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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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Can Trump End The War On Coal?

The “war” on coal is, to us, about as real as the "war" on Christmas. It’s an artifact of political speech which, by its nature, does little to discourage exaggeration. Statements like that may also provide a sense of direction but no clear energy policy guidance. What we see, instead, is a revival of former Vice President's Cheney’s energy policy: pro-supply measures and little interest in either environmental niceties or economics.

We knew a group of economists called in by Cheney's policy advisors. They discussed electric power pricing and the power of the free market to reduce demand by encouraging more efficient use of energy. The policy advisors told the economists that they did not like a policy of doing more with less. The economists, all staunch conservatives, were left to wonder if that meant the government wanted the country to do less with more.

Thus, for a start, we can reasonably anticipate less energy regulation--a clear, oft stated aim of Republicans. The most obvious political target, the EPA’s Clean Power Plan, will be reviewed/rewritten and probably neutered

The “war on coal” is really a war on profitability of electric power generating plants of all varieties. And the war had two causes: deregulation and fracking. Perhaps most of the injuries in this "theater of war" have been suffered by coal plant owners. But it’s not their fight alone. Smaller, aging nuclear facilities are also being shuttered as uneconomic.

Will this lead to a revival of coal? Not likely. We’re probably talking about some plant life extensions for existing units. New power plants last 40 years. New presidents, no matter how sympathetic, can’t last more than 8. Power plant builders have a long term horizon.

Two things to look for in the coming days: is the war on coal a priority for the new administration’s first 100 days? We would bet not. Second, we would expect a gradual softening in rhetorical tone. Related: Iran Nears Pre-Sanction Levels, Starts Pumping Oil At 3 New Fields

Overall usage of coal in the U.S., we believe, remains on a downward trend. But the rate of decline is likely to slow as coal approaches 30% of US power generation. Shorter term, natural gas is likely to continue to displace coal. Longer term, wind and solar capacity seem poised to displace fossil fuels as their costs decline to grid parity.

As for state and federal tax credits benefitting renewables, we wouldn’t expect a rollback. These credits are mostly gone by 2020 anyway. Renewables can compete with conventional generation assuming a continued steep decline in their costs and technological improvements on a manufacturing scale. Both of which are likely.

In the research areas, perhaps the new administration will fund work on small, modular nuclear reactors (conservatives on both sides of the Atlantic usually like nuclear) and perhaps some funds for carbon capture and sequestration at coal plants once the new administration notices that coal demand has not risen. Looking at the roster of the President-elect's advisors, it appears that the oil and gas industry are extremely well represented. And the more that is done to lower costs for domestic oil and gas producers (especially gas), the greater the pressure on coal prices. Related: Trump Considers Oil Tycoon Harold Hamm for Energy Dept.

The new Trump administration seems likely to focus mainly on supply side energy policies, like those once advocated by former Vice President Cheney. But softening demand and increases in energy efficiency have completely flattened electricity sales growth despite eight years of economic growth. An expansive domestic oil and gas drilling program probably just hurts the margins of power producers.

So, what impact will the U.S. Presidential election have on electric utilities? At first blush it looks modestly positive, but only modestly. Generations owners will get cut more slack. On the other hand, inflationary policies that raise interest rates could prove quite negative to utility investors.

By Leonard Hyman and William Tilles

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  • zipsprite on November 15 2016 said:
    If the Trump administration doesn't believe in global warming, what possible reason could they have for funding carbon capture and sequestration research?

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