Why are “utility investors and renewable energy investors… like oil and water”?

Guest post by David Middleton

nrg01

It was supposed to be an easy transition for NRG Energy (NYSE:NRG) from utility giant to renewable energy powerhouse. The company had billions in cash flow coming in from fossil fuel plants that could then be turned around and invested in wind, solar, electric charging stations, and energy storage. Simple enough, right?

The problem for NRG Energy and former CEO David Crane is that utility investors and renewable energy investors are like oil and water. They simply don’t mix, and neither one quite understands the other. So, less than two years after launching a brand-new Home Solar business and putting a huge focus on clean energy, the company is shutting down parts of its solar business and looking into strategic alternatives after Elliott Management and Bluescape Energy Partners were given seats on the board of directors. Don’t be fooled: NRG Energy is heading for a breakup because dirty and clean energy just can’t live together.

[…]

A transition gone wrong

It’s harder than it seems for fossil fuel companies or utilities to make a transition to new, cleaner forms of energy. The investment structure and incentives for the two are just too different to coexist. Fossil fuels and utilities are all about cash flows and finding ways to make money off the status quo.

Renewable energy, particularly energy production on rooftops, is about breaking the energy status quo and replacing it with more individual independence. And breaking the traditional energy business doesn’t always come with predictable cash flows or installations each quarter.

The two strategies are simply at odds with each other, and NRG Energy abandoning most of its renewable business is a casualty of the realities of the energy industry today. Old and new forms of energy just don’t mix under one roof and NRG Energy found that out the hard way.

[…]

The Motley Fool

Hybrid companies face strong headwinds on Wall Street because the analysts and investors often find the business models to be too complex.  I worked for a hybrid company (marine contracting and oil & gas exploration & production (E&P)).  It seemed like a good model.  The marine contacting parent company operated a fleet of ships involved in all phases of offshore well & pipeline servicing.  Our E&P subsidiary generally had priority access to the ships and the parent company had a steady stream of work during periods of low activity.  However, even though this hybrid was within one industry, the service and E&P sides require considerably different business models… But, at least both sides of the industry “are all about cash flows and finding ways to make money off the status quo.”

In the case of NRG and its solar subsidiaries, they didn’t even have that commonality:

“Fossil fuels and utilities are all about cash flows and finding ways to make money off the status quo. 

Renewable energy, particularly energy production on rooftops, is about breaking the energy status quo and replacing it with more individual independence. And breaking the traditional energy business doesn’t always come with predictable cash flows or installations each quarter. 

The two strategies are simply at odds with each other…”

Is it possible for a business without “predictable cash flows” to remain a going concern without corporate welfare?

Since my question will probably yield nonsensical comments about the fossil fuel industries being dependent on subsidies, I am attaching a discussion of energy subsidies.  I put most of these notes together several years ago.  So, some of the information is dated, but the principles still hold true.

Energy Subsidies

In 2007, the sum total of Federal energy subsidies was $16.6 billion. This included direct expenditures, tax breaks, R&D expenditures and electricity programs like the TVA. About $2.1 billion of the 2007 subsidies went toward natural gas and petroleum liquids, $3.4 billion went for coal and $5 billion went toward renewables and conservation.

The “subsidies” to the oil and gas industry amounted to ~3 cents per million BTU of energy produced. Solar and ethanol/biofuels respectively received $2.82 and $5.72 per million BTU…

A barrel of oil yields ~5.6 million BTU. Oil “subsidies” amounted to ~17 cents per barrel… About 0.3%.

In 2007, solar and wind subsidies amounted to $24.34 and $23.37 per MWh, while coal and natural gas respectively received $0.44 and $0.25 per MWh…

The wind and solar subsidies generally consisted of transferable tax credits, direct expenditures and loan guarantees.  The oil and gas “subsidies” consisted of standard tax deductions and asset depreciation.

The Myths About “Big Oil” Subsidies

Oil And Gas Tax Provisions Are Not Subsidies For “Big Oil”

JAN 2, 2013

David Blackmon , CONTRIBUTOR
I write about issues impacting the energy sector

“Now my recollection of what a subsidy means is when you are given money to do something. I guess when I drilled 17 dry holes in a row I missed that pay window. No one sent me a check.” – Harold Hamm, Chairman and CEO of Continental Resources

The ongoing debate in Washington over the possible repeal of what news media outlets commonly refer to as “subsidies” to the oil and gas industry has been an ongoing source of amusement and consternation to those who work in the industry for four years now.  It’s somewhat amusing given the reality that, as Harold Hamm told a recent congressional hearing, the oil and natural gas industry does not actually receive any tax “subsidies” from the federal government, but frustrating because pretty much no one in the news media ever reports on the subject accurately.

The truth is that the oil and gas industry receives the same kinds of tax treatments that every other manufacturing or extractive industry receives in the federal tax code.  There is nothing uncommon or out of the mainstream of tax treatments about any of the provisions that have been repeatedly proposed for repeal.

So how did all of this misinformation get started?  It all began in 2009.  Within days of being sworn in as the nation’s 44th President, Barack Obama ordered his staff to scour the tax code for any provision that was relevant to the oil and gas industry, and promptly began proposing them for repeal.  The oil and gas industry has always been an easy target for political demagoguery, and that dynamic has played out repeatedly and consistently in this Administration.

[…]

Forbes

Oil companies get to write off certain geological and geophysical expenditures as expenses, rather than having to depreciate them over time as capital expenditures. They also get to treat intangible drilling costs the same way. They aren’t being given anything.

Let’s look at some of the “special tax breaks”…

Definition of ‘Intangible Drilling Costs – IDC’

Costs to develop an oil or gas well for the elements that are not a part of the final operating well. Intangible drilling costs (IDCs) include all expenses made by an operator incidental to and necessary in the drilling and preparation of wells for the production of oil and gas, such as survey work, ground clearing, drainage, wages, fuel, repairs, supplies and so on. Broadly speaking, expenditures are classified as IDCs if they have no salvage value. Since IDCs include all real and actual expenses except for the drilling equipment, the word “intangible” is something of a misnomer.

Investopedia

IDC are expenses, not invested capital. Tangible drilling costs are invested capital.

Unlike most capital expenditures, IDC retains no salvage value after the expenditure. This is why they are treated as expenses, rather than capitalized, for tax purposes. Tangible drilling costs have to be capitalized and then depreciated over the life of a well.

If IDC were capitalized, the deduction would be spread out over the life the well rather than in the year of the expenditure. Either way the costs would be deducted from revenue.

All corporations get to deduct expenses and depreciate assets. Treating IDC as assets to be depreciated would be singling out the oil industry for special punitive taxation. The current system treats the oil industry the same way as all other industries.

The other big fake subsidy is depletion allowance. This is the manner in which the value of oil & gas reserves is used to calculate the depreciation schedule for the capital expenditures related to developing those reserves.

Introduction

Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. The depletion deduction allows an owner or operator to account for the reduction of a product’s reserves.

There are two ways of figuring depletion: cost depletion and percentage depletion. For mineral property, you generally must use the method that gives you the larger deduction. For standing timber, you must use cost depletion.

IRS

Here is a very simplified example of cost depletion:

I am not an accountant, nor do I play one on TV.  So, this example of cost depletion is extremely simplified. Let’s say, a company spends $5 million for a lease in the Gulf of Mexico, spends $70 million drilling and completing a well on a 10 million barrel discovery and then another $200 million to put it on production.

At that point they have capitalized costs of $275 million and an asset worth $825 million (1/6 overriding royalty interest, ORRI, to the Feds) at $100/bbl. (I put this together in 2013, when oil was around $100/bbl).

During the first year of production, they average 5,000 BOPD and their lease operating cost is $85,000/month. They would gross ~$180 million, ~$30 million would go the the Feds in royalty payments and the lease operating cost would be ~$1 million. That would leave them with $150 million in pretax income.

Cost Depletion = S/(R+S) × AB
S = Units sold in the current year
R = Reserves on hand at the end of the current year
AB = Adjusted basis of the property at the end of the current year
Wikipedia

Year 1
S = 1,825,000 barrels of oil.
R = 8,175,000 barrels of oil.
AB = $275,000,000

CD = $50,187,500

The cost depletion for year one would be about $50 million.

The CD would be the same each year.

Year 2
S = 1,825,000 barrels of oil.
R = 6,350,000 barrels of oil.
AB = $224,812,500

CD = $50,187,500

Ignoring decline, the well would produce for 5.5 years at 5,000 BOPD.

5.479452055 x $50,187,500 = $275,000,000

Cost Depletion = Adjusted Basis.

The percentage depletion allowance can result in the oil company being able to deduct more than the adjusted basis because it is based on a fixed percentage of revenue. It can also lead to a smaller deduction. Major oil companies are generally not allowed to use percentage depletion. The main value of percentage depletion is that it makes stripper wells and other end-of-life fields more economic.

If the oil company could deduct the full cost depletion, they would pay 35% of $101,895,833.33 worth of income taxes on that production… $35,663,541.67 per year to the Feds.

So the Feds would make $5 million from the lease bonus and $66 million in royalties and income tax per year for 5.479 years… A total of $367 million… 39% of the oil company’s gross revenue minus its costs ($558 million).

Even after all of the so-called tax breaks, the oil company’s tax rate would be higher than the statutory 35%. This is hardly a real subsidy.

ExxonMobil Pays No Income Taxes

“Last year, ExxonMobil made $19 billion in profit. Guess what. They paid zero in taxes. They got a $156 million refund from the IRS.”

Bernie Sanders on Tuesday, November 30th, 2010 in a Senate floor speech

In 2007, ExxonMobil paid $29.9 billion in total income taxes, including $4.5 billion in US Federal income tax. ExxonMobil’s 2007 Federal US income taxes were twice as much as the entire industry’s “subsidies.”

The oil industry is one of the most heavily taxed industries in the world…

Even in the near-depression year of 2009, US oil companies had an effective income tax rate greater than 40%.

In FY 2009, ExxonMobil paid $25.9 billion in “sales-based taxes” and $34.8 billion in “other” taxes.  After all operating expenses, XOM had $34.8 billion in pretax earnings. They paid $15.1 billion worth of income taxes on the $34.8 billion. ExxonMobil does not generate much revenue from gas station sales ($1.8 billion in downstream earnings). Most of its “sales based” taxes were sales taxes on goods and services that it purchased in conducting its business.

Other taxes: $34.8 billion
Sales-based taxes: $25.9 billion
Income taxes: $15.1 billion
Net income: $19.3 billion

State, local and national/federal governments confiscated $75.8 billion in “profits” from ExxonMobil’s business activities in 2009… Those governments invested $0 in their take of XOM’s “profits.”

ExxonMobil earned $19.3 billion from its business activities in 2009… ExxonMobil’s owners had to spend $291.3 billion in order to earn $19.3 billion.  With their total tax take of $75.8 billion, governmental entities made $4 for every $1 that ExxonMobil made in net profit.

When profitable, oil companies pay an effective tax rate US on income of ~40% to ~45%. Their effective tax rate on income earned outside of the US is ~60% to 65%. The effective income tax rate on most US corporations is ~15%… About 1/3 the effective rate on the oil industry.

Most of ExxonMobil’s income taxes are paid overseas because  most of their income occurs overseas. Large oil companies like ExxonMobil tend to earn most of their income overseas because they can generate a lot more gross revenue. Unlike these United States, countries like Angola and Brazil were smart enough not to put their geological provinces with the potential for giant oil discoveries off limits to exploration.

Real Subsidies

The Production Tax Credit (PTC) and Investment Tax Credit (ITC)

Note: These are not tax deductions; they are tax credits.

Q.What’s the difference between a tax deduction and a tax credit?
A.Deductions reduce taxable income and their value thus depends on the taxpayer’s marginal tax rate, which rises with income. Credits reduce taxes directly and do not depend on tax rates. However, the value of credits may depend on the taxpayer’s basic tax liability. Nonrefundable credits can reduce tax to zero but any credit beyond that is lost.

Tax Policy Center

These are direct subsidies…

Investment Tax Credit Vs. Production Tax Credit

by Kevin Doran

Tax credits are dollar for dollar reductions in a company’s tax liability that aim to promote or stimulate economic activity in a particular sector, with the energy industry being a prime example. State and federal governments can use tax credits to encourage investments or practices they believe are beneficial for society as a whole. While the end goal is the same, tax credits come in a variety of forms, including investment tax credits and production tax credits.

Investment Tax Credit

An investment tax credit provides a direct tax rebate of a certain percentage of the investment in a qualified asset or business. Businesses can take advantage of these credits by investing in assets or in other businesses that meet the requirements. The tax credit takes the form of a rebate that mitigates the investor’s state or federal tax liability. Generally, the credit is a set percentage of the amount that was invested. For example, the federal government offers an investment tax credit of 30 percent for investments in solar, fuel cell and small wind technologies.

Production Tax Credit

A production tax credit provides a tax rebate based on the amount of production by a certain business. For example, one of the most common production tax credits at the time of publication goes to wind energy producers and producers of other alternative energy types. A state government may offer a tax credit to a business operating a wind farm or solar array; it might take the form of a flat amount per kilowatt hour of energy generated by the facility. The idea is to help more expensive forms of energy production compete with petroleum and natural gas.

Monetizing Tax Credits

Many small businesses don’t have enough tax liability to benefit from the full amount of the tax credit, and most credits will only reduce liability and are not refundable. Instead of directly taking advantage of the credit, a business with a large credit and small tax liability can use the credit to raise financing from a third party investor. Since the tax credits are generally transferable, the business that has the credit can sell it to an investor in exchange for a percentage of the credit’s value. For example, a credit for a tax rebate of $10,000 can be sold for $8,000 to an investor. This means the investor can apply the credit to his tax liability, and the business can use the cash immediately in its operations.

Production Tax Credits Controversy

One key difference between production tax credits and investment tax credits is that one continues to pay out based on the amount of a product produced, such as wind energy, while the other requires actual dollars to be spent to gain the benefit of the credit. Some argue this has led to distortions — to producers, like wind energy companies, offering the energy they produce at prices below the cost of production because the production tax credit will more than make up for the loss. In wind-rich regions like Iowa, the ability of wind power producers to supply electricity at a loss has forced other energy producers to drive their prices down as well, discouraging investment in these industries. Critics argue that production credits merely shift the cost of production onto taxpayers as opposed to consumers and damages competition from other forms of production.

Houston Chronicle

Wind and solar would not, in most cases, be viable without the PTC and ITC.  This isn’t necessarily a bad thing.  Wind works very well, where it works, Texas is a good example.

Externalities, like the Socialist Cost of Carbon, are not discussed in this post because they are mythical.

The featured image is from the TMF article.  Why would any sane person ruin a terracota tile roof like that?

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141 thoughts on “Why are “utility investors and renewable energy investors… like oil and water”?

  1. Depreciation just means that the same tax break is spread out over a number of years instead of being taken in just a single year. The total amount a company gets to write off is still the same.

    • Because of inflation though, the actual value of each year’s depreciation decreases every year. So in reality, the company does not get to write off the same amount as it spent. The dollars devalue over time.

    • It is reasonable to depreciate an asset that can get resold. Those assets are usually “wasting assets” of some sort that have a physical presence. Buildings, ships, cargo containers, fleet vehicles, and so on are examples. Capitalizing or depreciating one off assets, or even worse salaries, very often distort the earnings of a company significantly. While over the long run the amounts are indeed the same, depreciating costs that should be expensed creates an artificial boost to earnings. Please always remember that companies carry two sets of books if they are publicly traded. The first set is a set using GAAP. The second set is the set that they have to maintain for taxes. Not all tax law accounting is GAAP and not all GAAP is tax law accounting. Sadly, it is often the case that neither set reflects reality. Buyer beware.

      • At this time I had no desire to debate whether depreciation is good bad or indifferent, or what kind of depreciation schedule was optimal.

        My understanding is that most depreciation schedules are linear. If it’s a 10 year, depreciation, you depreciate 10% per year till it’s gone. I have heard proposals for front loaded schedules for some items (like vehicles) that lose the bulk of their value in the first year or two.

        It’s a complex subject that is worth a college level text book or two.

      • It’s not really all that complicated. Depreciation is based on the GAAP matching principle. You take a front loaded cost and match it against the revenue that will be generated with it by spreading it out over the expected period of time you expect the asset to be generating revenue.

        As someone stated earlier, you have two sets of accounting books. Your GAAP books usually use a straight line schedule. The second set of books are your tax books. What you use here depends on asset classification. There are IRS guidelines that tell you what you are allowed to use for tax depreciation. On short lived equipment or investments the government wants to incentivize, a lot of times you get a MACRS schedule, which is a front loaded depreciation curve. Otherwise you usually get a straight line schedule over a proscribed number of years.

    • You are forgetting the time-value-or-money. Payouts several years in the future are worth less than having the money now, and the value depends on the implied interest rate.

      • I thought about that, but I wanted to keep it simple and just address those people who believe that depreciation is some kind of gift to companies.

    • I don’t know of a single business or entrepreneur that would not immediately jump at the opportunity to abandon completely their government subsidies.

      I have a business which employs just me. I have to spend money to acquire the means to conduct my business. That means I might have to buy a new lens for my cameras to take pictures or other data that I can’t take now.

      So I have to take money out of my pocket to buy that lens. My tax man won’t let me deduct the price I paid for that lens from what income I am able to generate as a result of buying that new lens.

      He makes me “capitalize” that cost, so I can only deduct a fraction of my expenses . So that means that each year I end up paying taxes, on profits that I never even realized, let alone got any benefit from.

      I’m out the cost of a lens, and the tax man acts as if it is he who owns my lens.

      Hopefully under the new business savvy leadership we now have in the USA, businesses will be allowed to expense their costs, and I will not have to defend my business from idiots; excuse me, that’s total idiots, who think the government is paying me money to run my business. They aren’t paying me a dime to be in business. And they would make even more money from me in taxes, if they would just get off my back and let me run my business in a sane fashion.

      The Federal Treasury is the largest single beneficiary of fossil fuel businesses; they get far more than the owners of the business (share holders) do.

      G

      • You are correct, George, imo.

        The key flaw in the business tax code is the taxation of “Profits”, which is an artificial accounting construct that has certain merits, but should not be the basis for taxing businesses.

        Rationally, business taxation should be based on “Net Cash Flow”, which is Revenue minus [Operating Expense (Opex) AND Capital Expenditures (Capex)] – in effect, allow businesses to “expense” their Capex rather than depreciate it over many years for tax purposes. I recall farmers and fishermen are allowed to do this in Canada, but other business are usually not.

        There are a few notable exceptions. In 1985, I proposed that Syncrude Canada seek to qualify for an old mining tax incentive called Class 28 CCA (Capital Cost Allowance), which had a 100% CCA rate. The idea came from a colleague, who shortly thereafter left the company. I developed a case that allowed us to qualify, and after some issues were resolved we received Class 28 on a $1.2 Billion expansion at Syncrude.

        In ~1996-97, when SAGD technology was invented that enabled the extraction of deep oilsands reserves, Class 28 was modified into Class 41 (also 100% CCA rate) to include both mining and in-situ oilsands projects. Because of another silly (imo) tax rule, Class 28 allows you to write-off your capital in two years rather than one (provided your business has the income to do so). Class 41 was killed circa 2008 in a federal committee dominated by the socialist parties (Liberals and NDP) when the Harper Conservatives had a minority government.

        I also initiated, also through Syncrude, new Royalty terms that the Ralph Klein Alberta government adopted in 1996-97. These new Royalty terms were a 1% Gross Royalty before simple capital payout, and a 25% Net Profits Royalty after payout.

        These tax and royalty initiatives resulted in governments receiving about half the Net Cash Flow from oilsands projects after simple payout, and were the catalyst, along with reduced operating costs, for the revitalization of the Alberta oilsands industry. The oilsands became the mainstay of the Alberta and Canadian economies for the last several decades.

        The reason this made sense is that the cost of money to government is low, a few percent, whereas a business requires a hurdle rate of ~~15% before it will invest major capital. Governments can therefore afford to delay the taking of their share until after the industry has received simple payout of capital, and this significantly increased the rate of return of the business investment. The oilsands attracted many billions of dollars of investment to Alberta, and our economic prosperity benefited all of Canada.

        What we achieved with these tax and royalty changes was to make the previously-marginal oilsands industry economic, and for a time to make Canada under Stephen Harper the most prosperous country in the G8.

        For those who criticize these tax and royalty changes as “subsidies”, just recognize that these capital investments and all the jobs, taxes and royalties they created would never have happened without these changes, and governments would have received much less tax and royalty revenue. This was a win-win for both governments and businesses.

        I have since lobbied (reportedly successfully according to my MP) for a similar tax change for manufacturing industries that are concentrated in Central Canada. However, the destructive green energy policies of the Ontario Liberals have greatly increased energy costs there, and badly damaged manufacturing competitiveness.

        In summary, I suggest that the concept of depreciating capital over many years for calculation of taxes is a fundamental error in how business really run – they run on “Net Cash Flow”, not on “Profits”, and rational taxation should reflect this reality.

        Regards, Allan

    • MarkW

      The sum of the write-off looks the same to the casual observer, but the financial effect isn’t:

      1) Given a discount rate >0%, NPV of a string of tax deductions over years is always less that 100% of the deduction taken in the year of the investment;
      2) There is a cash opportunity cost (over and above the NPV difference) associated with delayed tax deductions;
      3) Given inflation >0%, inflation nibbles away at the tax deductions
      4) Other uncertainties: tax law & rates may change

      When you’re talking billions of CAPEX, this adds up.

  2. The investor model is different, because Utility Investors are using free market principles to add value and make a profit. They Bake new pies. The renewable energy “investors” are experts at gaming the political system of payments and tapping into the money stream. They just steal everybody else’ pie. Since you cannot steal from yourself, making pies and stealing pies at the same time is an impossibility.

    • “Why are “utility investors and renewable energy investors… like oil and water”?”

      And in the new government paradigm we find ourselves in, the answer to that question becomes very simple.

      Utility investors like to earn money.

      Renewable Energy Investors like to throw money away.

      That’s it, in a nutshell.

      • The distinction I would make is that utility investors attempt to produce energy, renewable investors attempt to harvest government subsidies.

        Nothing against renewables, my solar system is generating about 5 KW at this moment. But I have a lot against being forced to pay taxes to subsidize somebody else’s money losing hobby/religion.

  3. In the UK, the big energy companies (traditionally fossil fuel and nuclear) are forced by the Government to produce a certain percentage of their electricity from renewable sources. If they don’t meet the required target, they have to buy it from somebody else or they get fined. That is the UK’s definition of a free market in energy. In other words it is a state run market, not free at all. So much for having a ‘Conservative’ Government.

    • This requirement to buy is the fig leaf that many trolls are using to claim that renewables are economical.
      The requirement to buy is also a huge hidden subsidy.

    • You know, if you want a rational energy policy in the UK, you should forget the Tories and look to the miner’s friend – Piers Corbyn’s brother.

      OK. Some of his party are nearer the Greens than the employable but he has the right ideas.

  4. I don’t think anything nice about the renewable industry. But when you say investors like “oil and water”. let me say that the commodity fund which includes oil (60%) has been my worst investment in recent 4 years, losing 43% in average, while the stocks funds of water companies was the very best one, scoring a 50% profit…

      • “Is it possible for a business without “predictable cash flows” to remain a going concern without corporate welfare?” So either the answer to your question is “yes” or the oil industry is on corporate welfare since their cash flows are unpredictable.

      • The answer is Yes as all businesses have to cope with unpredictable prices and thus unpredictable cash flows.
        The reason renewables can’t attract investment from the market is engineering not economics.
        If they worked they would have taken off by now. Google invested a fortune looking at how to make them work and concluded … they didn’t.

      • seaice1,

        Our cash flow is generally very predictable. We can forecast our production fairly accurately. While prices fluctuate, most companies hedge much of their production. This reduces volatility. When prices collapsed in late 2014, companies slashed spending in order to maintain positive, predictable cash flow. Companies that could not sufficiently slash spending ceased to be going concerns and/or filed for bankruptcy.

      • David, thank you for the explanation, and pointing out that cash flow is not the same as revenue and revenue is not the same as prices.

        We have to avoid constructing the question as a tautology. Clearly renewable energy companies can continue to be going concerns without corporate welfare, at least in principle, as long as they have sufficient cash reserves to smooth out the cash flows. However, but your definition that would mean they do not have unpredictable cash flows, since the flow is made up from reserves. So I think (but I may be wrong) the use of the term “cash flow” in the article is not quite the same as used here. I think it refers more to revenue.

      • Good points.

        What is ‘Cash Flow’
        Cash flow is the net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company’s liquid assets are increasing, enabling it to settle debts, reinvest in its business, return money to shareholders, pay expenses and provide a buffer against future financial challenges. Negative cash flow indicates that a company’s liquid assets are decreasing. Net cash flow is distinguished from net income, which includes accounts receivable and other items for which payment has not actually been received. Cash flow is used to assess the quality of a company’s income, that is, how liquid it is, which can indicate whether the company is positioned to remain solvent.

        […]

        Cash flow statements are divided into three categories: operating cash flow, investing cash flow and financing cash flow. Operating cash flows are those related to a company’s operations, that is, its day-to-day business. Investing cash flows relate to its investments in businesses through acquisition; in long-term assets, such as towers for a telecom provider; and in securities. Financing cash flows relate to a company’s investors and creditors: dividends paid to stockholders would be recorded here, as would cash proceeds from issuing bonds.

        Free cash flow is defined as a company’s operating cash flow minus capital expenditures. This is the money that can be used to pay dividends, buy back stock, pay off debt and expand the business.

        Read more: Cash Flow Definition | Investopedia http://www.investopedia.com/terms/c/cashflow.asp#ixzz4ZR5fVdqP
        Follow us: Investopedia on Facebook

        The key is operating cash flow.

      • seaice1, is it really your contention that any industry who’s income stream can’t be projected to within 3 decimal points years in advance, is unpredictable?

      • Guys

        In a given year, cash flow (i.e.: cash accounting) is usually very different than “profit” as reported in audited financial statements published by public companies (i.e.: GAAP accounting). To confuse things further, both of these are probably different than tax (i.e. RAG) accounting. One of the distorting factors is depreciation expense in years other than when the capital investment took place.

        Just because your cash flow is unpredictable does not mean you’re going out of business. It just means you can’t “accurately” (whatever that means to you) predict it.

      • David, thank you for the excerpt. It was informative and took the argument forward. Cash flow can mean slightly different things and I have learned something.
        MarkW, you seem to have misunderstood. Again.

  5. Please sir, I know the answer to this one! It’s really easy.

    1. Fossil energy makes money on predictable P&L, varying with OPEX /fuel cost. Nuclear is sustainble zero carbon, affordable and predictable costs, basically a mortagage plus maintenace, as OPEX is very low and stable. On the energy science facts. No subsidies required. An honest business.

    Only political meddling risk for the energy facts are pointless carbon taxes etc. that hobble what works to make what can’t look better..

    2. Renewable energy depends on actually regressive and VERY large political subsidies to be enforced on bill payers to be profitable, and on fossil to be on the grid to 100% of renewable capacity to generate 2/3 of the energy and be pushed off for renewable to claim their subsidies when they work, 8/7.

    Overall, renewables are woefully inadeqaute to power the grid when fossil is gone, for electricity and other uses, so pointless and unsustainable.

    Also In fact renewables make net grid emissions avoidably worse versus gas replacing coal and nuclear replacing both, unsubsidised.

    Renewables depend upon fiscally healthy fossil and nuclear generation being available on the grid to support their renewables subsidy habit, and make their fossil hosts less effient through their unpredictable interuptions, making grid supply worse overall, and CO2 emissions worse overall versus replacing coal with gas and then nuclear both, and no renewables, ever..

    Because of their weak intermittent energ sources renewables are dependnent of regressive political subsidies to be profitable, which can go away. These are the state legalised eco parasites of grid energy supply, renewables companies the criminal drug barons exploiting them for fraudulent profit, energy legislators the corrupt officials that legalise this climate change protection racket – for whatever payola is available to them. Thinks this is a bit strong or not the facts? Just do the arithematic, it’s not hard. High school physics and maths. Grid energy supply can best be delivered without political subsidies or taxes of any kind, on cost, adequacy, CO2 reduction, sustianability and is clearly best environmentally. No renewables or subsidies required to deliver the best result on every measure. Facts.

    Why are renewables a bad bet? Because the laws of physics must win in the end.

    I have done the maths on the science fact . It is linked, for the UK, but US mix is similar, except solar is useful where it matches aircon demand, and you have some serious dense rock hydro while we only have a few hills, in inconvenient and hostile places far away from demand. Like Scotland. Even sunny places need reliable base load at night when its dark and windless, more importantly to power industry and transport that creates the wealth supporting your society 24/7, energy supply is not all about low use domestic demand. It’s a complete con on the public, in science fact, exploiting fear of an unrovable assertion regading CO2 emissions that the renewable snake oil prescription can only make it worse in science fact. You can’t make it up, that’s politicians job.
    https://dl.dropboxusercontent.com/u/1976309/THE%20ECONOMIC%20IMPACT%20OF%20SCIENCE%20DENIAL%20IN%20ENERGY%20POLICY.doc.pdf

    • Even in the US, solar doesn’t match aircon demand. First off, max solar is around 1 or 2 in the afternoon, but aircon doesn’t peak until around 5pm as people start coming home from work.
      Beyond that, solar is instant. It’s output depends on the amount of sunlight received right now. Not the sunlight 5 minutes ago, or 5 minutes into the future.
      Aircon on the other hand is like a low pass filter. The amount of sunlight received during the entire day matters.

      For example if a cloud passes across the sun, solar power output drops immediately. However aircon load may take 10 to 30 minutes to drop. Even worse, the cloud may cross above your collectors but not across the bulk of homes in your area.

  6. Bam! Another one bites the dust. Renewables are really a pure subsidy play. The race is to lock in over priced long term contacts and flip them. Pretending that its a sustainable business is the mistake NRG made. Would be nice to go back and look at the projections made just a few years ago.

    • troe:

      “Renewables are really a pure subsidy play”

      Oh yea! Four years ago in Florida, I put 11kWh of solar voltaic on my roof for $36,000 on Oct 15th. When the system went live 75 days later, I got a (tax-free) $20,000 rebate from my utility co; 30-days after that I filed my income tax, claiming the 30% ($10,800) tax credit.

      Net cost to me 105 days after paying $36,000 was $5,200.

      My electricity bill has gone down about $3000/yr = less than a two-year payback on my subsidized cost (12-year payback on unsubsidized cost).

  7. I do find the subsidies for biofuels criminal. My research is in fuels and lubricants including fossil and biofuels. Emissions data for Ethanol developed for the California EPA by UC Riverside showed that modern cars (read 1980+ cars equipped with catalysts) show no emissions change when using ethanol and blends as a fuel. Thus the argument that ethanol reduces emissions is false except for the case of carburetor equipped vehicles without feedback control where Ethanol (E10) reduces CO and HC emissions while increasing NOx emissions. Thus the 40 year experiment with “oxygenated” fuels was a failure but continues to this day.
    The cost to society is tremendous. One example is land prices in Norther Iowa went from roughly $3000/acre in the early part of the century to $20,000/acre now. Not to mention the ground water pollution (now isn’t that always brought up against fracking, so it must be a diversionary tactic to deflect criticism away from biofuels. See articles on the Gulf of Mexico Dead Zone for the real impact of biofuels.)

    A quick internet search found articles on this topic:

    http://www.nydailynews.com/news/politics/push-renewable-energies-green-fuel-sources-damaged-millions-acres-land-report-article-1.1514671

    http://www.usatoday.com/story/money/business/2013/03/24/farm-land-prices-bubble/2013451/
    “It culminated last October when an 80-acre parcel near Boyden in Sioux County, some of the most fertile ground in the Corn Belt, sold for a record $21,900 per acre.”

    My relatives live in Boyden and the surrounding area. Those that grow corn made millions and we so flush with cash that it was better to buy overpriced land as an investment than pay taxes on massive income that they couldn’t spend.

    • A few years ago I had to drive the backroads of Iowa to get to a job. I observed farmers cutting down trees and laying drainage pipe in order to bring into production acres that had never before been considered profitable.

      • MarkW

        Did you get the job? I ask because you do not seem to be job having kind of guy. You post a lot without seeming to have any experience on the subject or anything else for that matter (troll?).

        I lived in Iowa for a short period of time working an outage at a nuke plant. Pretty much like places I lived in Ohio, Indiana, Michigan, and Illinois. They like to grow corn and soybeans.

        What I find odd, it that universities like Stanford, Berkeley, and Cornell try to explain why they should not.

      • Fascinating, my opinion doesn’t match yours, and that proves that I don’t know much.
        You have an undeservedly high opinion of yourself.

      • MarkW

        …or maybe Retired Kit P had a very productive career at something other than lobbing ad hominems.

        By the way, what is your experience?

        For the record, I’m a retired CFO with a healthy opinion of my experience.

    • The subsidies for corn ethanol were hopeless to address CO2 emissions. I believe they were about fuel security not emission reductions. They were just a way to reduce imported oil by turning domestic fossil coal into ethanol. Just to clarify, I now they did not literally turn coal into ethanol.

      • Seaice is correct except there are no subsidies specifically for corn. Corn farmers were just better and producing product. Texas could have done it with sugar cane. California could have done but their permitting process takes too long.

    • Ethanol biofuels is a peculiarly US obsession and hasn’t had much uptake in rest of world (Brazilian cane ethanol has been around for a good while and is an exception).

      It always was a boondoggle of the last Republican administration, a energy independence measure before shale got going.

      Its a dead duck.

      • It may have been a Republican president, but it was a Democrat congress that passed it.
        It has also been Democrats in congress who have been defending it.

      • And the last President who kept the ever increasing ethanol mandate alive for non existent cellulosic ethanol in addition to the wasteful ethanol from corn to appease the Chicago ethanol lobby contributing to the agenda. I think he was a Democrat

      • Griff

        Actually it was George Bush the first, not the second.

        At least you got some of this comment right. Good work.

    • So bob, when you do research, you reference USA Today?

      I suspect bob lives in California and has no one smart enough tell he is stupid.

      ‘Dead zone’ is more fake news.

    • You can’t depreciate land, so there is no resulting tax shield against current income from a land purchase. Anyone purchasing that land is speculating that the price of corn and productivity per acre is going to continue to increase, and as such the value of the land will continue to increase.

  8. Fossil fuels and utilities are all about cash flows and finding ways to make money off the status quo

    This line was repeated several times, and it sums up the problem nicely. The ‘Status Quo’ for utilities is producing enough energy. And no, Renewables are not very good at maintaining that status quo. ~¿~

      • Predictable cash flow doesn’t have to be regular cash flow.
        But predictable energy production does have to be regular. As we can’t store it.

        It’s the technoical failings of the renewable industry that are the problem. Not the regulatory regime, taxation support or financial underpinnings.
        It just don;t work.

      • Cash flow kind of does have to be regular to be predictable and it has to be positive to stay in business, without a steady infusion of new capital (Tesla). Cash flow and profit are two different things. An unprofitable company can stay in business for a long time if it has predictable and positive cash flow.

      • David

        What the heck does “predictable cash flow” mean (cash-flow is not the same as GAAP profit)?

        1) most corporations can accurately predict cash flow 30day out
        2) most corporations have plus/minus 1-5% accuracy predicting 90-day cash flows (quarterly earnings announcement error rate)
        3) most corporations probably have plus/minus 5-10% accuracy predicting annual cash flows (my best guess)

      • Predictable means that we will sell x (+/-) widgets each quarter for $y (+/-) each.

        Unpredictable means that we don’t have any idea if we will sell any widgets. This is why service companies focus on building a backlog of jobs.

        Barring external disasters, oil & utliliies companies have very predictable cash flows.

  9. They always talk about it in terms of the energy companies wanting to keep control.

    Here is the reality. The renewables are a near worthless product. There are almost no home users or businesses that you could connect to a pure renewable grid and say “We’ll give you power if/when we get some to give you.” ALL the value is in the energy being when/where you need it. The renewables are often forced onto the system, weakening the grid, driving up costs of all other aspects of energy production/distribution. And when they do produce, they crash the prices.

    It is a half solution that simply cannot compete with reliably produced energy…without subsidies basically paying for everything.

  10. I love these claims of oil and gas subsidies. I have working interest in some wells, and every year at tax time I suffer two indignities. First, the IRS wants it classified as a business I own, so I get to pay SS self employment tax. Then there is a provision for small guys to claim credit for domestically produced goods. If I sold fire wood or mined sand and gravel, I’d get a tax break. The last line states “subtract income from production of oil and gas” My domestic production deduction goes to zero.

  11. Thank you for this article. It’s nice to have a link to send people to when they blather on about the scourge of “big oil”. Considering the dominant “green” media narratives, it’s hard for many to understand that “carbon” based fuels are already heavily taxed. The oil business is a low-margin proposition, but volumes are healthy.

  12. As Herb Stein said “Things continue until they can’t…”

    As long as there is no real (i.e. economic) reason to break the status quo, it should continue until such time as there is a reason to do so. Otherwise trying to break the status quo leads to huge opportunity costs that are borne by the taxpayer, because no one with good sense gets involved in such things. The political left simply cannot make a separation between their fantasies and reality, and then they are weak on economic analysis to boot.

    Once things can no longer continue the markets are pretty quick to sort things out–money dies in non-economic investments, and money is made elsewhere. Of course, the political left cannot tolerate winners and losers, so they will delay the inevitable changes at that point trying to make life fair. But until such time when things can no longer continue, renewables will fill small niche markets providing miniscule amounts of energy and will be nearly worthless at utility scales.

  13. From an investor’s standpoint certain types of energy stocks are a safe place to put a moderate amount of assets. The return is low but consistent. If they start to mix in much renewable energy the risk sky-rockets. Renewable energy is a high risk, and to date no-return unless you buy-in early and bail early. It’s speculation, which is not the same as investing.

  14. All companies focus on return on capital investment.

    Intermittent energy reduces utilization rates for already paid for electricity generation facilities.

    For ‘intermittent energy sources’ to work financially for existing plant owners they would either have to cost less then fuel or contribute to peak shaving where existing resources are inadequate.

  15. The article is unclear about what parts of NRGs renewable efforts might keep on -I would be interested to know if its deal with Kaiser healthcare to put panels on Kaiser’s office parking keeps going, for example.

    If this is only its expansion into home solar ending, I don’t think it tells us much about energy companies and utility scale renewables…

    you might look at EON in Europe, especially Germany, for a succesfule example… or ENEL, closing fossil fuel plants in places like Italy expanding renewables.

    And you might also look at RWE’s recently posted loss and dividend freeze to see what happens if you do not transition out of fossil fuel and get left holding the nuclear clear up bill…

    • Griff,

      It sounds like NRG will divest all of it. Whatever deals NRG’s subsidiaries have with customers will probably remain intact.

      • Hmm.

        NRG got into renewables after hurricane Sandy, when they found themselves having annual stockholder meeting by lantern light… it built a state of the art fuel cell/smart grid HQ after that. I think it probably underwent a shift in perspective at that point.

        We’ll see. domestic solar is different from trying to make a profit from power supply/ run fossil fuel plants.

      • David: Don’t forget they are also a small country and very, very socialist. I have read that the average Dane strives to be mediocre. Add in that the European grid ties together many, many sources of energy and it’s easy to hide the failures of renewables (wind and solar). If electricity came “color-coded” and you could see what the source of the electricity was by color, people would be very surprised at how little renewables contribute.

        Plus, it’s easy to “give up coal” if your neighbors produce it for you. I constantly say Washington State needs ALL coal-fired electricity CUT OFF since they won’t allow export from that state (no port). If one could not use an energy source from anywhere if it’s labelled “bad” by a state or a government, I think there would be a lot of people sitting in the dark getting really, really cold.

    • “you might look at EON in Europe, especially Germany, for a succesfule example…”
      successful? Yes, sure, but in what? wrecking the german grid to blackout, skyrocketting price, burning huge amount of dirty lignite. Tremendous success indeed.
      “or ENEL, closing fossil fuel plants in places like Italy expanding renewables.”
      Well, sure they did, being paid huge taxpayer amount to do it. Government is a customer, after all, so if he pays you enough, well, you’ll deliver what is pays for if you can.
      “And you might also look at RWE’s recently posted loss and dividend freeze to see what happens if you do not transition out of fossil fuel and get left holding the nuclear clear up bill…”
      Well sure enough again, when your government change the rules, you might lose a lot.

      So what did you intend to prove with those examples? That western governments can act as stupidly than defunct USSR’s, wrecking businesses and making people poorer? Who doubted that? Socialism, aka “we the saintly government know better than those businessmen morons”, wasn’t invented in Russia, but in England, Germany, France…

      • The German grid is the world’s most reliable. Far more reliable than any part of the US. so it is not ‘wrecked to blackout’. I mean EON is successful in moving away from fossil fuels.

        I didn’t set out to prove anything…

        I merely gave some interesting examples of how large energy companies are faring/changing in the world today.

      • “The German grid is the world’s most reliable.”

        Only because it’s propped up by coal, especially lignite.

        Plus, Germany’s CO2 emissions are increasing year-on-year.

        German emissions increased in 2016 for a second year in a row as a result of the country closing one of its nuclear plants and replacing it with coal and natural gas, a new Environmental Progress analysis finds.

        German emissions would have declined had it not closed a nuclear plant and replaced it with coal and natural gas.

        Not only did new solar and wind not make up for the lost nuclear, the percentage of time during 2016 that solar and wind produced electricity declined dramatically.

        Germany added a whopping 10 percent more wind turbine capacity and 2.5 percent more solar panel capacity between 2015 and 2016, but generated less than one percent more electricity from wind and generated one percent less electricity from solar.

        http://www.environmentalprogress.org/big-news/2017/1/13/breaking-german-emissions-increase-in-2016-for-second-year-in-a-row-due-to-nuclear-closure

      • “The German grid is the world’s most reliable”

        At the expense of the reliability of its neighbour’s grid, unfortunately.

        Germany’s rush to renewables is destabilising the power grid in neighbouring Poland, a top Warsaw official complained on Thursday.

        Europe’s most enthusiastic adopter of wind and solar power depends on the bloc’s most coal dependent nation2 to manage the network impacts of variable generation.

        In a conference hosted by the Foreign Office in Berlin to promote its “Energiewende” or energy transition policy, Michal Kurtyka called for market reform.

        “Poland is needed for Energiewende to succeed,” he told an audience that included several ministers from around the world.

        On the sidelines, he told Climate Home the problem comes when electricity surges through Poland’s power lines between generators and consumers in Germany. The network operator has to manage these “loop flows” but gets no payment for doing so.

        “What is a problem is that these unplanned flows are completely outside of the market, they are not integrated in tariffs,” he said. “It is very much disturbing the Polish grid.”

        http://www.climatechangenews.com/2016/03/17/why-germanys-clean-energy-shift-is-vexing-its-neighbours/

      • Germany Runs Up Against the Limits of Renewables

        Even as Germany adds lots of wind and solar power to the electric grid, the country’s carbon emissions are rising. Will the rest of the world learn from its lesson?

        At one point this month renewable energy sources briefly supplied close to 90 percent of the power on Germany’s electric grid. But that doesn’t mean the world’s fourth-largest economy is close to being run on zero-carbon electricity. In fact, Germany is giving the rest of the world a lesson in just how much can go wrong when you try to reduce carbon emissions solely by installing lots of wind and solar.

        https://www.technologyreview.com/s/601514/germany-runs-up-against-the-limits-of-renewables/

  16. The drivers are renewable and green. The technology is neither renewable nor green nor reliable. The “green”, “clean” solutions have situational and circumstantial value. The double-edged scalpel of environmentalist propaganda has been a first-order cause of catastrophic anthropogenic developmental misalignment and distrust.

  17. The first problem with this article is that it mixes electric power utilities with oil and gas exploration. Profits of the first is regulated by states. It is not a free market system.

    • True. But, both utilities and oil & gas have to be “all about cash flows and finding ways to make money off the status quo,” because, unlike renewables, we don’t qualify for much in the way of corporate welfare.

  18. Let’s call on Bernie Sanders to pay the same amount of taxes, percentage-wise as Exxon-Mobil pays.
    It is a travesty of our journalistic system that someone like Bernie can make obscenely ignorant claims and not get slammed by the media. Of course, the media people in most cases probably believe that Bernie is telling the truth. Media folk are typically very ignorant about anything more complicated than “John is sleeping with Sue” or “Joe shot Jim” stories. Science was typically a subject that future journalists avoided like the plague while in college. When they interview a scientist, they assume all of them would say the same thing and , in any event, don’t know what to ask, nor do they have any ability to detect falsehods from their interviewee. Often the interviewee is a hand-picked stooge, hopefully with some impressive sounding associations (like Nobel prize winner – 40 years ago, of course) , who will reliably voice the same opinion as the media’s executives.

    • Usually when politicians talk (i.e. lie), there is some twisted logic that makes it kind of true. Does anyone know what sort of logic Bernie used to claim ExxonMobil paid no taxes?

      • I believe that for the year in question, ExxonMobile did not pay taxes. Mostly due to carryover losses from prior years.

      • In FY 2009, ExxonMobil paid $25.9 billion in “sales-based taxes” and $34.8 billion in “other” taxes. After all operating expenses, XOM had $34.8 billion in pretax earnings. They paid $15.1 billion worth of income taxes on the $34.8 billion. ExxonMobil does not generate much revenue from gas station sales ($1.8 billion in downstream earnings). Most of its “sales based” taxes were sales taxes on goods and services that it purchased in conducting its business.

        $76 billion is just slightly more than zero.

      • Bernie has no idea how a corporation “pays” its taxes. He thinks the CEO writes a check out of his own pocket and that raising taxes will stiff the CEO. Guess that happens when you have never actually ran a business or done bookkeeping for one. (Government funded ones don’t count.)

  19. As for those “Texas wind turbines that work very well,” I will estimate that when the inevitable transition to molten salt nuclear reactors comes to pass, their levelized cost of power (less than 3.5 cents per kWhr)
    will render those turbines’ maintenance costs (NOT trivial) as prohibitive and they will be abandoned. Or
    they will be abandoned simply because their unreliable power generation output renders the value of their output as nowhere near that produced by the molten salt reactors. Now who’s going to pay to remove that huge concrete block that supports each turbine? It has no other conceivable use, except possibly as a base for a high tension power line. But the concrete blocks will not likely be in the positions needed for a transmission power line. What will be the final cost in terms of emissions reductions, of using those turbines?
    A high cost, I would guess.

      • Cute. Leave them in the ground as a reminder that energy from weather was a foolish idea paid for by foolish people who elected spineless representatives to waste their tax money.

    • “inevitable transition to molten salt nuclear reactors”

      Any subject is an excuse for this clueless bs.

      • Old man yells at clouds again. Or “If it was good enough for Grandpa, it’s good enough for me!” If you have any facts to substantiate your opinion, we’re all ears.

    • Nothing in life is inevitable, except death and taxes.
      If molten salt proves out, it will take off on its own, without any cheerleading from any of us.
      If it doesn’t, it will disappear just like all the pipe dreams down through history.
      Until either of those conditions play out. Chill out.

  20. So with those tax rates the evil oil industry does not rule the world after all, I am shocked.

    So if the greenies chased the oil and gas industry away where would the money come from for wind and solar subsidies? Imagine wind, solar, bio having that tax rate.

  21. ‘NRG Energy’

    These days you need a scorecard to figure out who is who with US utility consolidation. I have noted that the well managed companies that provided value to customers and investors alike keep their names. Duke is still Duke (disclosure own lots of Duke stock ) and American Electric Power is still AEP.

    My favorite rebranding is EnergyNorthwest. When I worked for them they were Washington Public Power Supply Systems (WPPSS). Known as whoops for starting 5 reactors and finishing one.

    NRG Energy used to be the big city utility for Houston before the Texas market deregulation. Not doing a good job of building nukes got a lot of utilities in trouble. South Texas Nuclear Project Electric Generating Station is two 1400 MWe reactors. I was there for a modification project and was impressed. There coal plants have good a safety record too.

    • Yep. My first employer was Enserch Exploration, a subsidiary of Enserch Corporation, which also owned Lone Star Gas Company, the primary gas utility in North Texas. Enserch Exploration was originally called Lone Star Producing Company. Its primary focus was to explore for gas along Lone Star Gas Company’s pipelines. Enserch Corporation eventually merged with TXU, North Texas’ primary electric utility and spun off Enserch Exploration. TXU eventually sold Lone Star Gas to Atmos Energy… It can make your head spin.

      • Duke Power merged with Pan Energy to get into the deregulated natural gas pipeline. Then they were building 40% CCGT plants and did not need its coal and nuclear power engineering because those plants were going away. A few years later I am working on Duke nuke plants again with company the sold us to. I was smart enough to keep my Duke stock.

    • Then there’s the Wyoming Power Company owned by a Colorado billionaire trying to sell electricity to California if he can build an eagle-killing, environmentally damaging subsidy machine in Wyoming (on land he owns and BLM land).

      • Sheri

        You are looking at it all wrong. Like the windfarms in the PNW. Excellent at sucking money out of California. Jobs and property taxes for people who like to work and schools that like to educated children.

  22. In answer to the title question –

    Because utility investors are people who invest in something with genuine value with an expectation of steady, if unspectacular, profit potential, while “renewable” energy investors are get-rich-quick rent seeking hosebags attempting to cash in on government sponsored theft before others catch on and pull the plug.

    They don’t sound remotely compatible to me.

  23. To David Middleton – Thank you very much for your article. It answered a lot of questions and has provided an excellent foundation from which to approach this and other questions.

    All the best to you.

      • Sorry but that’s about as lucid as those trolls who claimed shale oil wells were not profitable even late in the shale revolution story. You are aware of the vast range of solar costs between utility scale and rooftop right?

      • Thar’s when the report was prepared for the Senate. If there’s a more recent report comparing the subsidies per btu or MWh of renewable energy to fossil fuels and nuclear, please point me to it.

        I know that the fake oil & gas subsidies haven’t significantly changed since 2007 and I would wager that the subsidies for solar power have increased since 2007, if you count loan guarantees… So it’s probably a lot worse now than it was in 2007.

      • The subsidies could be cut or eliminated from the perspective of the low cost leaders in solar. The subsidies are for the protection of the high cost rooftop industry and associated propaganda arms. It is the 30 percent compounding price declines that should not be ignored and the low cost leaders are not done with tech changes for further cost reduction. Other power generation technologies are comparatively static on costs except for cyclical swings in fuel input costs.

      • “The subsidies could be cut or eliminated from the perspective of the low cost leaders in solar.”

        No one is going to campaign to reduce their own profits, and when you move the price the demand falls. The best companies might survive without subsidy, in a much smaller market, but probably only after bankruptcy.

        The price declines at these levels face severe diminishing returns as most of the usefulness of those declines was realized years ago — at this point, even if the physical panels were completely free to purchase, as a relatively low-density and low-reliability power source requiring some fixed amount of installation and maintenance they would still have less of a market than today without subsidies.

      • The solar panels could be free and solar would still be uncompetitive with natural gas and coal.

        Bingo. Solar and wind require the one thing that is never going to get cheaper: labor. In fact that’s a selling point for most gree(n)d energy advocates: more jobs/MWh! Then again, these are the same people that think increasing the minimum wage creates jobs.

        And let’s not forget the cost of operating and spinning reserve to cover their intermittency and the increase in transmission costs.

  24. Here is another perspective (from a retired utility insider).

    Generally, there has been zero or even negative sales growth for electric utilities in recent years. The only way an investor-owned utility (IOU) gets increased revenues is from increased sales or return on investment in new plant. With no organic sales growth IOU’s are all in for building out renewables (and their attendant higher costs). The utility commissions will gladly approve the new investments, increasing the stock price for the shareholders while giving political cover from the environmentalists.

    And who loses? Joe sixpack…the ratepayer.

  25. really love this

    “/germanys-use-of-deflation-for-political-ends/”

    – black zero Schäuble.

  26. An additional tax paid on fossil fuels is that taken at the pump. E.g. – from Wiki:

    Fuel taxes in the United States. The United States federal excise tax on gasoline is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel.

    The excise tax on commonly used fuels in Australia as of October 2016, which applied from the 1 August 2016, was as follows:
    A$0.396 per litre on unleaded petrol fuel (including standard, blended (E10) and premium grades)
    A$0.396/0.40143 per litre on diesel fuel (ultra-low sulphur/conventional)
    A$0.129 per litre on liquified petroleum gas used as fuel (autogas or LPG as it is commonly known in Australia).
    A$0.026 per litre on ethanol fuel for use as fuel in an internal combustion engine (which can be reduced/removed with grants)
    A$0.013 per litre on biodiesel (which can be reduced/removed with grants),/blockquote>

    I have not heard anything from either side of the debate mention what will replace these taxes when we are all driving electric vehicles.

    • At 8% net earnings after-tax, the companies that found, produced, refined, transported and sold that gallon of gasoline net $0.13/gal. Governments “earned” $0.47/gal, just from the gasoline sales taxes. They probably “earned” another $0.08/gal in income and property taxes. If the crude came from a Federal lease, they also “earned” at least 12.5% of the gross revenue from the sale of the crude.

  27. We’ve known for decades that so-called “green energy” was not green and produced little useful energy. I first published this conclusion in 2002. It is slowly becoming obvious to all.

    https://wattsupwiththat.com/2012/03/19/president-no-longer-worried-about-co2-focus-on-alternative-energy-is-economic-says-obama-no-mention-of-climate/

    Funny thing – the Globe and Mail was one of the biggest supporters of the Global Warming Scam and so-called “Green Energy”.

    Note the huge subsidies:
    13.5¢/kWh for worthless wind power and 64.2¢/kWh for worthless solar power.

    Natural gas-fired electric power can probably be generated today for about 4 cents per kWh.

    Attaboy Doltan! Way to screw the Ontario manufacturing business!
    ______________________

    Ontario’s Green Dream Was Just a Fantasy

    Across the countryside outside Toronto, wind turbines are spreading like the plague. They are being built over the objections of rural residents whose rights are being ignored by the Province of Ontario. They’re chewing up birds and billions of taxpayer dollars in the name of a green dream that’s nothing but a fantasy. In an effort to placate the voters, Premier Dalton McGuinty promises to trim the subsidies for solar and wind and to give rural communities more say.

    However, these changes won’t affect contracts already in place. That means projects already approved, but not built, will be eligible to get 13.5¢/kWh for wind and 64.2¢/kWh for solar, keeping the building boom going for the next three or four years.

    Green energy was supposed to launch a vast new industry in Ontario with the export of products and expertise to the world. But the world is losing interest. Instead the next energy boom, and the resulting jobs, will be due to brown energy in the form of low-cost natural gas.

    • Agree GM.

      Green energy is the best “short” in the market, imo.

      Here is why. I have been writing the following statements since about 2002, and all have proven correct:

      1. “Green energy” is not green and produced little useful energy.”

      2. “Green energy relies upon life-of-project subsidies.”

      3. “Cheap, reliable , abundant energy is the lifeblood of society”

      4. “When imbecilic politicians fool with energy systems, innocent people suffer and die.”

      Now you have a US President who knows that most green energy schemes are nonsense.

      Trillions of dollars have been squandered on green energy nonsense.

      So the message is “Short! Short! Short!”.

      Regards, Allan
      .

      • And Perry from Texas, a state that has thousands of wind turbines, will be at DOE. Wonder how this will play out?

      • Texas leads the nation in wind power by a wide margin for two primary reasons:

        1) We lead the nation in wind resource by a very wide margin due to physical geography.

        2) We were able to build-out a transmission network, largely due to our oil & gas revenue.

        Secretary Perry is unlikely to be an advocate for wind power in places where it doesn’t work very well and extremely unlikely to push for expanded subsidies for renewable energy sources.

      • In Southern Alberta, there is some of the very best onshore wind quality in the world. Because of the Crows’ Nest Pass to the West, the (usually) westerly winds back up behind the Rockies and blow hard through the Pass almost all the time.

        It’s been said that the cattle in Southern Alberta lean so hard into the wind, that if it ever stopped blowing, tens of thousands of them would all fall over. :-)

        Nevertheless wind power companies in Southern Alberta receive 20 cents/KWh for their intermittent, non-dispatchable, often worthless wind power. When there is no demand for that wind power, Alberta gives it away , often for free, to neighbouring provinces and states. In comparison, reliable, dispatchable natural-gas-fired power costs about 4 cents/KWh.

        Do the math.

        I have lived in Texas, and recall that wind is not nearly as strong or consistent as in Southern Alberta.

        So where is the disconnect? Are Albertans getting totally screwed by wind power companies (yes) and/or are Texans also getting screwed but are not aware of the real costs? Something here does not add up. Where is the disconnect? Hard facts welcomed.

        Regards, Allan

  28. Subsidy per unit of energy can be misleading because costs can be so different. The more relevant number is the ratio of total taxes paid to subsidies received, at the point of consumption — fossil fuel, hydro, and nuclear production all pay at least 100x times subsidy, while renewables generally pay less in taxes than they receive in subsidy.

    In other words, we are using cheap, profitable traditional energy to subsidize expensive, unprofitabl alternative energy. This issue has nothing to do with “predictable” cash flows or “breaking” an industry (there are no huge cost decreases like we saw when adavances in Raman amplification and optical switching broke the telco eq industry in the late early 2000s and ushered in the era of cheap high bandwidth), the problem is there are no net cash flows and the alternative energy business model is broken.

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