The Energy Industry Update – Volume 12, Issue 1
Managing with Uncertainty Fatigue
We are pleased to announce our Spring 2012 issue of THE SCOTTMADDEN ENERGY INDUSTRY UPDATE. This semi-annual publication features our view of recent significant events and emerging trends in the energy industry.
As the economy grows (slowly) and we enter a presidential election cycle, many policies affecting the power and gas industries are in flux. Uncertainty about what prevailing policies might emerge in 2013 has put the timing and, in some cases, the scope of new rules in limbo. Despite this, the energy industry is running out of time on some strategic actions and is moving to make in energy supply, infrastructure, and new technologies. Highlights include:
|View from the Executive Suite (click here)||Utility and Energy Stock Prices: Are Electrics and Diversifieds Undervalued?|
Analysts are generally positive on utilities, seeing potential earnings growth, driven more by rate-based capital expenditures rather than economic growth. Despite this, large electric and diversified (electric and gas) utilities may be undervalued, trading at 15 times earnings while other sectors (like the S&P 500) trade in excess of 20 times earnings.
|Energy Supply, Demand, and Markets (click here)||“All of the Above” Energy…Except Coal|
Low natural gas prices continue to roil the historically favored dispatch order of coal-fired power in the U.S. The dark spread (cost advantage of coal-fired generation vs. gas-fired generation) is the lowest in a decade and is gradually altering the energy mix of the nation’s largest electric utilities.
|Climate and Environment (click here)||EPA’s Utility Mercury and Air Toxics Standards (MATS): Another Brick in the Wall|
In addition to natural gas prices, coal-fired power generation is now challenged by stringent environmental regulations (mercury, air toxics, sulfur dioxide, and other pollutants) and proposed greenhouse gas emission standards for new plants that assume carbon capture technology that is yet to demonstrate commercial viability.
|The Network (click here)||Texas Competitive Renewable Energy Zones: Will Momentum Continue?|
Texas’ Clean Renewable Energy Zones have sparked significant transmission development in an industry otherwise building transmission slowly. But as the renewable energy industry risks cooling as federal tax subsidies are scheduled to expire, it is unclear whether that pace of development can continue. It is also unclear whether the Texas model can be translated to other regions of the U.S.
|Renewables, Clean Tech, and Energy Technologies (click here)||Natural Gas Vehicles: Increasing Interest, Especially with Cheap Natural Gas|
Historically, cost, weight, driving range, and lack of infrastructure have inhibited acceptance of natural gas vehicles (NGVs) as an alternative to traditional gasoline-fueled vehicles. But if the wide differential between low natural gas prices and high retail gasoline prices is sustained, aided by incentives, growth in fueling infrastructure and NGV sales may continue to drive increasing use of natural gas as a transportation fuel.
|We hope you will find THE SCOTTMADDEN ENERGY INDUSTRY UPDATE a useful and informative resource. If you would like to discuss our observations in greater detail or have us present them or our views on other industry or management issues to your executive team, please contact us. View our Energy Practice area.|
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