The Energy Transition and technologies

[DoubleK]

Originally Posted by Street Pharmacist

You were saying that Green stocks tanked because they weren't as profitable as hoped. I pointed out they're more vulnerable to high interest rates due to the nature of how their electricity business goes. No one said they couldn't survive. I was simply pointing out why the stocks have tanked. It's not silly.

They tanked because of the crazy valuations that these stocks were priced at. If you look at the green electricity industry as a whole, they have massively underperformed their O&G peers. That was long before interest rates went up. Once the facilities are installed, the interest rates are locked in. Nobody on the planet aside from Algonquin is on variable debt. Nobody.

[Yoho]

As usual the stock market figures out the grift before other experts do.

Short Sellers Mount Attack on ESG Stocks Bloated From Green Hype

“ There’s “so much capital chasing” ESG assets, but there are “so few good ideas,”

“Climate stimulus is feeding “an asset bubble in this space” and sustaining some “completely terrible companies,” he said.”

https://www.bnnbloomberg.ca/short-se...75938.amp.html

[Leondros]

Originally Posted by Street Pharmacist

You just finished telling me you were meeting with Nigerian government to develop oil and gas projects, so this seems disingenuous. If you need policy help to get things done, so do other projects.



I'm not sure your analysis is correct. It's mostly due to higher interest rates for newer companies that have a shortage of cash in hand.

https://markets.businessinsider.com/...arkets-2023-11



It's not that "it's hard", it's that it's.... difficult?




https://www.forbes.com/sites/davidrv...y-reveals-all/






https://www.uni-mannheim.de/en/news/...ble-than-ever/




Here's one from 2012 about the same shortage. This isn't new. Supply chain issues abound in every industry.

https://www.usatoday.com/story/news/...rtage/1696385/

Had a chance to read through:

- first article is from 2020 and was a 5 year analysis on stock returns. You can cherry pick any range and prove your point (we do it all the time in industry). If you pick from now to 5 years ago oil and gas would vastly outperform renewable indices. I was talking more full cycle economics, not stock performance anyway.

- second article does a slightly better job on the economics front but there was no data or links to data on economics. It effectively only says costs have come down and CERTAIN projects are now profitable without subsidies. It then goes on to say natural gas is still more profitable due to its ability to take advantage of baseload power and get higher rates. Again, no numbers and I doubt they will looking at a full cycle basis.

[Leondros]

Originally Posted by Street Pharmacist

I just had another thought about this, as you hear it often. The energy transition is happening so fast that I don't think people realize where we're at.

This is from the IEA (notoriously slow at seeing where the transition is at):

-Five years ago, for every dollar spent on oil and gas one dollar was spent on clean energy. It's now 1.7 to 1 and widening fast

-by next year or 2025, more will be spent on solar development alone than oil production.



The point I'm making here, is that the money is there and they are getting it done. The issue is speed. We don't have 4-5 decades like the last transition, so we need to speed things up.

Oil and gas has also reduced its spending massively over the past 3 years as pressure from shareholders require companies to pay them back through dividends and share buybacks. All the Canadian companies alone spent only 11 B this year in capex - in 2015 it was $22B. The oil and gas industry is in the position now where upfront capital has been spent on facilities and transportation and now their full cycle is going to allow them to churn out cash flow. It makes the economics even better versus renewable energy who has the uphill battle of building out infrastructure.

Look, I am total a proponent of renewables and am supportive of subsidizing them. But the reality is fossil fuels are cheaper and more efficient and that is why they are going to be a large part of the energy mix for our lifetimes.

[Leondros]

Originally Posted by DoubleK

They tanked because of the crazy valuations that these stocks were priced at. If you look at the green electricity industry as a whole, they have massively underperformed their O&G peers. That was long before interest rates went up. Once the facilities are installed, the interest rates are locked in. Nobody on the planet aside from Algonquin is on variable debt. Nobody.

Many company’s credit facilities are on a floating component. Ie. A SOFR rate + bps. Bonds are a different story but the revolvers are mostly floating.

[Street Pharmacist]

Originally Posted by DoubleK

They tanked because of the crazy valuations that these stocks were priced at. If you look at the green electricity industry as a whole, they have massively underperformed their O&G peers. That was long before interest rates went up. Once the facilities are installed, the interest rates are locked in. Nobody on the planet aside from Algonquin is on variable debt. Nobody.

The reason for the tanking has nothing to do with the installed base, it's that the growth (which is where the crazy valuations come from) is much harder with high interest rates.

[Leondros]

Originally Posted by Street Pharmacist

The reason for the tanking has nothing to do with the installed base, it's that the growth (which is where the crazy valuations come from) is much harder with high interest rates.

The other reason they give which I think it more important is regulatory. There are more projects in the review stage than in service. Same issues plagued oil and gas for decades.

Clean energy projects like commercial and industrial solar or wind farms need to clear regulatory hurdles to be approved. And right now, sources say that permitting process is slow, burdening the build out of clean energy projects.

Also, projects that aim to supply renewable power to the grid have to wait for approval to do so. That list of requests to connect to the power grid is called the "interconnection queue." A study from the Lawrence Berkeley National Laboratory in April found that the queue was so long that it "approximately equals the installed capacity of the entire US power plant fleet."

"The poor performance is almost directly related to how long it takes for a project to get permitted," said Geoffrey Hebertson, a researcher at energy market intelligence firm Rystad Energy. "There's some serious, serious concerns, and what we're noticing is a lot of project delays because of interconnection queues and environmental impact studies, which are all incredibly important and needed, but just the way that things have been done in the past is not able to sustain all of this growth in the industry."

Some of the lagging performance of the sector can also be chalked up to bad timing

[Street Pharmacist]

Originally Posted by Leondros

The other reason they give which I think it more important is regulatory. There are more projects in the review stage than in service. Same issues plagued oil and gas for decades.

This is very true in Western countries, less so elsewhere. One big issue is speculative applications where one project will put in a whole bunch of applications hoping for approval then put the project together afterwards. But if we're talking about stock prices this issue has been plaguing the industry for a decade so I'm not sure it correlates well

[Leondros]

Originally Posted by Street Pharmacist

This is very true in Western countries, less so elsewhere. One big issue is speculative applications where one project will put in a whole bunch of applications hoping for approval then put the project together afterwards. But if we're talking about stock prices this issue has been plaguing the industry for a decade so I'm not sure it correlates well

I can assure you investors rank regulatory risk as one of the highest considerations when investing. It most certainly impacts share price. When we model investments in other companies it’s one Boards and management teams always want sensitivities on.

Naturally the amount of land wind and solar require is going to have huge and lengthy consultation process - perhaps even more so than oil and gas. Atleast oil and gas you can drill 20 wells off the same pad that takes up 100 square feet max and all assets get tied into one large facility. For solar you are taking up acres and acres of land that you basically have to own or lease forever.

[Street Pharmacist]

Originally Posted by Leondros

I can assure you investors rank regulatory risk as one of the highest considerations when investing. It most certainly impacts share price. When we model investments in other companies it’s one Boards and management teams always want sensitivities on.

Naturally the amount of land wind and solar require is going to have huge and lengthy consultation process - perhaps even more so than oil and gas. Atleast oil and gas you can drill 20 wells off the same pad that takes up 100 square feet max and all assets get tied into one large facility. For solar you are taking up acres and acres of land that you basically have to own or lease forever.

I'm also aware of the regulatory risk concerns with investing. In most places building solar doesn't require the same regulatory process as O&G because they're building something that doesn't require much environmental analysis. Having said that, my point still stands that there's no changes in regulatory risk that explains why the stocks went down

[Leondros]

Originally Posted by Street Pharmacist

I'm also aware of the regulatory risk concerns with investing. In most places building solar doesn't require the same regulatory process as O&G because they're building something that doesn't require much environmental analysis. Having said that, my point still stands that there's no changes in regulatory risk that explains why the stocks went down

But the article you posted suggests otherwise - projects getting caught up in regulatory reviews and approvals are causing decrease in the stock prices of the companies who cannot get their projects completed and producing revenue.

[Bill Bumface]

The continued problem with capitalism is we don't price environmental impact globally. We rely on individual jurisdictions to regulate or tax polluters, and inevitably that is a race to the bottom for places (justifiably) optimizing for the short term.

I don't see a solution unless we either have a very high functioning set of global laws/taxes (not bloody likely), or people are all prosperous enough that they aren't forced into very short term thinking to ensure their survival and prosperity.

Getting people out of poverty seems like the most impactful thing we can do, and that means the "have" nations need to kill the widening wealth gap within them. As the gap widens, the countries that have the luxury of making better long term decisions and helping others out of poverty will lose their collective will to do so.

[Street Pharmacist]

Some potential very good news on the horizon

https://twitter.com/user/status/1723953038010863947

[Fuzz]

Originally Posted by Street Pharmacist

Some potential very good news on the horizon

https://twitter.com/user/status/1723953038010863947

Fixed tweet

[Azure]

"On the other hand..."

China is approving new coal power projects at the equivalent of two plants every week, a rate energy watchdogs say is unsustainable if the country hopes to achieve its energy targets.

The government has pledged to peak emissions by 2030 and reach net zero by 2060, and in 2021 the president, Xi Jinping, promised to stop building coal powered plants abroad.

But after regional power crunches in 2022, China started a domestic spree of approving new projects and restarting suspended ones. In 2022 the government approved a record-breaking 106 gigawatts (GW) of new coal-fired power capacity. One gigawatt is the equivalent of a large coal power plant.

https://www.theguardian.com/world/20...e-goals-carbon

[Street Pharmacist]

SMR in the US takes a pretty big hit. NuScale is probably the most promising new nuclear company and the Utah plant was expected to be their big showing. Recent expected target price raised to $89/MWh probably didn't help



https://www.reuters.com/business/ene...ct-2023-11-08/

[Leondros]

Originally Posted by Street Pharmacist

SMR in the US takes a pretty big hit. NuScale is probably the most promising new nuclear company and the Utah plant was expected to be their big showing. Recent expected target price raised to $89/MWh probably didn't help



https://www.reuters.com/business/ene...ct-2023-11-08/

That's really disappointing, especially as I had hoped SMR's would be the answer for baseload power. At the end of the day economics always wins, no matter how many people claim otherwise. Its going to take a variety of technologies to add to the energy mix and a lot of government subsidies to achieve emissions targets.

[Street Pharmacist]

Originally Posted by Leondros

That's really disappointing, especially as I had hoped SMR's would be the answer for baseload power. At the end of the day economics always wins, no matter how many people claim otherwise. Its going to take a variety of technologies to add to the energy mix and a lot of government subsidies to achieve emissions targets.

Economics does win in the end, but policy can help shape the economics of the future. Sounds like DOE poured money in to get the cost down by funding nascent technology, but it just wasn't enough. We're gonna need something to come through though like you said

[opendoor]

Yeah, people love talking about building out massive amounts of nuclear, but when the carbon tax bumping up some energy prices by 5-10% gets as much attention as it does, then I don't think the public is going to like the price of newly built nuclear power.

[Fuzz]

And if you are going to build massive amounts, why SMR's?


Like, if we need to replace baseload in Alberta, an SMR is not gonna do it.