Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

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

6 Critical Money Making Rules