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A utility love thread......
#21
There are huge Federal tax breaks for construction of wind farms and for the power they produce. They aren't being built solely because they are profitable on their own standing.
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#22
(03-01-2019, 01:39 PM)EricL Wrote: There are huge Federal tax breaks for construction of wind farms and for the power they produce. They aren't being built solely because they are profitable on their own standing.

There are indeed tax breaks. Even unsubsidized, the cost of wind, and several PV solar applications, is cheaper than the cost for nuclear, coal and natural gas generation over the anticipated life-cycle of the generating asset (i.e., they are a profitable business opportunity even without the tax breaks, which investors surely take into account as a potential regulatory risk when building out the projects):

[Image: eLPpY7C.png]

https://www.lazard.com/media/450337/laza...on-110.pdf

Edited to add:

This is the slide that really illustrates my point as to the cost of generation trend that appears to continue apace (although the downward cost curve is flattening). I wish some of my DGI holdings were this effective at cutting costs:

[Image: HqShdai.png]
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#23
From your slide:

Certain Alternative Energy generation technologies are cost-competitive with conventional generation technologies under some scenarios; such observation does not take into account potential social and environmental externalities (e.g., social costs of distributed generation, environmental consequences of certain conventional generation technologies, etc.), reliability or intermittency-related considerations (e.g., transmission and back-up generation costs associated with certain Alternative Energy technologies)

And from page 4 of the PDF.

"(1) Analysis excludes integration (e.g., grid and conventional generation investment to overcome system intermittency) costs for intermittent technologies."

In other words, the numbers on your slide showing that solar and wind are competitive are the nameplate generation numbers, and not real-world operating costs.
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#24
I understand the area of disagreement, but still think it is a reasonable assumption to make that the cost curve continues its downward trend, which will continue to impact the operations of traditional utilities that rely increasingly on gas generation. I don't see the trend in lowered cost to generate onshore wind and certain PV applications changing any time soon, and I think the risk/benefit is already there for a substantial number of investors seeking to build out the infrastructure, with full awareness of the intermittent nature of generation or the cost of developing new transmission networks.

Absent some unknown major technological breakthrough akin to the original fracking boom, I don't see what substantially changes the cost curve for natural gas. Natural gas also carries the risk of fluctuation in input price. As demand increases for natural gas, cost should follow. Solar especially doesn't run up against that limitation. Enough solar energy hits the Earth in an hour to satisfy a year's worth of global energy demand. From a technological standpoint, we can't collect anywhere close to that output, much less use it.

I don't think traditional utes are extinct in five years, but I think the ones that generate the best returns for their shareholders will take the comparative costs of generation into account, together with the risk to the traditional generation/distribution business model, in their plans moving forward.

Frankly, I don't particularly care what technology is capable of generating power as cheaply as possible. I would be thrilled if fusion finally made it out of the lab tomorrow and put every other power generating method out of business because the cost of generation is insanely cheap. Reducing the cost of production is a boon to the economy as a whole, and likely to benefit all of us immensely as investors.
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#25
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.
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#26
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?
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#27
(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.
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#28
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.
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#29
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.
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#30
(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.  Smile 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.
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