Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
AI Tech Stock PORTFOLIO NAME OF THE GAME - 29th June 22
Rebounding Crude Oil Gets Far Away from the Bearish Side - 29th June 22
UK House Prices - Lets Get Jiggy With UK INTEREST RATES - 28th June 22
GOLD STOCKS ARE WORSE THAN GOLD - 28th June 22
This “Bizarre” Chart is Wrecking the Stock Market - 28th June 22
Recession Question Answered - 28th June 22
Technical Analysis: Why You Should Expect a Popularity Surge - 28th June 22
Have US Bonds Bottomed? - 27th June 22
Gold Junior Miners: A Bearish Push Is Coming to Move Them Lower - 27th June 22
Stock Market Watching Out - 27th June 22
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Renewable Energy Could Cause Your Electric Bill to Plummet in 2013

Commodities / Electricity Oct 24, 2012 - 10:32 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleDr. Kent Moors writes: As we come to the end of an election campaign cycle, something else will be ending as well.

Wind subsidies.

A poster child for the ongoing debate over government support for renewable energy, the wind subsidy will expire at the end of 2012. Amidst the fog and din of a political war, Congress is not going to renew it.


The wind subsidy amounts to a tax credit of some $22 per megawatt hour. Critics note that the wholesale price of electricity in many parts of the U.S. costs $44. That means the credit accounts for 50% of the grid cost.

On the solar energy side, the primary federal subsidy provides a tax credit of 30% for the cost of installed equipment. That will drop to 10% at the end of 2016. Already, a separate cash grant for up to 30% for solar energy equipment expired at the end of 2011.

Of course, both approaches have generated a considerable amount of criticism from mainly conservative opponents.

These critics claim that the only reason wind and solar are even in the game is because of these subsidies. Without them, they argue these sources of energy are not cost effective otherwise.

Then, there are others who prioritize environmentally friendly energy sources. But the penchant against government involvement and the assumption that federal subsidies are always an inefficient usage of taxpayer funds are at the core of the argument.

So, who is correct?

The Hidden Cost of Green Energy Production
On Monday, Pilita Clark wrote an interesting piece in the Financial Times exploring the net effect of renewable subsidies in the U.S. and Europe.

She highlighted a little considered result of wind and solar production: it runs the risk of destroying profit margins for conventional producers.

In fact, according to Clark, “Some utilities risk having as much as half their power generation profits wiped out by 2020 as renewables reshape energy markets say analysts at UBS, which recently downgraded RWE, the German power company, EDF of France, and the Czech Republic’s CEZ Group as a result. Other effects are only starting to be understood as the growth of renewable power soars.”

The result could be a dramatic decline in electricity costs.

That may seem like a great effect for a house or small business owner wrestling with high energy expenses.

But it is a very different matter for the other side of the equation.

Market prices could actually crash, as Clark notes, “because renewable power generators, which have large subsidies, low operational costs and free fuel, can offer cheaper prices than owners of plants running on conventional fossil fuels.

The crucial element revolves about prices during peak times. These are weekday periods in which demand is highest and where power providers make the bulk of their revenues. Prices and volumes are always elevated during peak times.

Yet the experience in Germany, where a government is moving a portion of the nation’s energy infrastructure from reliance on nuclear to wind and solar, is of some concern to conventional generators. Evidence has already surfaced that solar power is diminishing the traditional peak profit opportunity.

Clark observes that wind power has demonstrated an ability in the American market to produce “negative prices,” situations in which power ends up begin sold at a loss. This has been the case in Texas, where more wind power has been installed than in any state. A recent study released by the Northbridge Group indicated negative pricing has increased sharply as wind farms spread over the past four years.

Not all observers accept such, and what defines an actual market impact remains contentious.

Nonetheless, subsidies reaching 50% of the wholesale price of electricity does provide an obvious incentive to sell electricity below generation costs.

Why not, if the taxpayer is footing at least some of that bill?

Two matters, however, are becoming clear. The first points out that the consumers are still footing a higher cost from the power because it is being generated via taxpayer subsidies. And on that score, while the tax credit for new equipment is expiring, other subsidies of the electricity generated using existing plants will continue.

Second, the largess from lower prices is not yet being experienced by the end user.

There are only indirect connections to the monthly bill. Even in a place like Germany, where renewables are apparently having a major impact, there are moves to blunt their effectiveness in lowering prices.

As profit margins decline, German power transmission companies have announced an almost 100% increase in fees on renewable-sourced electricity. Now, many observers point out such additions will disappear once the infrastructure is completed. But in the interim, these new duties will hit retail consumers hardest. That is because many businesses have an exemption to protect their international competitiveness.

Ultimately, electricity rates may be coming down because of government subsidies. Just how much of that ends up in the pocket of a normal consumer is unknown.

On the other hand, this may not be an encouraging signal for the retail investor.

As Clark aptly explains, “On the upside, more renewable energy should mean fewer carbon emissions. But if you invested your pension money in what you thought was a solid, safe utility, you may want to reconsider. And lower market prices could discourage new power plant investment.”

Seems one hand giveth, and the other hand taketh away.

Source :http://moneymorning.com/2012/10/24/energy-prices-2013-renewable-power-could-cause-your-electric-bill-to-plummet/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in