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One thing to think about when reading news like this (which is something I learned through the first solar boom): While counterintuitive, it can at the same tim

by hannob 4y ago

One thing to think about when reading news like this (which is something I learned through the first solar boom): While counterintuitive, it can at the same time be true that a technology is booming and companies building that technology are struggling. It's not that surprising once you think about it: Booming technologies means more companies enter the market. Some will be able to produce cheaper or better products than what's already there. If the old ones can't adapt they'll struggle.

boringg 4y ago
I would say in climate tech it's a bit different. Yes companies can be suffering but typically for any of these energy technology companies they have significant manufacturing costs and long periods in which they have to deploy that capital to physically manufacture goods. It isn't necessarily the competition that sinks the companies its the market structure and timing. In the case of solar what happened was that the Chinese government underwrote Chinese manufacturers who produced significant volumes of solar panels which they dumped on the global market for incredibly cheap prices which put pressure on all the other global manufactures and consolidated the market. That said a lot of the Chinese manufacturers also went bankrupt as they undercut each other on prices to fill out the manufacturer queue. Also in energy tech you don't have infinite upside like technology -- as you deploy hard capital you have a finite range that you can get returns on. In the electricity markets you typically have to build technology and sell it for cheaper than what is currently available (i.e. project finance your project on a PPA < market rates). Already a fundamentally difficult structure to do well in - add in regulatory slowdown, political mandates, utilities as your clients (slow lead times).
ABeeSea 4y ago
Also growth is hard to manage. And GE power has multiple business lines ( nuclear, hydrogen, off-shore wind) that might be better investments and higher margins than onshore wind.
ncmncm 4y ago
Offshore wind is turning out to be a lot easier to sell. Unfortunately, the skills involved in deploying on land don't transfer very easily to sea work. Doing anything at sea is a specialty of its own. So, people with long sea experience will learn to put up wind turbines.
- MonkeyMalarky 4y ago
  I read somewhere that companies who build platforms for oil rigs were getting into it since they already have the necessary expertise.
  - Schroedingersat 4y ago
    That was problematic too because the overriding goal with an oil platform is to get it pumping asap due to the high value of the product and size of costs already sunk. A wind turbine (even an extremely large one) otoh is only earning $400/hr so if you spend a million dollars getting it up 3mo earlier you've made a loss. I'm sure some have adapted though.
    - ncmncm 4y ago
      Labor is adaptable, management less so.
eldaisfish 4y ago
this does not translate well to an industry like wind energy where there are multiple moving parts, literally and metaphorically. the solar industry is literally zero moving parts. Panels and inverters are off-the-shelf commodities that are in a race to the bottom for price. this is further helped by the fact that they are largely interchangeable. Wind turbines do not function like this and they are complicated, dynamic systems requiring continuous monitoring and regular maintenance. The reality here is that the wind energy industry is and will continue to see a boom and order books are often full years into the future. Despite the headlines, onshore wind isn't going anywhere because there are many regions around the world where offshore wind does not work well. Offshore wind is being hyped up by Europe - coincidentally, a region with relatively shallow seas and limited land area. Despite the boom, there are not that many manufacturers of wind turbines precisely because it is a capital intensive industry. This is not good news.
adrianmonk 4y ago
Disruption creates winners and losers.
gen220 4y ago
Warren Buffet has some quote on capital intensive industries like you say. "The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down." [1] The last sentence is a sarcastic quip, for those who aren't familiar with his personality. [1]: warning, pdf link: https://www.berkshirehathaway.com/letters/2007ltr.pdf https://www.berkshirehathaway.com/letters/2007ltr.pdf
- snake_doc 4y ago
  I don’t think he’s particularly concerned with capital. It’s the lack of competitive advantage that is key. Insurance (the classic financial services industry that is Buffet’s life blood) is one of the most capital intensive industries. Airlines lack substantial economies of scale, customer captivity, captive supply, or regulatory protections. The airline industry is a textbook case of an industry with no durable competitive advantages, thus the only performance factor is operational efficiency. Insurance on the other hand, there are substantial economies of scale (large fixed costs and also larger insurance companies are more diversified thus less costly/risky) and high customer captivity (high switching cost, high search cost).
  - gen220 4y ago
    You're right! I was lazy with my words, it's definitely the durability that he's concerned with. The word durable, from the quote, is even emphasized in the original text.
  - nradov 4y ago
    Airlines have huge economies of scale due to network effects. Most customers will only buy a ticket if they can reach their final destination on a single airline with only one (or at most two) transfers. Code share agreements with partner airlines only partly mitigate this. The other major factor which prevents airlines from ever sustaining high profits is pilot unions. The pilots will demand most of the extra profits, and usually get it because a strike instantly shuts down the entire airline.

by hannob 4y ago

boringg 4y ago

I would say in climate tech it's a bit different. Yes companies can be suffering but typically for any of these energy technology companies they have significant manufacturing costs and long periods in which they have to deploy that capital to physically manufacture goods. It isn't necessarily the competition that sinks the companies its the market structure and timing. In the case of solar what happened was that the Chinese government underwrote Chinese manufacturers who produced significant volumes of solar panels which they dumped on the global market for incredibly cheap prices which put pressure on all the other global manufactures and consolidated the market. That said a lot of the Chinese manufacturers also went bankrupt as they undercut each other on prices to fill out the manufacturer queue. Also in energy tech you don't have infinite upside like technology -- as you deploy hard capital you have a finite range that you can get returns on. In the electricity markets you typically have to build technology and sell it for cheaper than what is currently available (i.e. project finance your project on a PPA < market rates). Already a fundamentally difficult structure to do well in - add in regulatory slowdown, political mandates, utilities as your clients (slow lead times).

ABeeSea 4y ago

Also growth is hard to manage. And GE power has multiple business lines ( nuclear, hydrogen, off-shore wind) that might be better investments and higher margins than onshore wind.

ncmncm 4y ago

Offshore wind is turning out to be a lot easier to sell. Unfortunately, the skills involved in deploying on land don't transfer very easily to sea work. Doing anything at sea is a specialty of its own. So, people with long sea experience will learn to put up wind turbines.

MonkeyMalarky 4y ago
I read somewhere that companies who build platforms for oil rigs were getting into it since they already have the necessary expertise.
- Schroedingersat 4y ago
  That was problematic too because the overriding goal with an oil platform is to get it pumping asap due to the high value of the product and size of costs already sunk. A wind turbine (even an extremely large one) otoh is only earning $400/hr so if you spend a million dollars getting it up 3mo earlier you've made a loss. I'm sure some have adapted though.
  - ncmncm 4y ago
    Labor is adaptable, management less so.

eldaisfish 4y ago

this does not translate well to an industry like wind energy where there are multiple moving parts, literally and metaphorically. the solar industry is literally zero moving parts. Panels and inverters are off-the-shelf commodities that are in a race to the bottom for price. this is further helped by the fact that they are largely interchangeable. Wind turbines do not function like this and they are complicated, dynamic systems requiring continuous monitoring and regular maintenance. The reality here is that the wind energy industry is and will continue to see a boom and order books are often full years into the future. Despite the headlines, onshore wind isn't going anywhere because there are many regions around the world where offshore wind does not work well. Offshore wind is being hyped up by Europe - coincidentally, a region with relatively shallow seas and limited land area. Despite the boom, there are not that many manufacturers of wind turbines precisely because it is a capital intensive industry. This is not good news.

adrianmonk 4y ago

Disruption creates winners and losers.

gen220 4y ago

Warren Buffet has some quote on capital intensive industries like you say. "The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down." [1] The last sentence is a sarcastic quip, for those who aren't familiar with his personality. [1]: warning, pdf link: https://www.berkshirehathaway.com/letters/2007ltr.pdf https://www.berkshirehathaway.com/letters/2007ltr.pdf

snake_doc 4y ago
I don’t think he’s particularly concerned with capital. It’s the lack of competitive advantage that is key. Insurance (the classic financial services industry that is Buffet’s life blood) is one of the most capital intensive industries. Airlines lack substantial economies of scale, customer captivity, captive supply, or regulatory protections. The airline industry is a textbook case of an industry with no durable competitive advantages, thus the only performance factor is operational efficiency. Insurance on the other hand, there are substantial economies of scale (large fixed costs and also larger insurance companies are more diversified thus less costly/risky) and high customer captivity (high switching cost, high search cost).
- gen220 4y ago
  You're right! I was lazy with my words, it's definitely the durability that he's concerned with. The word durable, from the quote, is even emphasized in the original text.
- nradov 4y ago
  Airlines have huge economies of scale due to network effects. Most customers will only buy a ticket if they can reach their final destination on a single airline with only one (or at most two) transfers. Code share agreements with partner airlines only partly mitigate this. The other major factor which prevents airlines from ever sustaining high profits is pilot unions. The pilots will demand most of the extra profits, and usually get it because a strike instantly shuts down the entire airline.