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A utility love thread......
#11
(03-01-2019, 11:21 AM)Otter Wrote: For essentially all of their history, Utilities have been the quintessential widows/orphans DGI stocks--regulated monopolies with reliable rate/dividend increases matching or slightly exceeding inflation. With the LCOE (Levelized Cost of Energy) cost of wind and (especially) solar dropping below that of gas generation, it seems this traditional business model that has worked for over a century is increasingly in doubt. Anecdotally, I have noticed a number of recent commercial developments using solar as a power generation source. That's certainly consistent with the rapidly decreasing price of the technology (it just makes good business sense):

https://www.businessinsider.com/solar-po...ase-2018-5

I am increasingly concerned that we are going to see major disruption in the traditional utility space in the coming decade. Sure, major industrial applications will continue to require large amounts of traditionally-generated grid power, but the trend in commercial (and I suspect soon for single-family residential) is going to follow the lowest LCOE. Developers who don't follow that trend will be at a competitive disadvantage.

What happens to the traditional utility model, with its huge capital costs and multi-year (or decade) planning, when a massive chunk of their customer base has its own grid that supplies all or part of its electricity requirements. Why bother with costly, wide-ranging power distribution networks that are a maintenance and liability hassle (just look at PCG's issues). Are utilities shaping up to be the electrical equivalent of CenturyLink, keeping a costly, inefficient network running for a shrinking customer base?

Thanks for posting my favorite sector thread.  On the surface that article sounds very logical.  I agree with the premise in a macro national view.  I am all about green, and it's irresponsible to not pursue it.  Here are few comments for discussion.

-Ever spent any time in Minneapolis?  You won't see too much solar yet and there is a reason for that.  What happens when it's -30F for a few weeks and the sun hasn't been seen lately?  A fair amount of wind, which has to be distributed on the grid.  Solar dependence is still "pie in the sky" up north.  We need to develop solar that works when it's cloudy, cold and snowing.  AZ and MN are a whole different world that will never be addressed with the same solution.   

-Coal is gonna die, we don't disagree on that.  Natty gas is much, much cleaner and it has a role for the rest of my lifetime IMO.  It requires a distribution network.

-And BTW most of my utility holding are way up north, and they are investing heavily in clean energy or I wouldn't own them.   At the very least it's a good hedge.

-I don't rule out the possibility we'll pass a Green New Deal act, and they will force rich folks from Phoenix to subsidize my home heating during winter because it's the right thing to do.  Smile
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#12
(03-01-2019, 12:15 PM)fenders53 Wrote:
(03-01-2019, 11:21 AM)Otter Wrote: For essentially all of their history, Utilities have been the quintessential widows/orphans DGI stocks--regulated monopolies with reliable rate/dividend increases matching or slightly exceeding inflation. With the LCOE (Levelized Cost of Energy) cost of wind and (especially) solar dropping below that of gas generation, it seems this traditional business model that has worked for over a century is increasingly in doubt. Anecdotally, I have noticed a number of recent commercial developments using solar as a power generation source. That's certainly consistent with the rapidly decreasing price of the technology (it just makes good business sense):

https://www.businessinsider.com/solar-po...ase-2018-5

I am increasingly concerned that we are going to see major disruption in the traditional utility space in the coming decade. Sure, major industrial applications will continue to require large amounts of traditionally-generated grid power, but the trend in commercial (and I suspect soon for single-family residential) is going to follow the lowest LCOE. Developers who don't follow that trend will be at a competitive disadvantage.

What happens to the traditional utility model, with its huge capital costs and multi-year (or decade) planning, when a massive chunk of their customer base has its own grid that supplies all or part of its electricity requirements. Why bother with costly, wide-ranging power distribution networks that are a maintenance and liability hassle (just look at PCG's issues). Are utilities shaping up to be the electrical equivalent of CenturyLink, keeping a costly, inefficient network running for a shrinking customer base?

Thanks for posting my favorite sector thread.  On the surface that article sounds very logical.  I agree with the premise in a macro national view.  I am all about green, and it's irresponsible to not pursue it.  Here are few comments for discussion.

-Ever spent any time in Minneapolis?  You won't see too much solar yet and there is a reason for that.  What happens when it's -30F for a few weeks and the sun hasn't been seen lately?  A fair amount of wind, which has to be distributed on the grid.  Solar dependence is still "pie in the sky" up north.  We need to develop solar that works when it's cloudy, cold and snowing.  AZ and MN are a whole different world that will never be addressed with the same solution.   

-Coal is gonna die, we don't disagree on that.  Natty gas is much, much cleaner and it has a role for the rest of my lifetime IMO.  It requires a distribution network.

-And BTW most of my utility holding are way up north, and they are investing heavily in clean energy or I wouldn't own them.   At the very least it's a good hedge.

-I don't rule out the possibility we'll pass a Green New Deal act, and they will force rich folks from Phoenix to subsidize my home heating during winter because it's the right thing to do.  Smile

Germany is one of the world's top installers of PV, behind only China, sitting at 5+ degrees latitude further North than Minneapolis, and generating over 6.5% of the nation's energy from that source at an average of 4.33 Eurocents per kWh. Minnesota has the capability to generate more kWh per area than Germany: https://www.cleanenergywire.org/factshee...rspectives.

Certainly solar will perform better in the Desert Southwest, but it is by no means uneconomic in places like Minnesota.

Edited to add - there are all sorts of additional issues with the German solar model (past subsidies and withdrawal of those subsidies), as that article makes clear, but the overall point remains - rapidly decreasing cost of power generating technology for wind/solar, together with cheap natural gas, has already effectively put coal out of business. If the trend continues at current cost reduction rates, then natural gas as an electricity-generation source also becomes threatened. Before the fracking boom, hardly anyone thought we would be where we are right now in terms of the coal market. Change can happen incredibly fast, and leave a lot of expensive developments/infrastructure investments predicated on the more expensive technology high and dry in a hurry.
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#13
Electrical costs in Germany have skyrocketed in the last decade as they've switched towards renewables. Germany has the highest electricity costs in the developed world at $0.33 per kwh, compared with just $0.13 in the US.
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#14
A couple of thoughts on Otters points.
Maybe slightly off topic but whatever.

There is definitely change coming to how electricity is handled. That is the main reason why I'm not too big on electric utilities, the reality is that (if you believe the science behind us changing the climate) then something needs to be done sooner or later. Whatever that something is, it'll be mandated by governments. Loads of European countries either have already set laws in place to abolish coal or are planning to do so. If you look at the USA for example, coal is something like 30% of the electricity generation... if you take that out you're going to have to pull a bigass bunny out of your magicians hat to replace it with. Political pull (either taxing one way of generating electricity or giving basically free money to other types of generation) will have a big effect on things going forward... and if you think you can predict what the politicians will do then good luck. :p

Then there is also the advance of technology, new things are being developed all the time and electricity is one area where you might have some significant changes. For all we know, the majority of electricity might not be even transported much less stored the same way in 30 years.

Then there is the difference between base load and peak load. You simply can not generate base load with wind or solar with the current storage options. In fact none of the current renewables are good enough for base load. Solar for example works perfectly as peak generation in Texas during the summer. The peak electricity demand is in the afternoon and that is when solar supplies the most electricity. But as you can imagine that does not work in many places. Wind is even worse.

While I have no doubt that renewables will become a more important part, the thing to remember is that unless someone invents a super good way to store electricity without losing too much in the conversion process, then renewables just cannot answer our consumption needs as they are variable and relatively unpredictable. For a good example you can look at Denmark. They use a lot of wind power and the swings in electricity spot prices can be ridiculous: Electricity might be basically free or it might cost 5 times (or more) of the average price. (which is, by the way, the highest in Europe). It all depends on the wind. And right now they are getting bailed out by their Scandinavian buddies who have a pretty good hydro setup so they can close the dam when the prices are low and open it when the price goes high. You can also compare their electricity import/export prices if you wish and you will see how destructive it is from an economical point of view.

Long story short: Careful what you invest in. All electricity is not the same and some forms, whether we like it or not (hellooo nuclear) are necessary in this world at this time. And while it goes without saying, better be wary of politicians. :p

edit: regarding Germany, since you guys have been talking about it. It's all nice and good when you start shutting down nuclear power plants in order to save the world. But then when you have to import massive amounts from France, where 70%+ is generated with nuclear, are you really saving the world or just costing your taxpayers?
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#15
It performs more than a little better in the SW. With further technological improvements I believe solar has a role most everywhere.
For now I don't see it in use up north. Homeowners and municipalities made an investment in it decades ago and shortly there-after they weren't even worth the cost to repair and were abandoned. In so many words, your likely response is "well that was then, and this is now, technology has changed". I agree, but it needs to be done intelligently. If I was in charge we would mandate in the SW now, where it is economical, and that would cause research investment that would make it work in other locales some year soon.

In response to your Germany example, you are citing 6.5% solar. That may very well make sense in MN as they have very long summer days. That doesn't solve winter power needs in any way. For now the distribution network must exist. That is inarguable.

I think the US screwed up by not investing heavily in solar research 30 years ago. But we are here now and things changed. We have an unending supply of natty gas which is WAY cleaner than coal. That is the cheap alternative that renewable need to compete with. I didn't say be cheaper, just be cheap enough to make it economical.
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#16
(03-01-2019, 12:36 PM)EricL Wrote: Electrical costs in Germany have skyrocketed in the last decade as they've switched towards renewables. Germany has the highest electricity costs in the developed world at $0.33 per kwh, compared with just $0.13 in the US.

At the present retail customer level, that is true:

https://www.reuters.com/article/germany-...SL8N1MZ30X

"The price of power in Europe’s biggest economy is politically contentious as production is cheap but state taxes and fees amount to 56 percent of the final cost."

My comments were focused on the cost of generation rapidly diminishing. The government is adding on to that cost, including to fund the build-out of new distribution networks.

Likewise, the cost of natural gas has plummeted with the advent of fracking technology, but you still have to build and maintain pipelines to get the raw input to downstream markets where it can be used as fuel. The overall LCOE cost is still cheaper than coal, which is why no one is building coal plants anymore. The raw input cost of renewable energy generation appears to be going down at a Moore's Law-ish rate, which affects total cost. Yes, the distribution networks have to be built out, and that is cost/maintenance additive, but those costs do not appear to have dissuaded record domestic U.S. investment in solar/wind (it is competitive, and will continue to be more competitive).
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#17
(03-01-2019, 12:45 PM)Otter Wrote:
(03-01-2019, 12:36 PM)EricL Wrote: Electrical costs in Germany have skyrocketed in the last decade as they've switched towards renewables. Germany has the highest electricity costs in the developed world at $0.33 per kwh, compared with just $0.13 in the US.

At the present retail customer level, that is true:

https://www.reuters.com/article/germany-...SL8N1MZ30X

"The price of power in Europe’s biggest economy is politically contentious as production is cheap but state taxes and fees amount to 56 percent of the final cost."

My comments were focused on the cost of generation rapidly diminishing. The government is adding on to that cost, including to fund the build-out of new distribution networks.

Likewise, the cost of natural gas has plummeted with the advent of fracking technology, but you still have to build and maintain pipelines to get the raw input to downstream markets where it can be used as fuel. The overall LCOE cost is still cheaper than coal, which is why no one is building coal plants anymore. The raw input cost of renewable energy generation appears to be going down at a Moore's Law-ish rate, which affects total cost. Yes, the distribution networks have to be built out, and that is cost/maintenance additive, but those costs do not appear to have dissuaded record domestic U.S. investment in solar/wind (it is competitive, and will continue to be more competitive).

You can't say that renewable power generation is cheap as long as this point from the article remains true: The run-away expansion of wind turbines and solar panels has made German prices the highest in Europe since 2013, not just because of surcharges but because more volatile green power capacity also necessitates new transmission grids and higher costs to manage them.

As I said, the nameplate power costs are cheap, but since you need backup generation for when the wind/sun don't cooperate, the real price is much, much higher.
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#18
Eric and I seem to be at some level of agreement on this. We both own Utes that are trying to make the world cleaner. It's the right thing to do. But at the end of the day this has to make some economic sense. 6.5% solar is one helluva a long way from a solution that makes me worry the grid is no longer necessary most of the year, in most locations. The US does not currently desire to be socialist yet and pay insane taxes to make clean energy work.
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#19
Ccrimsonking, even a poorly run regulated US utility is a viable business here. There are protective measures in place to keep you from going bankrupt. A more efficient Ute will buy you and save the day if it gets truly bad. Not stating they are all can't lose great investments, but the longterm risk is considered very low for a reason.
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#20
(03-01-2019, 12:50 PM)EricL Wrote:
(03-01-2019, 12:45 PM)Otter Wrote:
(03-01-2019, 12:36 PM)EricL Wrote: Electrical costs in Germany have skyrocketed in the last decade as they've switched towards renewables. Germany has the highest electricity costs in the developed world at $0.33 per kwh, compared with just $0.13 in the US.

At the present retail customer level, that is true:

https://www.reuters.com/article/germany-...SL8N1MZ30X

"The price of power in Europe’s biggest economy is politically contentious as production is cheap but state taxes and fees amount to 56 percent of the final cost."

My comments were focused on the cost of generation rapidly diminishing. The government is adding on to that cost, including to fund the build-out of new distribution networks.

Likewise, the cost of natural gas has plummeted with the advent of fracking technology, but you still have to build and maintain pipelines to get the raw input to downstream markets where it can be used as fuel. The overall LCOE cost is still cheaper than coal, which is why no one is building coal plants anymore. The raw input cost of renewable energy generation appears to be going down at a Moore's Law-ish rate, which affects total cost. Yes, the distribution networks have to be built out, and that is cost/maintenance additive, but those costs do not appear to have dissuaded record domestic U.S. investment in solar/wind (it is competitive, and will continue to be more competitive).

You can't say that renewable power generation is cheap as long as this point from the article remains true: The run-away expansion of wind turbines and solar panels has made German prices the highest in Europe since 2013, not just because of surcharges but because more volatile green power capacity also necessitates new transmission grids and higher costs to manage them.

As I said, the nameplate power costs are cheap, but since you need backup generation for when the wind/sun don't cooperate, the real price is much, much higher.

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). The fact that the cost of solar/wind generation is dropping exponentially is not in any doubt. The 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. The investment is being made because the technology is profitable, and (in the eyes of investors) a better use of investment capital than other forms of electricity generation. 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.
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