Market Assessment Based on Muddled Thinking

Seeking Alpha is a financial and market website. In a recent post, it took ExxonMobil to task for its Chairman’s annual meeting remark about renewables. In answering a question, he said, “We choose not the lose money on purpose”.

Seeking Alpha maintains that renewable energy is clearly on the rise (with solar PV showing particular promise). It then asserted that delaying investment in renewables, especially solar, will make ExxonMobil worse off.

This is a very strange conclusion and seems to be based on the claim that Solar PV has fallen from $76/watt to a “mere” $0.30/watt, with costs likely to keep falling according to Seeking Alpha. Seeking Alpha’s assessment seems to be tied to Moore’s Law for continuous decline in cost of semi-conductors. That is interesting but somewhat irrelevant for a power generation system as semi-conductors are only one part of the cost of an electrical power system.

Where the number $0.30 came from is anyone’s guess. A recent article in Power for USA referenced EIA’s levelized cost of electricity—LCOE—for the year 2019. It lists Solar PV at 13 cents/kWh. That is double EIA’s estimate of 6 cents/kWh for combined cycle natural gas. When capacity and investments are taken into account, EIA comes up with a cost for solar PV that is 60% greater than natural gas.

In EIA’s Annual Energy Outlook to 2040, renewables grow from 13% of electrical power generation to 18% . EIA projects that 109 GW of renewable capacity will be added by 2040 but only 31GW is solar PV. EIA must be missing something also.

No matter how much renewable advocates promote them as replacements of fossil energy, the fact remains that they are low density and interruptible. It is hard to see how wind and solar, advocates favorites, can be anything more than niche sources of electrical power for most of the nation. And, until there is a technological and cost effective breakthrough for power storage, they will remain as such.

The future of renewables is dependent on subsidies not advances in technologies and their being cost-competitive. Without subsidies and mandates, it is extremely doubtful that power generators would be investing in them. Why would they want to lose money on purpose?

The other part of the Seeking Alpha post that must have been purposely ignored is the fact that ExxonMobil and other oil companies produce petroleum products in addition to natural gas. The Seeking Alpha post made no comment about liquid fuels. It ought to be clear that as long as cars and trucks rely on internal combustion systems, and airplanes rely on jet fuel and avgas, there will be a strong demand for oil products. EIA also confirms that reality. Like solar, electric vehicles and plug in hybrids live off of subsidies. Taxpayers sooner or later will get tired of having their money go to the well off who want to showcase their environmental values.

Successful companies, independent of the industry they belong to, are successful because they do solid and realistic long range planning, objectively assess and invest in technology, are well managed, and can deliver a solid return to their shareholders. Betting on technological miracles that are nowhere in sight and on continued government handouts is not a smart strategy.

 

This article appeared on the FuelFix website at http://fuelfix.com/blog/2015/06/14/market-assessment-based-on-muddled-thinking/

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