A utility love thread......

[Otter]

And I've posted enough on this for the day (easy enough when you're puttering around with a head cold and nothing better to do), but this McKinsey study takes the Lazard report and adds some fairly thoughtful analysis as to how utilities can update their traditional business models to account for the ever-increasing competitiveness (due to cost declines) of these power generation technologies.

https://www.mckinsey.com/industries/elec...ricity-mix

I am very curious to know which of the Utes I hold will manage this transition intelligently, in a way that increases shareholder value. One of my holdings, Southern Company, appears to have these considerations built in to their business plan:

https://www.southerncompany.com/corporat...y-mix.html

No small feat to plan to increase solar from 22% to 30% of the company's total renewable production in five years. Also no surprise that the renewable power generation source seeing the largest projected growth (solar) is the one that is experiencing the steepest drop in the cost curve. Now, whether I trust Southern Company to execute intelligently is another matter. They certainly did a poor job with all the Vogtle plant cost overruns, and the stock price action has been pretty mediocre compared to the Utilities Index as a whole.

[fenders53]

Most of the better performing (share price) Utes do have this in their business plan, because it is some part of the future for sure. For the most part my local does not. I'll research the % by energy source but I am going to say nat gas and nuke still dominate. Berkshire bought my utility long ago and I didn't notice a big difference as a consumer.

On a side note my Ute bill is $125-150 month depending on the weather. Twenty years ago the bill was $100-125 so 2% annual increase is a close enough estimate. A modest sized home about 1800 sq ft. Only 20 years old so reasonably modern as far as build efficiency. I'd be very curious to hear what your bills are. I am going to assume utility costs are a much bigger issue in other parts of the US?

[Otter]

(03-01-2019, 05:01 PM)fenders53 Wrote: Most of the better performing (share price) Utes do have this in their business plan, because it is some part of the future for sure.   For the most part my local does not.  I'll research the % by energy source but I am going to say nat gas and nuke still dominate.  Berkshire bought my utility long ago and I didn't notice a big difference as a consumer.  

On a side note my Ute bill is $125-150 month depending on the weather.  Twenty years ago the bill was $100-125 so 2% annual increase is a close enough estimate.  A modest sized home about 1800 sq ft.  Only 20 years old so reasonably modern as far as build efficiency.  I'd be very curious to hear what your bills are.  I am going to assume utility costs are a much bigger issue in other parts of the US?

I'm in Texas in a ~2,500 square foot house that's 15 years old, and paying roughly 11.5 cents per kWh. My bills range from under $100 in the Winter (gas furnace, which barely gets used) to almost $300 in the Summer, and that's with one of the HVAC Units having been recently replaced for a new, fairly efficient 18-SEER model. Central air is a necessity down here, though.

[crimsonghost747]

Otter Wrote:he build-out rates for new wind and solar projects in places like Texas are a great example of this. The wind/solar boom in Texas is not being driven by bureaucrats.

So you're saying that there aren't subsidies (both state and federal) that are being used?

Otter Wrote:I understand the bolded, but Germany's retail power pricing issue cannot be divorced from the fact that more than half the retail cost is being driven by state taxes and fees (so, regulatory policy seems to be substantially responsible for the problem).

Otter Wrote:I don't think these underlying market forces are going to diminish just because the German government has made some interesting choices with respect to the regulation of their domestic electricity market.

Firstly, there are a lot more facts to this than one reuters article. We could even start with talking about a "domestic electricity market" in Europe... this is outdated by about 20 years. It's pretty well connected mess and even dodgier solutions (such as Denmark relying on wind power) seem to work quite well since the markets are so well connected. Nordpool has a good list of spot prices around northern Europe, you can see how even the prices in different regions stay and if you fancy they also have a map where you can see the current flows of electricity throughout northern Europe.

Then when you talk taxes, fees etc you also need to understand that they are the norm, in fact the EU even mandates certain amounts of taxes on different energy sources. In other words, yeah Germany has taxes and fees on their electricity, so does every country in Europe. But this isn't so much of talk about what Germany has or has not done but rather talk on how the whole European electricity market functions and the problems that high level of subsidised renewables presents to it. But let's get to that at the end where I talk a little about base load.

Solar and wind are getting cheaper. Yes, and that will definitely not go away. But they still depend, on every single country I can think of, on government subsidies though I'm sure there are exceptions to this. Even India, a country with a great location and a massively growing demand for electricity is handing out subsidies to their solar power. The big picture is clear, they need subsidies to be competitive. At least in Europe it's the subsidies, not economics, that are driving the massive amounts of investments.

The other MAJOR issue, even bigger than the economical one, is the fact that as I already mentioned renewables CAN NOT function as base load in the current world we live in. In my opinion you need one of two things for that to happen, a new super efficient (and cheap to build) way to store electricity, or a grid that has basically the majority of the planet connected to it. I don't think either is happening anytime soon. Maybe someone will come up with a feasible third alternative but until then we can forget about renewables being used as base load. Then you add in the fact that the geographical areas where renewables work as peak load are very limited.

So yes they can be used to generate electricity but they can't be used for base load and they can't be used for peak load, so they can only act as complimentary generation method. You need base load (nuclear is probably the best right now) and peak load (massive hydro is ideal but isn't feasible in the majority of the world. So natural gas sounds like a good option) if you want the lights to stay on.

[fenders53]

I think I already said it but I am glad you brought the subject up Otter. A utility investor needs to be informed, and understand where the financing comes from, because the funding source could change on us. I admit I don't have a firm enough grip of the facts. I've read enough Eric articles to believe he has researched this considerably. That was an informative post Crimson. You have mentioned you are averse to utility investing. With a better understanding of our legal monopoly in the US, you might consider throwing a few bucks in one of our majors, or maybe not.

It all comes down to the tech needs to stand on it's own in the end. We can't subsidize everything, and health care seems to be the most immediate need. I very much want solar to work, and I think it will soon. I need some proof it is competitive in most climates. This is anectdotal but I know of only one location up north where it provides 50% of the power. At the state college my daughter attended. I'm impressed with the engineering, but I know I funded the build.

Wind farms are getting common here. Iowa isn't particularly windy but it seems to work in the wide open spaces because there are large wind farms with 100 turbines. I know some farmers that signed contracts and farm around the turbines as they don't take up too much corn and soybean growing space at the base. I know that Long-term contracts are signed like 25 yrs. When they first became popular I visited one by a public road. There was a large plaque. I was very surprised to see it was owned by a Japanese company I had never heard of, and not the utility that services us. Why doesn't the power company run this? I suspect the finances are complicated.

Nuke is out of style here, though it seems very safe. Natural gas is a by product of oil drilling. Distribution to the entire country is not solved to my knowledge, but we export it. I think that is what renewables have to compete with to be viable. As Crimson stated hydro is efficient, but that doesn't work everywhere, and has it's own environmental problems. I am a fly fisherman and trust me dams are the devil as they threaten some important species. `

I am all for advancing renewable energy tech, but this is not the obvious decision some wish it was at this time. Electric card wiil become dominant first, and I am pretty sure the innovator in that industry is in trouble with consumer incentives reduced or eliminated. Gasohol is another renewable that has fallen off the radar. Iowa heavily depends on it and it's been subsidized since day one. No real incentive to make it stand on it's own versus the petrol industry. After a few decades I thought it would.

[crimsonghost747]

(03-02-2019, 12:35 AM)fenders53 Wrote: You have mentioned you are averse to utility investing.  With a better understanding of our legal monopoly in the US, you might consider throwing a few bucks in one of our majors, or maybe not.

Actually I quite like utilities but when it comes to electricity generation you need to be really really careful. Renewables are certainly a fad right now but it is still very much a political game. Natural gas is looking good for the moment (in my opinion) but it's not exactly clean either and it's not exactly easy to replace coal with it as the gas turbines are much more geared towards peak load while coal is used exclusively for base load. But on some level it's doable and it's already being done, I googled it and 2015 was the first year that gas power plants had an uptime of over 50% in the USA. Nuclear is absolutely amazing but the massive upfront costs do not fit together with how fast politics change. As funny as it sounds, electricity generation is driven by politics instead of economics.


Monopolies are always nice and handy.   I wouldn't mind investing in a company that deals with transmission of electricity. 
And I'm already quite heavily invested in the water side of things as I believe it's much much safer.
Also currently looking at some waste management ones, that should be a growing business.

[fenders53]

Politics indeed, there is something for everyone to lobby for or against.  About ten different groups quickly come to mind.  

Back to the efficiency, Otter's chart illustrates big strides for wind this decade.  I had read it improved but it is an impressive cost reduction.  The R&D will come as it is employed by the power generators.  I think that's a good thing, even if it needs a backup.  No reason it shouldn't be part of the mix where it works.  People don't want to see the entire landscape dotted with turbines of course.  It's the put them in others peoples back yard thing.     

Solar is what disappoints me most.  It was hyped to consumers in the 1970s and the cost efficiencies ares still not here, even with much improvement.  I remember the salesman's pitch to my father in the 1980s.  The price was $25,000 for his small home.  Natural gas prices were supposed to increase 500%.  That never happened. Looking back, he would have needed a 75%+ subsidy for it to pay back in any reasonable period of time.  I hope they continue to improve it so it can be viable without the subsidies.  Our new Congress may move that along soon.   Same with EV autos as affordable storage tech isn't there yet either.

[NilesMike]

The only alternative replacement for fossil fuels is nuclear, not wind, solar, oceanic waves, hydro.

[fenders53]

(03-02-2019, 09:35 AM)NilesMike Wrote: The only alternative replacement for fossil fuels is nuclear, not wind, solar, oceanic waves, hydro.

If you qualify that statement with "complete replacement", it's true for the foreseeable future.  Unfortunately new nuclear projects seem to be mostly off the table until renewables are given a chance.  Most of the the power companies I own are making renewables a larger percentage of their total output agrees.  The stock performance indicates investors are on board with the plan.

[fenders53]

Otter 

I found the article linked below interesting.  It seems my home state is at 37% wind power for electricity, and expected to hit 40% in 2020.  Found another article that list Iowa as highest in the US.  Now before you consider that complete surrender, it has to be researched more for actual cost comparisons. I admit this sounds encouraging, and higher than I realized while living here. I already told you my Ute bills are low.  That said, here are some facts, or what I believe to be facts, that add some clarity to the stats.    

-Iowa passed a law in the 1980s that forced the Utes to invest in wind power.  What that means as far as subsidies, I don't know?
-We are one of the windiest states in US, top ten I believe.
-only 3 million population, lots of wide open spaces to keep wind farms away from the few populated areas.
-many farmers willingly allow turbines on their private property because of the longterm income. (how much is tax money) 
-We use natty gas for heat, which is probably half our utility needs.  It's a fact if you convert your home to electric heat, water heater and dryer, your total utility bill is substantially higher.              
-Keep in mind Iowa also leads the nation in ethanol production for decades, which is forced on everyone else in the US via subsidies and laws the EPA is behind.  It is NOT more cost effective than the gasoline it displaces, except during the times oil prices spike very high.  The last stat I read years ago was it typically costs $1.05 to make $1.00 worth of ethanol.  The hope was technology would correct that in a short time.  
-It's a fact that ethanol is cleaner energy.   
- I think the reality is subsidies can make technology "lazy".  Fossil fuels are not easy to compete with on a completely level paying field.  The farmers did get more efficient though as their production per acre is FAR higher than the 1970s.  Now ADM needs to make the alcohol more efficiently and still pay us DGI guys.   Otherwise this is just another inefficient government program.               

https://en.wikipedia.org/wiki/Wind_power_in_Iowa



.....

[NilesMike]

(03-04-2019, 08:34 AM)fenders53 Wrote:              
-Keep in mind Iowa also leads the nation in ethanol production for decades, which is forced on everyone else in the US via subsidies and laws the EPA is behind.  It is NOT more cost effective than the gasoline it displaces, except during the times oil prices spike very high.  The last stat I read years ago was it typically costs $1.05 to make $1.00 worth of ethanol.  The hope was technology would correct that in a short time.  
-It's a fact that ethanol is cleaner energy.   

.               

https://en.wikipedia.org/wiki/Wind_power_in_Iowa



.....

Burning corn for fuel has to be one of the stupidest ideas the government has ever foisted upon us.

[fenders53]

(03-04-2019, 05:28 PM)NilesMike Wrote:

(03-04-2019, 08:34 AM)fenders53 Wrote:              
-Keep in mind Iowa also leads the nation in ethanol production for decades, which is forced on everyone else in the US via subsidies and laws the EPA is behind.  It is NOT more cost effective than the gasoline it displaces, except during the times oil prices spike very high.  The last stat I read years ago was it typically costs $1.05 to make $1.00 worth of ethanol.  The hope was technology would correct that in a short time.  
-It's a fact that ethanol is cleaner energy.   

.               

https://en.wikipedia.org/wiki/Wind_power_in_Iowa



.....

Burning corn for fuel has to be one of the stupidest ideas the government has ever foisted upon us.

In retrospect, probably right up there on the list.  It sounded good pretty 40 years ago.  It does burn cleaner.  It lessened our dependency on foreign oil at a time that was needed.  And the struggling AG industry was going to be assisted one way or the other, as we are not about to stop feeding ourselves, nor should we.  

But that was then, and this is now.  I thought surely the technological efficiencies would come.  After XXX time they should have dialed back subsidies and it stands on it's own, or it just goes away.  Maybe it could stand on it's own, though I no longer believe that.  What is ADM's incentive to invest significantly in research, when it's clear they don't have to.  Or maybe they have, and know almost break even is as good as it gets?  I don't know the answer to that question.  I do know the BTU content of grain alcohol is less than gasoline.  Ethanol cost needs to get to the gas station 10% cheaper, just to make it a tie, and they haven't been able to pull that off.

Now back to utilities.  It's time we know for sure if solar is truly viable. Lets mandate it in AZ where Otter lives and see if it has a shot of working stand alone. Seriously though, there are some good documentaries on Denmark on youtube. They attempted to go all in on green. It is interesting how it is playing out. Spoiler alert, for now they still need their nuke power backup in a major way.