Early in the New Year, the Motley Fool’s Reuben Brewer analyzes the energy industry/market in his post “Getting Rid of Coal Isn’t as Wise as You Think“. He points to new, innovative projects that are revolutionizing coal so we can maintain energy diversity (low cost electricity), such as the Kemper plant in Mississippi.
To start, Brewer makes his case:
Utilities are increasingly looking to shut coal power plants. However, that comes at a price — an increasing reliance on natural gas. Some industry participants are starting to think the trend is going too far.
Many coal plants, especially in the northeast are shutting down, requiring the region to rely on the currently inexpensive cost of natural gas. However, relying on one energy source isn’t the safest investment.
The problem is that natural-gas prices are low today but have a history of being both volatile and much higher. As recently as 2008, natural-gas prices were three times as high as they are today. And price spikes aren’t uncommon; the cold snap that started the year off caused a notable natural-gas price jump in the Northeast. And that’s just because of cold weather. If there were any disruption in the supply of natural gas or a prolonged price spike, without other options, there could be big problems in the Northeast. That could mean cost spikes or, worse, not enough electricity to go around. That may seem unlikely today, but it isn’t as impossible as it seems.
Such volatility makes projects like Kemper even more important. “Southern won’t be immune if gas prices spike, however, it will have other options.” ISO New England, a regional transmission organization serving Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont, has warned “other options are increasingly important as more and more utilities switch to natural gas”. Brewer summarizes his recommendation:
If you are considering buying a utility, look for one that has a balanced portfolio — not one that’s increasingly reliant on today’s hot investment theme.