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Energy Utility Companies Have It All Wrong

|Includes: American Electric Power Company Inc (AEP), BRK.A, D, DUK, ED, GE, IDU, NGG, SO, TSLA, VPU, WEC, XLU
Summary

Energy utility companies are lobbying for decreased incentives for solar panel use in residential buildings

This is short sighted, as the costs of energy producing infrastructure (ie.power plants) is very high, and demand for electricity will increase with the increase in use of Electric Vehicles

Cheap solar energy will rapidly decrease the value of electricity

Energy utility companies should be positioning themselves as the railroads of energy, facilitating distribution and storage rather than production.

The proliferation of solar paneling on residential buildings has often been accompanied by tax rebates and other incentives in order to encourage the use of solar panels.  

Some of these incentives include the requirement that the local utilities are required to buy back any excess power produced by these homes for financial credit towards the electric bills that may be assessed during their monthly billing cycles.

In many of these areas, some solar panel owners have become net energy producers, and may pay no money, and possibly receive income in some cases from the local utility companies.

Arguments against this type of "buy back" incentive include the proposition that these end users are receiving the benefits of the services of the utility companies and their infrastructure without paying anything towards their costs.

This forces the remaining net users to shoulder a larger burden of the maintenance of this infrastructure, and  has ben characterized as "unfair" to these end users who are net energy consumers.

Utility companies have been lobbying against these incentives with this rationale, among others.

Though projections for the increase in the use of electric cars and light trucks(referred to as EV's) are "all over the map, "  no one doubts that there will be a substantially higher number of these vehicles in use in the next 10-15 years.  

The quality  of EV produced by Tesla using the most modern manufacturing techniques will only be copied by companies that must produce similarly or perish.

EV's have some obvious and appealing advantages when compared to internal combustion vehicles.

Further, the performance characteristics of these EV's rival those of supercars costing many hundreds of thousands of dollars.

Few are going to want to spend half a million dollars on a Ferrari, Porsche, or Lamborghini that can be "smoked" at a drag strip(or stoplight) by an EV costing less than $100k.This will only expand the desirability of these cars.

There will be an   increase in demand for electricity  with this increased use of EV's.   Even without this excess demand,  power outages from imbalances of supply and demand are becoming more common.  This problem will become more acute.

The difficulties with  powering these   EV's, especially high energy consumption EV's such as trucks, is not only the electricity that will be consumed, but the geographic location of charging stations, especially on long distance routes.   

More batteries on these vehicles will increase range, but at the cost of more weight being carried for longer periods, with concomitantly more damage to roads, increased need for tires, more wear on engines etc.  Further, these batteries have a significant dollar cost component also.

Unlike gasoline, where the vehicle becomes lighter as the fuel is used, the weight of the battery is unchanged despite discharge over long distance

Trains currently provide the most cost efficient method of moving high weight objects long distances,  and while they could carry more batteries for these longer trips, this additional weight and cost will deduct from many of the savings the would otherwise be accrued.

The impracticality of solar panels on the roofs of these EV's will not be discussed, but if one thinks that is the solution to this problem, please google the subject. 

Utility companies face high fixed costs and  difficult regulatory barriers when constructing new power plants of any type.  In many cases these costs can exceed and run into the billions of dollars.

The "not in my back yard" attitude of many communities compounds the problems associated with building these types of plants.

The lobbying of utility companies to decrease incentives for residential solar users is, in the long run, inappropriate and not in their best interest.

While utility companies and their pricing is regulated, they are still in the business of producing profit for their shareholders.

Utility companies should be positioning themselves as the facilitators of the movement and storage of energy rather than the producers of such.

As the price of solar panels becomes lower, the cost of energy will also move in a similar fashion.

Though it will never reach zero, it may, during times of excessive production reach close to that.

Roughly 6% of energy produced by power plants in the US is lost in transmission.  Power from a renewable source that is non polluting, and is very cheap obviates that problem.

Even building and maintaining large solar farms requires large outlays of resources by whomever is building them.

Shifting part of the cost burden of these solar farms to a residential population that will also have benefit from  micro-local energy production and storage is a win/win.

Building electrical power lines and other infrastructure that could facilitate energy and information transfer is much easier to maintain, less costly to build, and has a lower regulatory burden than building a power plant.

How will electric trucks, trains etc be able to power themselves on long trips far from their home base?

Utility companies have the deep pockets, long term view, access to cheap capital and expertise to build this type of network.

Much like the railroads in days past (see reference below), the building of and monopolization of modern day power infrastructure will repeat, maintain, and cohere the traditional steady return on investment that investors  have come to associate with the stocks and bonds of the utility industry. 

It will be hard to say firmly who the winners and losers will be.  Many of the companies that are associated with the building of large power plants and will lose that business are also the ones that have the expertise to build and maintain the infrastructure that is mentioned in this article.

Much in the way that Microsoft became dominant, the first company that sets the standards and holds the intellectual property for a smart electric and information grid will have a formidable competitive advantage.   

This intellectual property need not be the best solution, just the first commonly used one.

Once it is set up, potential competitors and users will have to accommodate the constraints and standards of that system or have higher initial start up costs.

Certainly petroleum will be less necessary, and the highest  cost producer(including transportation cost) will be the loser here.

If one wants a more concrete example of someone who may  share this philosophy i.e.  that investing in the infrastructure of energy is compelling, one need look no further than Warren Buffett and the holdings of Berkshire Hathaway.

If one looks even more closely, you'll see that he likes railroads too. 

(an excellent, very brief and simple synopsis of the history of the railroad is at:http://www.let.rug.nl/usa/essays/1801-1900/the-iron-horse/what-was-the-impact-of-the-railroads.php)

Disclosure: I am/we are long BRK.B.

Additional disclosure: I have a Tesla and it rocks.