A large and rapidly expanding global financial bubble now exists around conventional coal, gas, nuclear, and hydro-power energy assets.
A large and rapidly-expanding global financial bubble now exists around conventional coal, gas, nuclear, and hydro power energy assets. This bubble has in part been created by mainstream energy analyses that have, for the last decade, significantly underestimated the levelized cost of electricity (LCOE) from conventional power plants because they assume these plants will be able to successfully sell the same quantity of electricity each year from now through 2040 and beyond. This assumption has been false for at least ten years. The rates at which conventional power plants are utilized will continue to decrease as competitive pressure from near-zero marginal cost solar photovoltaic and onshore wind power, and battery energy storage continue to grow exponentially worldwide.
Since 2010, the LCOE figures published in mainstream analyses and used by policymakers, regulators, civic leaders, utilities, asset owners, and investors have significantly underestimated the actual cost of electricity generated by prospective coal, gas, nuclear, and hydro power plants. This in turn means that conventional energy asset valuations are heavily overstated. Fundamental valuation of an asset is based on expected future cash flows that are, in turn, dependent upon projected revenues and costs. The projected revenues and costs of any power plant are dependent upon its assumed capacity factor (or utilization rate), which is the fraction of its generating capacity it is actually able to produce and sell.
“Whether a conventional baseload power plant is old and already fully amortized, or newly constructed, its utilization profile and electricity selling prices will change during the 2020s, pushing it into competition not only with SWB but with existing peakers as well. Few, if any, coal, gas, nuclear, or hydro power facilities will survive this transition without aggressive government intervention.”
Key Findings
Conventional energy assets are severely mispriced, and their overvaluation is creating a growing asset valuation bubble in the conventional energy sector.
Coal, gas, nuclear, and hydro power are no longer competitive with the combination of SWB, even using inaccurate mainstream LCOE calculations.
Solar and wind power reached cost parity and became cheaper than coal, gas, nuclear, and hydro power several years sooner than mainstream analysts reported.
The widening gap between rapidly increasing conventional energy LCOE and rapidly decreasing SWB costs means that the SWB disruption will proceed faster than expected.
Coal and gas power plants with integrated carbon capture and storage (CCS) are doubly mispriced (overvalued).
Governments must protect people, not incumbent companies or industries, from the financial risk of the conventional energy asset bubble.
Carbon neutrality can be achieved more quickly and cheaply than generally expected.
“regulators have outsourced their responsibility for asset pricing to organizations like the IEA, U.S. EIA, a few mainstream consulting firms and Wall Street analysts. These organizations play the role that the credit rating agencies played in mispricing subprime mortgage assets which led to a housing bubble, financial crisis, and ultimately the Great Recession between 2007 and 2009”
