[T]he U.S. wind-energy industry went on a $25 billion growth binge in 2012, racing to qualify for a federal tax credit that was set to expire at year’s end.
The surge added a record 13,124 megawatts of wind turbines to the nation’s power grid, up 28 percent from 2011. The new wind farms increased financial pressure on traditional generators such as Dominion Resources (D) Inc. and Exelon Corp. in their operating regions. That’s because wind energy undercut power prices already driven to 10-year-lows by an abundance of natural gas.
We continue to go down the path already trod by others, in this case Germany. While in alternative energy circles Germany may be better known for solar power, they were also the driving force behind wind power development. The problems Bloomberg talks about here, negative prices in some off-peak hours, shutting down of coal and nuclear plants, is exactly what has happened, and is happening, in Germany.
I am a little befuddled when this appears as a surprise to some in the industry; the handwriting is on the wall, written not only in Germany, but Australia and Hawaii, too. People all over the world like renewable power and, generally, dislike utilities. When told the utilities are losing money, their reaction is “Good!” People won’t feel the effects for awhile, and when and if they do, the utilities will not have a reservoir of goodwill to fall back on; instead, they will be blamed for the problems.
What is next as we follow Germany down the renewables path?
The Stoxx Euro 600 Utilities index, with its January 1, 2008, level rebased to 100, now trades at 46, compared with 81 for the all-industry Stoxx Europe 600. The eurozone-only utilities index is at 35 and has lost 312 billion euros ($407 billion) in market cap. Reuters: Renewables turn utilities into dinosaurs of the energy world
Look for electric energy conglomerates to lose up to two-thirds of their value, on average, over the next 5 years. Distribution companies can thrive, but only if they take steps now to correct their prices and their relationships with customers.