“We’ve all taken some big hits, but this is America.  With more energy from coal, the fuel that supplies over 1/2 of our energy affordably, we’ll keep energy costs in check, jobs in America, and together we will power the next great comeback!”  - American Coalition for Clean Coal Electricity.

Now, in December of 2012,  you would think they were talking about shale gas.

Environmental activist Robert F. Kennedy Jr. one liners at “greenwise Sacramento”, 11/19/2010 aimed at the anti-clean energy forces:

• trogledytes on Capital Hill
• sock puppets of polluters
• toadies on Fox Radio
• treating the planet like a liquidation
• phony think tanks on Capital Hill
• monopolistic kleptocracy
• biostitues who will say anything
• carbon cronies
• dirty fuels from hell !
• green clean energy from heaven !

I was on my feet, pumping my fist and looking for a demonstration.  Very entertaining if nothing else.

Why do I say the blush is off the sustainable energy business?   Here are a couple of quick reasons:

• shale gas in the US is providing a clean, low cost energy supply that is directly competing with renewable electric generation.  One location where I generate electricity had the “Short run avoided cost”  electric price for May set at less than $20/MWh!  This super low prices stems from cheap gas,  tons of efficient combined cycle generation in the western US, and locational marginal pricing penalizing a rural location.  Try to generate anything, much less solar or wind, at that price level.
• budget problems everywhere are affecting subsidies and subsidies are what have gotten the sustainable energy business rolling, and
• the growing realization that no progress is being made, or frankly is likely to be made, on green house gas emission reductions is leading to diminished support for the subsidies  supporting higher cost low-carbon sources.  The subsidies aren’t just high tariff rates but also RPS programs and cap-and-trade programs monetizing RECs.

That said, there has been a lot of progress made,  particularly in the electric generation arena.  Wind and solar are now more efficient and lower cost then ever before.  And of all the renewables they have proven to be scale-able to a meaningful size.   It also possible that EVs will able to improve their competitive position against gasoline / diesel internal combustion engines.  EVs work, it just a matter of cost.  And sustainable energy has real value as a hedge against the inevitable price excursions in the fossil markets.

Meanwhile, low gas prices are driving the price paid to older renewable producer in California to near record low levels.  In  PG&E the April price for “Short Run Avoided Cost” is 2.7 cents/kWh.  IMO prices this low will cause some renewable facilities to shut in, unable to recover operating costs, much less insurance or property taxes.   It’s ironic for a state that is imposing a 33% RPS standard and implementing a cap and trade system to have a pricing mechanism that will force some production to, effectively, be flared.

Note that the CPUC didn’t update the MPR in 2010 as gas prices were falling creating the “plateau” in 2009/2010.  If the MPR were updated now I would expect another drop for the simple reason the gas prices used in 2011 are unrealistic.  The 2011 NYMEX monthly contracts averaged to yield a 2012 price of $4.84/mmBtu.   As of today, the Mar – Dec 2012 contracts averaged $3.05 and the monthly contract didn’t exceed $4.84 until Dec 2016.

So why does this matter if California has mandated 33% RPS and FERC has allowed avoided cost to be set based on tranches of RPS requirements?

Today’s records were set due to a small uptick in inflation expectations, not decreases in Treasury yields.   In an effort to stimulate the economy US policy makers continue to operate fixed income markets at an historic low yield point.  If the theory is that low cost money will stimulate borrowing and hence economic expansion, the evidence of the last few years is, IMO, weak.  If the theory is that low yields will make equities look more attractive leading to higher equity markets this seems to have happened post 2008 crash.   Does this cause me to change my key FI/Equity allocation? No.