“Renewable energy is so unlike fossil fuel energy,” says John Farrell, a senior researcher with the Minneapolis-based Institute for Local Self-Reliance, a group pushing distributed generation. “You don't need large amounts of capital to build it, you don't need to produce it all in one place and use high- voltage transmission lines to transport it somewhere else. The idea that we would continue to have a centralized form of ownership and control of that system is really inconsistent with what the technology enables.”
Farrell is a supporter of distributed power. However, the Bernstein energy industry black book, a kind of bible of energy trends published by Sanford C. Bernstein that's followed devoutly by institutional investors, also predicts that parity in the cost of unsubsidized solar and conventional electricity will radically change the energy dynamic.
“The technology and energy sectors will no longer simply be one another's suppliers and customers,” the report finds.
“They will be competing directly. For the technology sector, the first rule is: Costs always go down. For the energy sector and for all extractive industries, costs almost always go up. Given those trajectories, counter-intuitively, the coming tussle between solar and conventional energy is not going to be a fair fight.”
Eoin Treacy's view Themes such as the growth in natural gas supply from what were previously considered unconventional sources, the high price of energy encouraging efficiency, the pace of technological development and a regulatory environment heavily skewed in favour of wind and solar is creating a highly disruptive environment for utilities. Those that keep pace with change will survive and possibly thrive. The outlook is likely to be much more uncertain for those that fail to innovate.
The Dow Utilities Average (P/E 14.4, DY 4.07%) has a long record of dividend growth and competitive yields and it performed impressively from the 2009 lows as demand for investments with defensive characteristics increased. The Average surged higher from November in a manner inconsistent with the previous three-year uptrend and subsequently experienced its largest decline since early 2009. The net result is a loss of momentum with prices currently trading at the same level as this time last year. A sustained move above 500 will be required to reaffirm medium-term demand dominance and question current scope for additional volatility and ranging.
NextEra Energy (Est. P/E 16.4, DY 3.25%) is the largest weighting in the Average at over 12%. The company's largest division is Florida Power and Light at 72% of revenue. The company manages gas, coal, nuclear, wind and solar power generating facilities. The share has found support in the region of the 200-day MA on successive occasions since completing a three-year base in 2012 and is currently pulling back to test the region of the trend mean
Consolidated Edison (Est. P/E 14.94, DY4.39%) has been ranging with a downward bias for a year and is now testing the lower side of the 10-month range. While somewhat oversold in the short term, the overall pattern has Type-2 top formation with right hand extension characteristics, as taught at The Chart Seminar. A sustained move back above $60 will be required to question that hypothesis. Southern Corp (Est. P/E 15.4, DY4.82%) has a similar pattern.
FirstEnergy Corp (12.74, DY 5.76%) has found support in the region of the lower side of its four-year base and a sustained move below $35 would be required to question current scope for some additional upside.
Only 23% of AES Corp's (Est. P/E 10.1, DY1.24%) revenue originates in the USA. Latin American utilities represent 64% of revenues. The share has been confined to a range since 2009 and is currently trending towards the upper boundary.
NRG Energy (Est. P/E 24.78, DY1.83%) broke successfully above $25 in March and has been ranging in a process of mean reversion since. The share found support at that level again last week and a sustained move below it would be required to question recovery potential.