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Topic: Electricity Update Pt 7

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Cincydawg

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Re: Electricity Update Pt 7
« Reply #20 on: February 28, 2019, 09:01:28 AM »
that term "tariff" caught my eye, the articles on line are a bit sketchy about what that means, but it appears it could mean no capital costs are paid for by the user.  I could not find a clear explanation.

https://www.greentechmedia.com/articles/read/top-10-utility-regulation-trends-of-2017#gs.3C6eDXzn

Anyway, it SOUNDS as if all this is happening without much government help, right?

HK_Vol

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Re: Electricity Update Pt 7
« Reply #21 on: February 28, 2019, 09:03:00 AM »
Hawaii Residential Electricity Prices.

https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_5_06_b

2018:  32.48 cents per kwh
2017:  29.50 cents per kwh

New solar+battery capacity added at 11 cents per kwh at the wholesale level.



HK_Vol

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Re: Electricity Update Pt 7
« Reply #22 on: February 28, 2019, 09:05:59 AM »
Wind subsidies have been declining for years and go to zero in 2020.
Yet, lots of new wind capacity is being added even at minimal / zero subsidies.
For wind turbines installed in 2019, the tax credit is 3/4ths of one penny per kwh.


https://www.energy.gov/savings/renewable-electricity-production-tax-credit-ptc


SNIP:
Applying the inflation-adjustment factor for the 2017 calendar year, and the 20% step-down required by H.R. 2029, the production tax credit amount is as follows:

$0.019/kWh for wind

The tax credit is phased down for wind facilities and expires for other technologies commencing construction after December 31, 2016. The phase-down for wind facilities is described as a percentage reduction in the tax credit amount described above:

For wind facilities commencing construction in 2017, the PTC amount is reduced by 20%
For wind facilities commencing construction in 2018, the PTC amount is reduced by 40%
For wind facilities commencing construction in 2019, the PTC amount is reduced by 60%

Cincydawg

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Re: Electricity Update Pt 7
« Reply #23 on: February 28, 2019, 09:13:11 AM »
Something doesn't make sense, but perhaps the utilities often don't make sense.

I was paying 6 cents per kWhr in Ohio and I think it's lower down here, but those two new reactors in Vogtle are still being built (and nominally on schedule now, after some significant delays).  Why would a utility build a capital intensive nuke if wind and solar are so cheap?  Baseline?

NG facilities are still being built, maybe for surge loads or something.

Anyway, maybe all this means the country will shift to W/S much faster than I expected.

HK_Vol

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Re: Electricity Update Pt 7
« Reply #24 on: February 28, 2019, 09:17:30 AM »
It is called "sunk costs." 
Investors rarely, if ever, are willing to throw away significant amounts of money, even if the future returns aren't really justified.

My friend Heinz (a really smart guy) wrote to me this week on just this type of issue, as we were discussing the recent rise in C&I borrowing / lending.

He wrote:

Actually, money supply growth is slowing even as C&I lending is concurrently rising - and this is a phenomenon typically seen near the end of a boom.  Companies are scrambling to obtain capital that is scarcer than was previously thought. Some begin to draw down their credit lines with banks in order to finish projects that are beginning to run into resource constraints. Here is a brief discussion of this phenomenon (it has happened at the end of almost every post-war boom period - it was particularly glaring in 2007-2008). 

A related discussion by Hayek penned in 1937 may be of interest in this context as well. He pondered why rising interest rates didn't immediately kill a boom. Entrepreneurs will often decide to continue to pursue projects that would never have been invested in at the now higher interest rate as long as their operating results are near break-even or slightly profitable (even though they will not earn back the capital invested or only do so at an extremely slow pace)... this in turn makes it profitable for others in the production structure who make complementary products to also continue to pursue their plans. The effect will reverberate across all portions of the capital structure that are somehow concerned, including raw materials producers, makers of intermediate capital goods, etc. 

I just found what I wrote about this to someone else at the turn of the year - here it is:

In late 2017, C&I lending growth had almost come to a halt, but by April it had rebounded to 3.5% y/y.  In February 2018 TMS-2 growth had declined to a new multi-year low of less than 3% y/y. I remembered that I had seen a similar sequence before, i.e., a sharp slowdown in TMS-2 growth followed by a sudden spike in C&I lending growth - and that was on the eve of the 2008 crisis.  Back in 2008 I simply saw it as a function of commercial paper markets shutting down and companies making sure their short term liquidity needs were taken care of before the banks got any ideas about altering credit line commitments. To some extent concerns about investor attitudes are playing a role now as well, since such a large proportion of corporate debt is provided by non-bank investors these days (it should be noted that they are in turn partly funded by banks - there are reportedly hedge funds buying CLOs at 10:1 leverage). 

After giving it some more thought I realized that it is also in tune with Austrian theory, in particular the idea that it is the pool of real funding that creates a limit to what can actually be financed rather than the ability to create ever more money ex nihilo. The latter method only works as long as the pool of real funding continues to expand and permits the diversion of scarce resources to projects that would not be considered viable if market interest rates were in line with actual time preferences. 

The signal normally provided by market interest rates can be suppressed by central bank policy for a long time in a prosperous market economy, but not forever. Traditionally the Fed actually follows short term market rates with rate hikes rather than the other way around. My take on this is that a critical mass of market participants (including banks) realizes that the supply of real capital (i.e., actual savings) is no longer sufficient to fund all the economic activities in the higher stages that the credit expansion has egged on. This boosts the influence the originary interest rate exerts on market rates, or put differently, it helps actual time preferences to reassert themselves. Businessmen don't need to know anything about economic theory to realize that free capital is scarcer than they thought it was - the only signals they need are rising rates and suddenly hesitant former yield chasers in the corporate bond markets, who now insist on higher yields, stricter covenants and shorter bond maturities. 

By the time all of this percolates to the decision-making stage at corporate boards, a kind of "vicious cycle" is already underway from the perspective of those in urgent need of cheap funding. If one's calculations were based on the ZIRP era, it is best to borrow as much as possible before it becomes more expensive to do so, and that is the incentive to draw down credit lines - and I suspect it also provides a short term boost to purchases of capital goods. In fact, Hayek wrote about this particular effect in 1937 in an essay titled "Investment That Raises the Demand for Capital".  

He pondered why a boom does usually not immediately collapse when interest rates rise and how already malinvested capital can actually become the driver of an entire sequence of subsequent investment activities. He considered the situation of those in the higher orders of the production structure who have managed to complete an investment project that they would in hindsight not have undertaken if they had known the true situation (i.e., one not falsified by credit expansion),  as well as that of those operating in subsequent stages who plan to make use of the project's output. Hayek mentions the example of a power station. At an interest rate of 3%, the erection and operation of the station may have appeared to be economically viable. However, while the project is completed, the credit expansion is halted, and interest rates ultimately increase to 6%. This higher cost of capital would normally have mitigated against its construction. From the perspective of the owners of the power station, it represents a sunk cost – one they would rather not have to contend with, but it is too late to rectify their error. The question then becomes whether it makes sense to operate it anyway. Even if the returns cannot not justify the sunk cost, they will undoubtedly decide to operate it if revenues at least cover or slightly exceed the cost of operation (in which case they may be able to recoup at least some, but not all of their investment).

From the perspective of potential customers of the power station, the fact of its existence can make complementary investments viable that would normally not have been considered at a higher interest rate.  This is so because they have to pay less for its output than they would have had to pay for the output of a station constructed in the new environment (i.e., one that earns not merely a smidgen more than its operating cost, but also amortization and interest). A partially completed investment process can therefore lead to additional demand for capital at higher interest rates to complete an entire chain of investments, demand that would not have been forthcoming had the initial investment not taken place. Near the end of a boom, this will tend to lead to surging demand for capital in spite of higher rates. While it may appear in such cases that the investment in the higher stage project (the power station in this example) was not a complete waste, the resulting investment in subsequent stages (e.g. in electrical motors) still withdraws capital from other uses – something that would not have happened had the original malinvestment not occurred. The result will once again be a capital structure that is sub-optimal relative to actual consumer wants.

As an aside to this, the exact opposite situation can also be frequently observed once a boom turns to bust. Major non-convertible capital investments in the higher stages may actually be completed in the technical sense at the end of a boom, but nevertheless be revealed as a waste of capital beyond the fact that their sunk costs can no longer be recuperated (in other words, the landscape does not necessarily have to be literally dotted with half-finished factories). Often their operational costs will also turn out to be higher than their potential income. As the boom draws to a close the frantic bidding for factors from the middle and lower stage industries that are attempting to complete a chain of investments may lead to an increase in labor costs and the prices of non-specific capital goods that such investments are rendered completely non-viable. So there may be newly erected plants after a boom concludes that are “finished” in a technical sense, but nevertheless represent a complete waste of capital, i.e. they might just as well be scrapped. 

Cincydawg

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Re: Electricity Update Pt 7
« Reply #25 on: February 28, 2019, 09:26:10 AM »
I worked for a large company and capital costs were a significant consideration in doing anything "different".  The sharp pencils would do a lot of work to figure payout obviously, but if a thing could produce a product 2x faster/cheaper/whatever, it would be jumped on quickly.

Back then, depreciation could be as much as 30 years and they'd take a writeoff of installed equipment pretty quickly if something was 2x better.

I can recall some items being replaced for only a slight gain, but we were not regulated like a utility and had a lot of cash flow.


HK_Vol

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Re: Electricity Update Pt 7
« Reply #26 on: February 28, 2019, 09:36:47 AM »
Coal has gone from more than 48% of electricity production in 2008 to less than 28% in just a decade.

Shedding 40% of your asset capacity (coal plants) in just one decade is pretty dramatic - especially in an industry such as utilities.

So while we may perceive the shift as "slow," I'm betting the utilities don't feel that way at all....

You can't just "switch the flip" as John Malkovich (Marvin) once said.

Cincydawg

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Re: Electricity Update Pt 7
« Reply #27 on: February 28, 2019, 09:42:34 AM »



HK_Vol

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Re: Electricity Update Pt 7
« Reply #28 on: February 28, 2019, 09:47:48 AM »
I'm running the numbers at present at work - but I'm at home so this is off the top of my head.

I think that five states will generate more than 1/3rd of their electricity from wind by 2021 with three of them generating more than 40% of their electricity from wind.

Texas is the largest producer of electricity of any state - and they'll be producing more than 20% of their electricity from wind and solar in three years' time.


Cincydawg

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Re: Electricity Update Pt 7
« Reply #29 on: February 28, 2019, 10:01:35 AM »
I'm more interested in the projections nationally, and then globally.

Is it possible to double W/S by 2030?  Is that a realistic rough projection?  Could it triple?  

Taking coal down to single digits would be a good step in my view for a variety of reasons.

I think NG is going to be around for a while (and nuclear).

Cincydawg

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Re: Electricity Update Pt 7
« Reply #30 on: February 28, 2019, 10:02:22 AM »



Cincydawg

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Re: Electricity Update Pt 7
« Reply #31 on: February 28, 2019, 10:04:29 AM »
The AEO2018 Reference case projects natural gas to remain the leading source of electricity generation in the United States through 2050, accounting for 35% of electricity generation, an increase from 31% in 2017. Projected natural gas growth in electric power generation is supported by increased competitiveness with renewables after the expiration of renewable tax credits in the mid-2020s and the relatively low forecast natural gas prices throughout the projection.

So, the projection is for NG to grow as a fraction of the grid supply, albeit slowly.  


HK_Vol

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Re: Electricity Update Pt 7
« Reply #32 on: February 28, 2019, 10:05:25 AM »
Yep.  Natural gas production up 50% in a decade.
As natty is often a byproduct of oil drilling, any money that a driller gets from the gas that comes out from the well is considered "free money."  So plenty of supply has emerged.

Fracking has been an amazing growth engine - in spite of the Obama Administration's efforts to stop it.  (New York State has actually been successful - watch for brownouts in the winter time as they have banned not only fracking, but any new pipelines crossing the state).


Cincydawg

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Re: Electricity Update Pt 7
« Reply #33 on: February 28, 2019, 10:08:15 AM »
The rise in petrochemical production in the US was the example I would use to illustrate how a President may not be responsible for some things that happen during his term, for better or worse.  One poster seemed to think my question was a trick question, I think he views me as a Trump devotee.  Others view me as a Yankee liberal.

It's amusing at times.

HK_Vol

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Re: Electricity Update Pt 7
« Reply #34 on: February 28, 2019, 10:10:17 AM »
As for solar, the numbers look as if by 2021, 1/6th (16.6%) of all electricity generated in the Southwest (California, Arizona, New Mexico, Nevada & Utah) will be from solar.  Pretty amazing given that the number was close to zero less than a decade ago.

If I recall correctly, in a couple of years, 75% of the electricity produced in Oregon and Washington will come from wind, solar & hydro (mainly hydro - but over 10% wind in Oregon).

So the mantra that a Tesla is tethered to a coal plant carries no weight in the the Northeast or Northwest.  Both generate less than 3% of their electricity from coal plants.

Cincydawg

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Re: Electricity Update Pt 7
« Reply #35 on: February 28, 2019, 10:12:48 AM »
One might argue we need no massive national investment because it's already happening on its own.

HK_Vol

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Re: Electricity Update Pt 7
« Reply #36 on: February 28, 2019, 10:34:17 AM »
One might argue we need no massive national investment because it's already happening on its own.

This.....+100


DunkingDan

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Re: Electricity Update Pt 7
« Reply #37 on: February 28, 2019, 06:04:36 PM »
Capacity retired and added in 2019 and 2020 (megawatts):

Capacity Retired:20192020Total
Coal3,9871,6985,685
Natural Gas2,0662,8994,965
Nuclear1,4822,5143,996
Total7,6967,14314,839
Capacity Added:20192020Total
Wind11,2938,95220,245
Natural Gas8,01015,39023,400
Solar4,8936,56111,454
Total24,73931,59256,331

Capacity Retired:20192020Total
Coal51.8%23.8%38.3%
Natural Gas26.8%40.6%33.5%
Nuclear19.3%35.2%26.9%
Total97.9%99.6%98.7%
Capacity Added:20192020Total
Wind45.6%28.3%35.9%
Natural Gas32.4%48.7%41.5%
Solar19.8%20.8%20.3%
Total97.8%97.8%97.8%
Most coal plants are so old it is to costly to properly maintain them and upgrade them to today's standards.
As a note there is still movement to try to keep TMI open and running.
Need to ck on the nukes that may be built at Oak Ridge. Still future plans for more units at Watts Bar. 
The attempted sale of Bellafonte (sp) has been mishandled. Hopefully it will go though at some point.
Browns Ferry was upgraded and each unit now produces ~ 200 more MW 
President Harry S. Truman said: “The fundamental basis of this nation’s laws was given to Moses on the Mount.  The fundamental basis of our Bill of Rights comes from the teachings…  If we don't have the proper fundamental moral background, we will finally wind up with a totalitarian government which does not believe in rights for anybody except the state.”

HK_Vol

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Re: Electricity Update Pt 7
« Reply #38 on: March 01, 2019, 03:01:39 AM »
Average age of a coal plant today is 40 years old and the average age of a nuclear plant today  is 37 years old.

88% of all coal plants were constructed over 30 years ago.

https://www.eia.gov/todayinenergy/detail.php?id=30812

To be shuttered in the next two years (pct. of total capacity):
North Carolina - 4%
Kentucky - 5%
Ohio - 6%
Virginia - 11%
Michigan - 6%
Arizona - 50%
Washington - 50%

Oregon shuts down its only plant in January 2021.
Washington shuts down its last plant at the end of 2025.
The only coal plant on the west coast will be a 57 megawatt plant in California - a mere rounding error.

There are only 2 plants left in New England - one in Connecticut and one in New Hampshire.
And the Connecticut plant gets shuttered in two years.

25% of Colorado coal goes away in 5 years.
By 2025, the entire coal capacity from the Rockies to the Pacific coast will be about the same as West Virginia and Kentucky have today.  About 22,000 megawatts. That's not very much.


« Last Edit: March 01, 2019, 03:28:00 AM by HK_Vol »

HK_Vol

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Re: Electricity Update Pt 7
« Reply #39 on: March 01, 2019, 03:37:28 AM »
Percent electricity coming from coal in 2018:

Northeast (New England plus New York and New Jersey):  0.9% (3.6% in 2015)
West Coast (Washington, Oregon and California):  1.9%

Texas is by far the biggest generator of electricity (11.5% of the national total).
By 2021, it is likely that Texas will get more electricity from solar and wind than they get from coal.

Kansas is likely to get more electricity from wind than coal by 2021.
Oklahoma gets nearly double the amount of electricity from wind than from coal.

I'd say there is a decent chance that coal produces less than 25% of US electricity in two years' time.

I doubt that hardly anyone would have predicted in 2008 that coal would produce less than half of the then current amount of electricity within 12 years.  But it is going to happen.

Will it disappear entirely within another 12 years?



 

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