LON:NG. | Utility Companies - Hurt By Renewables?

2nd Oct '14 by lucien2k

4 comments 19089 reads

So I read an article a few weeks ago that I found interesting regarding utilities and renewable energy. I wanted to solicit some feedback from others on their current feelings on utility companies in general and more specifically Centrica (LON:CNA).

This isn't the article I read, but it pretty much sums up what I did read: http://www.economist.com/news/briefing/21587782-europes-electricity-providers-face-existential-threat-how-lose-half-trillion-euros

The issue appears to be that most of the energy companies see the majority of their usage during the day time. That is when most people are awake, businesses are running, factories etc. However because of the increase of solar power in particular, which peaks during the day, they are starting to lose out on a large amount of that profit because the grid if being flooded with cheap renewable energy.

It has become a much bigger problem in countries with a warmer climate, the article I read was particularly about Australia. However the link I have posted above is actually about Germany, and their climate is much closer to ours.

Renewable energy isn't going away, and personally I think solar is the answer because the sun is much more predictable than wind. Its not going to go away.

The problem in the industry seems to be two-fold; they can't store excess electricity generated and its difficult to power down coal/nuclear plants for short periods of time. Gas plants are easier to power up/down to meet demand, that is how we have traditionally scaled to meet larger demands.

I apologise if my summation seems to ramble, but here are the questions I am struggling to answer:
1. Is renewable going to be so disruptive to the industry that we start seeing energy providers failing? dividends falling etc?
2. Is there an opportunity for companies that can provide electricity storage?
3. Overall it feels like National Grid is pretty immune to this because we'll always need that infrastructure. Have I missed something re: NG?
4. According to their website, Centrica owns 8 gas power plants, a 20% stake in EDF Nuclear Plants in the UK and some wind farms. So are they are a company that can come out on top because of their flexibility, or will their nuclear stake hurt them?

Disclosure: I currently hold long positions in Centrica (LON:CNA) and National Grid…

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cig

4th Oct '14

Renewables imply a grid with more intelligence and capacity, so NG is superficially in a very good position, but their profit level is effectively set by acts of parliament/government, so depends on how good a deal they negotiate, and how well they execute against the negotiated deliverables rather than raw demand for their services. This is true for the entire utility sector to some extent, if less so for (non-nuclear) generators, who operate in a semi-competitive market.

John18v

13th May '15

Good question. With battery storage getting cheaper,if electric companies continue to have a standing charge, some customers may decide to leave the grid. In Scotland I have seen people switching from oil heating to solar and air source heat pumps. A case could be made for electric companies to market batteries to attract customers to low cost electricity. It doesn't look good for gas.

WarrantStar

I think the way that it will go is as follows:

1) The cost of solar production of electricity is falling and will continue to do so.
2) The technology to store such energy is advancing
3) The cost of high capacity batteries will continue to fall.
4) It will become increasingly common for domestic & industrial users of electricity to produce and store their own electricity and store it to use when they require it.

I can't see many users leaving the grid because they will need the grid to supply during their periods of maximum usage. But they will overall be using less electricity supplied through the grid.

extrader

Hi all,

Here's a slightly dated article from the Economist that has a lot to say about European utilities, there's probably some useful read-across to the UK situation, which I don't myself follow.

http://www.economist.com/news/briefing/21587782-europes-electricity-providers-face-existential-threat-how-lose-half-trillion-euros

HTH
ATB

Utility Companies - Hurt by renewables?

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Lucien2k

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