Investing in Electricity

Published on 01/19/18 | Saurav Sen | 5,022 Words

The BuyGist:

  • In the US, the power sector is economics-driven - the most economical power plants are called upon to generate the most electricity. 
  • Traditionally, Coal Plants have been the most economical. Lately, since the US Shale revolution, Natural Gas plants have eaten into Coal's share of the "power pie".
  • But the economics of Wind and Solar Power prove to be more compelling every year - with or without subsidies. 
  • The key to massive growth in Wind or Solar, however, lies in the evolution of Electricity Storage (Battery) technology. This presents us with 2 scenarios: the worlds as it is today OR the world with cheap, scalable Battery technology. 
  • The chances of the second scenario - if/when Battery Technology becomes economical enough to deploy on an industrial scale - is high enough to strengthen the investment case for Renewable Energy.
  • Onshore Wind Energy, in particular, seems to be the safest sport to play consider the 2 scenarios and their (subjective) chances of actually happening. 

Power Struggles

Since the US Shale revolution started a few years ago, there has been a battle for the title of “#1 Source of Power”. The two contestants have been Natural Gas and Coal. In 2016, Natural Gas usurped Coal’s long-standing title. In the summer of 2017, Coal snatched it back. The tussle is on. The X-factor in this battle, however, is a scrappy upstart: Renewable Energy. Wind and Solar Power have been growing at a rapid pace – partly due to legislative help and partly due to good ole Economics. The pace at which they’ve been growing can not only sustain itself, but accelerate in a massive way if Battery Technology makes significant progress. Battery Technology is the game-changer – that has the power (pun intended) to make it a 3-way race to domination between Coal, Natural Gas and Renewables. Politics will unfortunately play a role in this tussle. Eventually, however, Economics will decide their fate.

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