PJM Auction Results. With the PJM capacity auction results coming this week, expect headlines countering a renewables trend. Under the MOPR developed by the Trump administration, gas and some coal plants are expected to clear the auction and gain another round of survival. This is a policy driven result that does not mean anything for the future of renewables both from a cost or regulatory perspective. As you read the headlines, make sure you counter the argument that baseload is a real thing. In reality, we are transitioning to a power market that will value all parts of energy generation, transmission and regulation at a much more granular level which provides real value to energy storage assets in a power market (PJM) where storage has yet to really gain traction. Stay tuned…
Bus and Fleet Market. BYD and Proterra are the EV buses that you all know and more are coming. There will be no shortage of manufacturers that either OEM their own or use 3rd party technology, commercial fleets and buses will electrify. The opportunity is going to be segmented in two additional follow ons besides selling and servicing the hardware. First and more interestingly is the 3rd party ownership of those fleets, especially as it comes to transit groups and schools districts. If I weren’t fully involved at FlexGen with energy storage already, I’d be looking to finance electric school bus fleets. Taking the capital cost away from cash strapped school districts and financing them like we did with solar is a great capital deployment opportunity. Second is the contract to provide the electricity that the buses need, a fuel contract that is likely driven to actually be a renewable electricity contract as districts look to reach their environmental goals.
Distributed Congestion. There is another aspect to fleet electrification. Whether it’s a fleet of buses or delivery vans, they tend to drive a predictable route during the day and sit dormant at night. This means that fleets will have to charge in a small window of time, at the same time. By creating a new local peak for energy and capacity, the cost curve of the local market could react, actually creating an inconvenient supply and demand situation. Depending on the node, a large enough peak, charging a high power rates (like buses do) could create congestion pricing that is also not currently happening. In every problem lies an opportunity especially for the financier of the fleets, to control the energy contract and add a grid damper in the form of energy storage at the fleet charging location. By being a market maker and not a price taker (my coined phrase highlighting the value of storage), the fleet location could become a dynamic source of congestion or relief depending on how the asset is utilized, potentially creating additional arbitrage revenue opportunity for the finance company/asset owner. All of this backed by the school district cash flow on the bus financing, neatly packaged in an investment grade contract.
Buying Pipelines. Oil majors versus utilities, basically corporate giants that have 50 years corporate bond capital at sub 2% cost, are coming for the generation. That generation is being acquired earlier from developers, like BP acquiring 9GW pipeline from 7X Energy and putting it through their Lightsource platform. Pipelines are the valuation of opportunities that have real estate (or options), interconnections (or application/queue positions) and revenue streams (or power market pricing). The majors, as we outlined a few weeks ago, are well positioned to, potentially better than most utilities, to maximize the revenue streams from these pipelines. They are already managing the book of contracts for many retail energy providers plus getting into retail energy themselves (like BP did a few weeks ago). And if you remember what I wrote at that time, I highlighted the need to be offering retail energy contracts to fleets that are electrifying so they don’t lose the revenue stream when those fleets go from fuel to energy. This entire day of news is connected, and interconnects serviced by energy storage are the glue that hold the thesis together.
Opinion
News
Opinions:
Have a great day!
Yann
All Roads To West Virginia. The White House is working with Senator Manchin to drive a bipartisan option for the infrastructure bill which is currently gapped by some $700billion between the two sides. To get the reach to the other side of the aisle, Biden’s team is working with Senator Capito from WV and her group of Senators to find ways to make the bill approvable from their perspective. The two sides are talking and while there is public disagreement about where things stand, both Capito and Buttigieg seem to be indicating optimistic potential to find a road forward.
The Undertones. West Virginia needs the economic uplift that the infrastructure bill provides. In a world where coal has been driven out by capitalism, West Virginia is ready, willing and able to provide the support America needs for physical infrastructure and adopting climate change solutions. I note that the state legislature in WV recently approved solar leases and while WV is very red, it is also very unionized for labor and overlaps with the goals of the infrastructure bill. There are also billions in allocations for coal mine decommissioning and local infrastructure work that Manchin and Capito would like to bring home.
Taxes. You haven’t head a lot about the infrastructure bill adding to the deficit. Infrastructure spending is very popular on both sides of the electorate and Biden had proposed a $2.2trillion bill that was fully funded by recouping half of the tax cuts passed in the previous administration. The GOP is going to trade the tax rate increases for a smaller infrastructure bill using deficit spending instead of increasing the tax rate and nobody wants the public to really know that everyone in DC loves deficit spending when it creates revenue for every congressional district in America.
A Map Of Need. The NYT has a nice visualization of where in America we need to built more solar and wind. You’ll see that the map has pockets of resource that then rely on transmission to spread the electrons to the demand pockets which are not always overlapping with the resources.
Opinion
News
Opinions:
Have a great day!
Yann
Have A Great Weekend. This will be the week that highlights another significant set of events in the energy transition. If you want to see how far we’ve come, read the IEA’s World Energy Outlook from 2012.
Opinion
News
Opinions:
Have a great day!
Yann
The Climate Pendulum Swings. Big news from a shareholder vote at the Exxon shareholder meeting. It appears, at first indication, that Engine No. 1, an activist investor, has won the election of at least two board seats that are considered to be in line with the fund’s climate change-related goals. Reporting highlights the need for final vote counts as the activist attempted to win four board seats but Exxon losing the election of two of their preferred directors is near unprecedented.
Emissions Must Be Reduced. At the same time, in the Netherlands, Shell was told by a Dutch court that it was obliged to lower emissions by 45% by 2030 compared to 2019. This was related to the impact that the company was causing to people though the Court gave in to the company saying that current emissions were not unlawful. The company expects to appear the decision which is not expected to be enforceable beyond the Dutch border.
So Many Billions. Ford announced it would invest $30billion to build out its electric vehicle manufacturing.
Advocate For Storage. SEIA announced yesterday that it was launching a Storage Advocacy Network. CEO, Abby Hopper, said “There is a massive gap between our energy storage goals and where we are now, and business as usual is not a recipe for success.” I guess it’s a good time to get into energy storage?
Bill Speaks, Listen. The biggest question regarding the anti-solar legislation is how it is even possible in this era. Why would the State that has invested so much in building out the solar market turn that around with a single bill? A bill you say? Bill Walton says no dice to AB 1139 and he’s getting involved!
Opinion
News
Opinions:
Have a great day!
Yann