Power Producers and Clean Energy p.I – 8/15/16

Power producers are facing a difficult question: when and how to transition to cleaner fuels. In this article, I’ll be summarizing the basic issues companies are facing as they try to answer that question.

The electricity used by utilities, companies and individual homes comes from primarily coal and, more recently, natural gas. As a result, power production is the biggest source of greenhouse gas emissions in the United States, according to the Environmental Protection Agency (EPA). Now, as climate change concerns gain traction and alternative energy gets more affordable, the industry is feeling pressure from regulatory and economic forces to change their business practices.

The Obama administration’s Clean Power Plan is in limbo after the Supreme Court issued a stay on EPA enforcement of the CO2 regulation. The SCOTUS issued the stay without addressing the merits of the case before the passing of respected Associate Justice, Antonin Scalia, that left the court split evenly between conservative and liberal justices with the Senate unlikely to approve a replacement justice until after the presidential election in November. On the issue of energy, the candidates are almost nothing alike with the Democratic candidate, Clinton, promising to maintain Obama’s policies while the populist candidate, Trump, has pledged to dismantle everything. Though knowing 100% which candidate will win is impossible, murmurs of a Clinton landslide are growing louder and power companies appear ready to accept the writing on the wall.

Economic forces are following a much more predictable path. According to Bloomberg New Energy Finance (BNEF), solar panel costs have fallen relatively steadily since the 70’s with no signs of letting up. Wind power costs have also fallen substantially though at a slower pace.

solar power

Prices for wind and solar power have plunged putting them in a position to compete with coal and natural gas on a cost basis.

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Competitiveness would still depend heavily on infrastructure, regulation, further technological improvements, and location, but solar and wind are looking like safer bets every year. Still, as many power producers have learned the hard way, the transition from coal to clean power has its own risks.

Many companies have made costly mistakes in their initial forays into clean power. From Solyndra to SunEdison, there are plenty of examples of investors getting burned by surprise technological changes, poor debt management, or some other issue. The next article will cover one power producer’s bad luck in its clean energy projects: NRG Energy.

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