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Owning renewables doesn't sound like a fantastic business to be in, except maybe for hydropower plants. Massive amounts of CapEx, a commodity product that you'r

Owning renewables doesn't sound like a fantastic business to be in, except maybe for hydropower plants. Massive amounts of CapEx, a commodity product that you're locked by contract into limiting any possibility of upside...

epistasis 4y ago
Renewables developers are actually raking it in, if they are good at what they do. Due to the tax incentives, it requires very particular types of backing. Up until recently there were very lucrative power purchase agreements that would offtake your solar generation st great rates for decades. The problem is one of scale and expertise. These projects are smaller than the many billion dollar capital projects that fossil fuel companies usually embark upon. Those large fossil fuel projects also have super long payback periods, not too dissimilar from renewables. However we don't see a ton of fossil fuel expansion even with the current price spike, because there's a huge huge huge risk that any new projects started will never pay themselves back. ESG efforts have reduced appetite for capital expenditures, and other shareholders are demanding strict capital discipline. Which is for the best for all involved. We can't afford, environmentally, to star any new big fossil fuel extraction projects. The big question is who will be left holding the bag as we phase fossil fuels out.
- missedthecue 4y ago
  Eventually, the extremely generous tax benefits for building a solar field will no longer exist and when you're spending hundreds of millions to make $0.03/kwh for 20 years... I'd rather go buy bonds at that point.
  - epistasis 4y ago
    I would argue that the market will price in the risk, and that there will be successful developers who generate alpha, and some number of failed solar projects developers.
  - quickthrower2 4y ago
    This is why we need a carbon price
pjc50 4y ago
You know what else requires lots of capex and produces a commodity product? Oil.
- missedthecue 4y ago
  But oil goes to $110/barrel sometimes (like it is now), and Exxon gets to make a ton of money. With renewables, you're locked in for decades when you sign the contract. There's no upside swings. And oil isn't a great business to be in either. Return on Equity for the whole US industry since 2010 or so has been ~0%

epistasis 4y ago

Renewables developers are actually raking it in, if they are good at what they do. Due to the tax incentives, it requires very particular types of backing. Up until recently there were very lucrative power purchase agreements that would offtake your solar generation st great rates for decades. The problem is one of scale and expertise. These projects are smaller than the many billion dollar capital projects that fossil fuel companies usually embark upon. Those large fossil fuel projects also have super long payback periods, not too dissimilar from renewables. However we don't see a ton of fossil fuel expansion even with the current price spike, because there's a huge huge huge risk that any new projects started will never pay themselves back. ESG efforts have reduced appetite for capital expenditures, and other shareholders are demanding strict capital discipline. Which is for the best for all involved. We can't afford, environmentally, to star any new big fossil fuel extraction projects. The big question is who will be left holding the bag as we phase fossil fuels out.

missedthecue 4y ago
Eventually, the extremely generous tax benefits for building a solar field will no longer exist and when you're spending hundreds of millions to make $0.03/kwh for 20 years... I'd rather go buy bonds at that point.
- epistasis 4y ago
  I would argue that the market will price in the risk, and that there will be successful developers who generate alpha, and some number of failed solar projects developers.
- quickthrower2 4y ago
  This is why we need a carbon price

pjc50 4y ago

You know what else requires lots of capex and produces a commodity product? Oil.

missedthecue 4y ago
But oil goes to $110/barrel sometimes (like it is now), and Exxon gets to make a ton of money. With renewables, you're locked in for decades when you sign the contract. There's no upside swings. And oil isn't a great business to be in either. Return on Equity for the whole US industry since 2010 or so has been ~0%