DarkStealth

Falling Dividends: Are Utilities Next?

Cap & trade will benefit utilities in proportion to their carbon intensity from their fuel mix. It should hurt utilities who get most of their power from coal, and benefit ones getting power from renewables. Regulators could simply pass the costs on to consumers (and this happened in the UK - a bunch of utilities raised customer rates to pay for carbon credits but were given the carbon credits for FREE, pocketing billions). However, that would appear to be a tax increase to ratepayers, which wouldn't be popular during a depression. And the entire point of a cap & trade system is to redirect dollars towards renewable forms of generation, like wind and solar. Companies with deep nuclear portfolios may benefit as well. So companies like FPL and CEG & some California utilities may do quite well, whereas coal-heavy utilities may end up losing a good portion of their profit margin.

Additionally, half the states now have renewable portfolio standards, requiring some percentage of their power to come from renewable sources over some time frame, like a decade. Note this is a _legislative mandate_, not something subject to the whims of companies who decide to cut back on spending by 3% due to a depression, and a national cap & trade system will turn this from a basic requirement for staying in business into a potential for making a profit off of slower utilities. If one utility is mandated to generate 15% of their power from renewables but generates 20%, they can sell that 5% to other utilities, most likely at a significant premium to wholesale electricity. Energy traders & merchant power producers w/ wind, hydro, solar & nuclear plants should get rich here. Puget Sound Energy is selling their renewable power to California utilities today, earning a tidy profit.

This renewables mandate is causing a huge scramble to build wind farms and install solar panels (with some utility scale solar projects proposed that rival nuclear plants in capacity). So the solar manufacturers like SPWRA and FSLR will benefit (especially SunPower - they've got the experience in installing the utility scale projects), as well as wind turbine manufacturers (Vestas, Gamesa, GE's wind division) & their component vendors (BWEN, Trinity). Nuclear plants may expand as well, but the construction time and potential for cost overruns will dampen enthusiasm for nukes. The biggest risk here is the credit market - if the utilities can't get financing, these renewable projects will greatly slow down. But the basic requirement for more renewable power generation isn't going away, and may become significantly more profitable with a cap & trade system.