areas with cheap electricity. Many data centers are
being built close to hydroelectric dams and nuclear power plants. It
is the only way they can keep profit margins high.
As the world's computing needs continue to grow, the problems will
only get worse. The faster and more powerful a computer gets, the more
electricity it needs to run. Making matters worse, it takes huge
amounts of electricity just to keep the nation's data centers cool.
Recently, scientists at Lawrence Livermore National Laboratory learned
about the problem firsthand. Within minutes of firing up their
supercomputer designed to simulate nuclear reactions, the power company
was on the phone.
It wanted to know what they did to cause such a huge power demand.
When the power company notices you've turned your computer on,
you've got problems.
These researchers are not alone. Rackspace, a company that manages
remote servers for its customers, has seen its electricity costs soar
in recent years. It now pays a monthly bill of nearly $300,000.
Notre Dame, a college not known as a computing powerhouse, has to send
its local power provider a check for over $3,000 each month just to run
its campus' computer network. The more computers it adds, the higher
So what do investors need to know about rising electricity costs? For
starters, you absolutely must realize it is having a huge impact on the
business world. Years of artificially low costs are finally catching
up. Now we all must suffer.
Second, you should know that companies are desperately working to make
computers much more "fuel efficient." I would not be surprised if
we see companies like Intel (INTC:NASDAQ) and Advanced Micro Devices
(AMD:NYSE) marketing extremely efficient processors in the near future.
The demand is huge and is currently entirely unmet.
Just like cars have efficiency ratings, computers will too. Invest in
a company that can make the improvements possible, and you'll make
plenty of money.
As we move into the future, our economy will depend on intense
computing power. As more and more things move over to the electronic
realm, electricity demand will soar.
With power production barely keeping pace with today's demand, this
is going to be a great industry to watch.
I would love to know your thoughts on this subject. Drop me a line at
fng@xxxxxxxxxxxxxxx and let me know your experiences with rising energy
Enjoy your day.
Executive Editor, Fear and Greed
The Taipan Group's Fear and Greed is intended specifically for mature
investors with a strong sense of individual responsibility who want to
arbitrage different viewpoints to optimize their personal investment
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