Some utility companies are starting to realize what’s happened abruptly over the last couple years:
“David Crane, who runs NRG Energy, says that in fully half the states of the union, electricity from residential solar panels will be cost-competitive with that delivered by local electric utilities by next year.
DON’T MISS: Will Solar Panels Destroy Electric Utilities’ Business Model? Yes, They Say
Crane was quoted two weeks ago in a blog post by Navigant Research, which focused on his company’s aggressive efforts to migrate to solar power for a growing portion of its portfolio.”
I guess he’s just a hippy green type.
Interestingly, a few energy companies are spinning off all their alternative energy portfolios into brand new companies called YieldCos. Sort of like rats deserting a sinking ship.
Not only that, but they’re doing it in a clever way. The parent company gives them to right to acquire their alternative energy assets that they build in the future, thus taking up the mantle of up front capital that the newer, smaller company can’t sustain. The smaller company then sets up to funnel profits back to shareholders and parent company (sort of a quick and dirty master limited partnership).
While MLPs structures have a long history, if you assume dirty fossil fuel will collapse in the long run, it’s also a great way to shelter assets so that the green division’s ability to generate profit and income isn’t taken out in a collapse. Hedge your bets by granting stock in the new yieldco.
I’ve found the sudden interest in yeildcos on Wall Street interesting. Because, you always follow the money. And when the money wakes up to the basic facts on dirty electricity generation, it gets fairly fascinating.
Speaking of which, Barclays just downgraded the entire electric utility sector.
Electric utilities… are seen by many investors as a sturdy and defensive subset of the investment grade universe. Over the next few years, however, we believe that a confluence of declining cost trends in distributed solar photovoltaic (PV) power generation and residential-scale power storage is likely to disrupt the status quo. Based on our analysis, the cost of solar + storage for residential consumers of electricity is already competitive with the price of utility grid power in Hawaii. Of the other major markets, California could follow in 2017, New York and Arizona in 2018, and many other states soon after.
In the 100+ year history of the electric utility industry, there has never before been a truly cost-competitive substitute available for grid power. We believe that solar + storage could reconfigure the organization and regulation of the electric power business over the coming decade. We see near-term risks to credit from regulators and utilities falling behind the solar + storage adoption curve and long-term risks from a comprehensive re-imagining of the role utilities play in providing electric power.
The question isn’t whether we’ll be transitioning. It’s how fast, and who gets rich off the change?