Thanks for the detailed discussion. I would add two additional thoughts:
1. The true cost of energy can not be determined because the biggest externalities are the present value of future costs. I have not seen anyone adequately address that. It may be an impossibility. Let me give a facetious example. The cheapest source of energy may be to burn your house, but the present value of obtaining future shelter is ignored if you accept that low cost as a benefit.
2. Wind energy may be competitive but the supply/demand relationship raises costs, as you point out. The wind doesn't blow steadily and may blow the least when electricity demand is high. To move to significant wind power (maybe 10%, but certainly by 15% or 20%) requires energy storage to be economically efficient. The output must be fitted to demand or over capacity is needed to handle some periods of peak demand.
Please post any further things you find on the economics of alternative energy. I believe that our economic future depends on solving the limitations that energy resources place on us. After all, we don't want to discover that we used cheap energy only to discover later that we burned our house to get the BTUs.
I have to track down the references I've seen that I am recalling right now from memory. The numbers I am remembering is that wind, coal, natural gas and nuclear are all between 5 and 6 cents per wwh (U.S. average) with coal the cheapest around 5 cents, then wind and natural gas both near 5.5 cents and nuclear 5.9 to 6 cents. Solar, as I recollect, is up around 10 cents, but should come down as technology keeps improving. Few expect that photovoltaic solar will ever get down to the cost of the "cheap four". I don't remember what the average cost for hydro was, but I think it was just above nuclear. I did an analysis of electricity from heat differentials in ocean currents and that came in the 9 to 10 cent range with little chance of significant reductions. I don't have numbers for the cost of using tidal flows and wave motion.
I really need to do more careful research and analysis on the cost aspects of energy from various sources. Hope I can get to that shortly (maybe a month or two?).
Thanks Fran. Others have suggested I look ar FPL as well, some with a positive bias and some negative. Given that diversity of opinion it should be worthwhile to analyze.
Public Policy and Your Investment Decisions [View article]
Very reasoned discussion. I agree: Follow politics to help in making investment decisions, but do not use (your own) political opinion to guide investment policy.
Canaccord Adams on Four Likeliest Economic Scenarios for 2009 [View article]
I, for one, appreciate the perspectives of the author. I guess that puts me in a minority of one so far in this comment stream.
I see several stocks I have owned in the past but been out of for nine months and longer. One stock I do own (and haven't seen commentary on) is HOLX. I have been short against the box for six months to protect past capital gains because my analysis indicates much higher fair value. If we have recession (depression?) that lasts more than 18-21 months, my fair value estimates will be too high. But, even then, my assessment is the current price is too low.
Update on 10 Alt Energy Speculations for 2008 [View article]
Thanks for this update. I have some opinions to add:
CREE - I think this company has a bright future.
MXWL, EEEI and CPST - All have great prospects in the development of a smart grid and distributed enegy generation management, but I agree that the time to pick any one or combination of these is not now. They may all be winners or failures, but, if so, they will be replaced by competitors not in this list. I think investors have many months (or even a few years) to sort this out.
FSLR - I, too, am ambivalent about First Solar at this time. I have made money shorting FSLR, but I'm not considering any position here at this time.
Korn - I appreciate your comment RZ - I will follow up.
wind4me - Thanks for the heads ip on APWR. I will start following that too.
Finally, Tom, I have a small position in Vestas (wind turbines) and wonder if that is on your tracking radar.
First Solar: Pre-Earnings, Street Optimism [View article]
T-table
I use the classical text book formula for calculating present value based on discounting the future earnings cash flow back to the present. The classical model is called the dividend discount model, but I use earnings in place of dividends. The variables include earnings growth estimate, current year earnings (I use estimated earnings for the year not yet ended), expected rate of return for the market (I currently use 10%), currrent risk free return (I currently use 4%), and stock beta.
The equation is too complicated to put in this note. You can find it in any investment finance text book. For example, page 202 in "Investments: An Introduction" by Herbert B. Mayo, Fourth Edition, The Dryden Press, Harcourt Brace College Publisher.
Doing the fair value analysis is fraught with uncertainty. The biggest uncertainty is the earnings growth estimate. I feel these estimates are a real crap shoot. However, I try to make my bigger bets when I can buy good growth potential near or below calculated fair value.
First Solar: Pre-Earnings, Street Optimism [View article]
FSLR has a promising technology (lost cost product) but has been supported with too much enthusiasm. Using the 3-5 year consensus earnings growth estimate of 45% per year and applying it over the next 10 years I calculate a current fair value of $85. If growth continues at 5% per year forever starting in year 11, fair value in 10 years will be approximately $550. I think the $250 range is paying way too much for FSLR, no matter what the current earnings report is. Cut the price in half and I'll start nibbling. I find much better valuations for LDK and TSL. I also follow ESLR but am not buying yet.
Duke Energy Goes Solar (A Little) [View article]
Thanks for the links. I visited each briefly and I'll go back.
Duke Energy Goes Solar (A Little) [View article]
Thanks for the detailed discussion. I would add two additional thoughts:
1. The true cost of energy can not be determined because the biggest externalities are the present value of future costs. I have not seen anyone adequately address that. It may be an impossibility. Let me give a facetious example. The cheapest source of energy may be to burn your house, but the present value of obtaining future shelter is ignored if you accept that low cost as a benefit.
2. Wind energy may be competitive but the supply/demand relationship raises costs, as you point out. The wind doesn't blow steadily and may blow the least when electricity demand is high. To move to significant wind power (maybe 10%, but certainly by 15% or 20%) requires energy storage to be economically efficient. The output must be fitted to demand or over capacity is needed to handle some periods of peak demand.
Please post any further things you find on the economics of alternative energy. I believe that our economic future depends on solving the limitations that energy resources place on us. After all, we don't want to discover that we used cheap energy only to discover later that we burned our house to get the BTUs.
Duke Energy Goes Solar (A Little) [View article]
I have to track down the references I've seen that I am recalling right now from memory. The numbers I am remembering is that wind, coal, natural gas and nuclear are all between 5 and 6 cents per wwh (U.S. average) with coal the cheapest around 5 cents, then wind and natural gas both near 5.5 cents and nuclear 5.9 to 6 cents. Solar, as I recollect, is up around 10 cents, but should come down as technology keeps improving. Few expect that photovoltaic solar will ever get down to the cost of the "cheap four". I don't remember what the average cost for hydro was, but I think it was just above nuclear. I did an analysis of electricity from heat differentials in ocean currents and that came in the 9 to 10 cent range with little chance of significant reductions. I don't have numbers for the cost of using tidal flows and wave motion.
I really need to do more careful research and analysis on the cost aspects of energy from various sources. Hope I can get to that shortly (maybe a month or two?).
Duke Energy Goes Solar (A Little) [View article]
Duke Energy Goes Solar (A Little) [View article]
Recently China has started to move some manufacturing jobs to the U.S. for building for U.S. installation. This may continue.
Duke Energy Goes Solar (A Little) [View article]
Duke Energy Goes Solar (A Little) [View article]
Thanks for the comment. I'll re-look at my numbers.
Public Policy and Your Investment Decisions [View article]
Canaccord Adams on Four Likeliest Economic Scenarios for 2009 [View article]
I see several stocks I have owned in the past but been out of for nine months and longer. One stock I do own (and haven't seen commentary on) is HOLX. I have been short against the box for six months to protect past capital gains because my analysis indicates much higher fair value. If we have recession (depression?) that lasts more than 18-21 months, my fair value estimates will be too high. But, even then, my assessment is the current price is too low.
Update on 10 Alt Energy Speculations for 2008 [View article]
Please correct to read: "They may all be winners or failures, but, if failures, they will be replaced by competitors not in this list."
Update on 10 Alt Energy Speculations for 2008 [View article]
CREE - I think this company has a bright future.
MXWL, EEEI and CPST - All have great prospects in the development of a smart grid and distributed enegy generation management, but I agree that the time to pick any one or combination of these is not now. They may all be winners or failures, but, if so, they will be replaced by competitors not in this list. I think investors have many months (or even a few years) to sort this out.
FSLR - I, too, am ambivalent about First Solar at this time. I have made money shorting FSLR, but I'm not considering any position here at this time.
Korn - I appreciate your comment RZ - I will follow up.
wind4me - Thanks for the heads ip on APWR. I will start following that too.
Finally, Tom, I have a small position in Vestas (wind turbines) and wonder if that is on your tracking radar.
Solar Breaks Oil Price Dependence [View article]
The Trouble with Chinese Solar Companies [View article]
First Solar: Pre-Earnings, Street Optimism [View article]
I use the classical text book formula for calculating present value based on discounting the future earnings cash flow back to the present. The classical model is called the dividend discount model, but I use earnings in place of dividends. The variables include earnings growth estimate, current year earnings (I use estimated earnings for the year not yet ended), expected rate of return for the market (I currently use 10%), currrent risk free return (I currently use 4%), and stock beta.
The equation is too complicated to put in this note. You can find it in any investment finance text book. For example, page 202 in "Investments: An Introduction" by Herbert B. Mayo, Fourth Edition, The Dryden Press, Harcourt Brace College Publisher.
Doing the fair value analysis is fraught with uncertainty. The biggest uncertainty is the earnings growth estimate. I feel these estimates are a real crap shoot. However, I try to make my bigger bets when I can buy good growth potential near or below calculated fair value.
First Solar: Pre-Earnings, Street Optimism [View article]