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From Coal to Solar

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I’ve long been mystified at the hostility of dirty energy companies transitioning to clean energy because it would seem that the rational move would be for an energy company to figure out how to profit from new forms of what they already produce. But of course I also know that people are motivated by greed and hate and so not only is wind and solar energy a threat to coal and oil, but that’s hippie energy and screw those people. Nonetheless, it seems only a matter of time before the transition to clean energy becomes overwhelming, if for no other reason than market forces. So as horrible and criminal as mountaintop removal is, at least you see one Kentucky coal company turning these mountaintops into big solar production sites.

Berkeley Energy Group this month announced plans to put coal miners back to work by building the largest solar project in Appalachia on top of a closed mountaintop strip mine near the town of Pikeville. The Eastern Kentucky coal company is partnering with the Environmental Defense Fund, which has helped develop 9,000 megawatts of renewable energy, to bring jobs and clean energy to the region.

Mining employment in the area has plummeted from more than 14,000 jobs in 2008 to fewer than 4,000 today, owing to mine automation, competition from natural gas, and environmental controls on dirty coal emissions.

Even if Trump’s administration and Congress roll back clean air and water rules, most experts agree that coal-mining jobs are not coming back, particularly in Appalachia where production costs are relatively high.

But there is vast potential for the region to reclaim its ravaged landscapes for use in generating solar energy, if federal policy continues to offer incentives. Solar resources in Kentucky, for instance, are favorable enough to power nearly 1,000 homes for every two acres of solar panels.

Of course, we aren’t talking about thousands of jobs here. And I would like very much to see the United Mine Workers of America work to organize these energy jobs as well (one could argue IBEW should have the rights here, but really, I don’t care much about boundary setting). But this is a logical start for any corporation with land that could be making money by producing clean energy.

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  • Snarki, child of Loki

    Fossil fuel companies count as “assets” the proven reserves that are still waiting to be extracted. If they decide “no more fossil fuel”, then those reserves suddenly get valued as “zero”, and they take a huge hit in their balance sheet.

    In summary, it’s the fault of the bean counters, who decreed “beans are more important”.

    • DrDick

      If Montana is any indication, that will not help the coal companies, who are already going broke (see my link below).

    • ChrisS

      Also, too, carbon bubble. Once profits from fossil fuels, particularly nasty coal, are seen as less reliable as a result of increasing share in solar/wind/hydro, all of that infrastructure and equipment that Company XYZ has invested millions in is no longer worth so much and poof and they will have essentially held the gun to their own head.

      I’d like to think that an energy company could do both, but it would take some serious planning and strategy to wind one division up while winding the other down. There is a lot of internal momentum in maintaining the status quo.

      • Don’t a lot of mines (maybe mining companies too?) suddenly go broke as soon as someone kinda thinks they might be unprofitable at some point, so they can get out of paying for all of that expensive site remediation?

      • DrDick

        That is already happening (see mine below).

      • tsam

        they will have essentially held the gun to their own head.

        DUCK SEASON! FIRE!

    • Karen24

      It’s been a long time since I worked in utility rate-setting law, but I recall that production capacity was also an asset. Why wouldn’t this be the same for wind or solar farms?

    • Tzimiskes

      I don’t know about this industry in particular, but it also strikes me that if these companies have a lot of debt secured against these assets a write down in the value of fossil fuel assets could be very damaging when the debt needs to be rolled over. If this is a common scenario then the owners might realize their companies are going under no matter what they do once fossil fuel assets lose their value. In this case, it makes no sense to diversify since the devaluation will result in bankruptcy since they can’t pay back the debt with worthless assets. May as well extract as much cash as they can and extend the period they can extract the cash for as long as possible.

      The most cynical among them may even realize their assets have a real value as zero, but as long as it can be used to secure more debt their incentive is to keep the business going so they can extract dividends and capital gains. This creates a huge incentive to lie about climate science and the prospects for clean energy.

      Scenarios like this made me realize that limited liability isn’t really compatible with shareholder control. The entity, including the employees has skin in the game and will act closely to what is predicted in economic models. The shareholder, however, does not internalize all costs facing the entity and will act in ways that destroy the entity and cause collateral damage to others.

  • DrDick

    Indeed and here in Montana and many other western coal and oil states we have huge potential to benefit from wind and solar power. Most of our coal has gone to Asia, but that market has largely dried up.

    • ChrisS

      And if RFPs and general rumor mill gossiping hints in any particular direction, remediating abandoned mines in Montana is about to get real lucrative. Hopefully, I’ll be a resident there relatively soon.

      • rhino

        You think any remediating is going to get done in the Trump era?

        Why would it?

        • ChrisS

          Yes, I do. They legally can’t just throw their hands up and walk away and let a site rot. Communities get involved, banks get involved (if they foreclose on a distressed property as the result of a bankruptcy, they can’t begin to recoup their money until they sell it and no one buys damaged goods without either getting a major discount or buying a property that is cleaned up), non-profits get involved. Everyone has their marching orders and if there is a legal requirement to do something, then lawsuits happen. And then it gets real expensive.

          Our industry lobby has already told us from Pruitt’s lips that the programs on the chopping block aren’t remedial/Superfund site restoration programs. He knows damn well that if they stop restoration programs, the EPA gets sued.

          • thequeso

            This would be the first time that Scott Pruitt knew anything regarding the legal environment in which he works. The man is an excellent minor league baseball general manager and a remarkably skilled politician and bureaucrat, but a knowledgeable and competent lawyer he is not.

            First time for everything I guess.

          • rhino

            Lol. You think a Trump admin will allow industry to be beholden to environmental concerns?

            it is to laugh.

    • Most of our coal has gone to Asia, but that market has largely dried up.

      I suspect that beating up Montana Dems over this is less about the reality of the energy market than spoon feeding bullshit to low information voters who are just looking for another reason to hate on Montana Dems.

      • DrDick

        True and it provides cover for the fact that most Montana employers pay shit wages (we lead the country in people working more than one job). Mining, oil, and logging have been the only industries that pay decent wages. Interestingly, the Republican in the current race to replace the vile Zinke made his fortune helping companies outsource US jobs and paid his Montana employees about 2/3 of the national average for their jobs.

  • NewishLawyer

    Semi-OT: What’s your take on Portland deciding to do a full corporate divestment? I’m going back and forth between if it is the desire of the citizens, good for them and this is going to cause a scandal with school budget woes, library budget woes, and pension obligation woes in 5-20 years depending.

    Thought it is an interesting question about what it means to be a fiduciary to the city.

    I will also add that I heard the raging grannies sing a bit and Tom Lehrer is no longer correct, we no longer have the best songs.

    • rhino

      Hey buddy, when you’re 86 years old and getting tear-gassed maybe you can open your trap about the grannies.

      Until then, stay at the kiddies table and speak when you’re spoken to.

  • Murc

    I’ve long been mystified at the hostility of dirty energy companies transitioning to clean energy because it would seem that the rational move would be for an energy company to figure out how to profit from new forms of what they already produce.

    I used to be curious about this trend in general, not just in energy companies but in companies in general.

    The way it has been explained to me makes sense, tho. Basically, if you have a profitable business, especially one that is a market leader, what you want to do is keep doing what makes you profitable. Expanding into new ways of doing things is risky; you have to bring in outside expertise, you have to invest money they might not see a return, and if you fuck up you not only don’t have your new thing, the resources you invested in the new thing maybe means your competitors are your lunch with your old thing as well.

    Expansion and innovation are what companies that don’t have a potential downside do. You only want to disrupt a market that you are not currently a big player in, because you’re betting that when the dust settles you WILL be a big player.

    It’s cheaper and easier to try and keep new technologies and new players out than it is to adapt to them.

    • Rob in CT

      Yeah, I didn’t really “get” that for a long time either.

      Another factor: in this instance, advances in alternative energy directly harm their core business.

      So you’d literally have your new division competing with the rest of your business.

      • Murc

        So you’d literally have your new division competing with the rest of your business.

        That’s a really, really big deal in corporate culture. “Don’t compete with yourself” is one of the core mantras of what is regarded as best practices.

        • NonyNony

          For good reason. Take a look at the stories coming out of Sears about how their “competition is good” CEO who has various divisions competing with each other and what its done to them.

          There’s a way to do it right – to bring new ideas into the company and grow in a way that you’re not competing with yourself – but it’s incredibly hard to do. And doing it wrong can be catastrophic.

    • Shantanu Saha

      It takes a lot of courage in a CEO to authorize cannibalizing his core business in order to develop a new one. This is why Steve Jobs was lauded for the iPhone, when Apple’s bread and butter at the time was iPods. Now it’s the iPhone, and with Jobs no longer there, I think they will cling to the iPhone until it’s a smoking heap that kills the company.

      I would think that rather than extraction companies investing in clean energy, it would be electricity generation companies that would lead the way into the new age. But they’ve had to be dragged kicking and screaming. They’re a pretty conservative lot, these electricity companies. They do just the bare minimum to satisfy regulators, and lobby for looser regulation all the time.

      So it seems that it’s up to startups to do the work.

      • Murc

        This is why Steve Jobs was lauded for the iPhone, when Apple’s bread and butter at the time was iPods.

        That wasn’t seen as competing with yourself at the time in any way, on account of how people didn’t start thinking “why do I need an iPod? My phone works as an mp3 player and has a ton of space” until much, much later.

        Now it’s the iPhone, and with Jobs no longer there, I think they will cling to the iPhone until it’s a smoking heap that kills the company.

        Smartphones don’t seem to be going anywhere anytime soon.

        • njorl

          That’s a problem though. They don’t make money selling the same product as everyone else. They need to sell something better, or at least apparently better. The iPhone is pretty much done in that regard. Their product loyalty has dropped to Android levels.

        • We can live without personal cars and probably will. A personal communicator, now we have it, will always be with us from now on. The question is, what new functions will it plausibly acquire? Translation and conversational control, probably. ARM have predicted that the smartphone will become powerful enough to run all our “desktop” apps with docking or WiFi, so the desktop computer box will head for oblivion. I hold no brief for the survival of Apple’s outrageous superprofits – a basic but capable smartphone goes in South Africa for $50 – but the gadget itself still has some way to go.

        • rhino

          Exactly. They aren’t going anywhere.

          You make money by going somewhere, either first, or best.

      • thequeso

        I think there is actually a pretty good chance that renewable resources stick pretty solidly in the standard electric utility portfolio. There are a lot of power purchase agreements that were signed for 40 years in the late 70s that are coming up for renewal right now, a time when wind and solar resources are coming online at extremely cheap prices. Combine that with natural gas peaking plants that can come online in 6 minutes or less to deal with times when the wind doesn’t blow or a cloud blocks out the sun, and you have a pretty cheap approximation of a coal plant. Combine that with the fact that two of the larger planning regions (the SPP and ERCOT) are energy-only markets where prices don’t factor in the cost of capacity, and you have a really solid assault on coal. The City of Denton, Texas is about to go completely away from coal for the next 20 years. That was unthinkable even five years ago.

        • The City of Denton, Texas is about to go completely away from coal for the next 20 years.

          Now, if that was about to happen in North Carolina, the legislature would put a stop to it damned quick. C’mon, Texas Lege, rise to the challenge!!!

        • David Chop

          approximation of a coal plant

          The reality is even better than that. The thermal input requirements of a coal boiler->steam turbine are (with a little jiggling/engineering) the same as the thermal output of a gas turbine. Burn gas, spin gas turbine, turn a generator. Plug the exhaust into a boiler, make steam, spin a steam turbine, turn another generator. Presto, a combined cycle power station. It’s not an approximation of a coal plant, it is a coal plant. It just runs off the exhaust products of a gas plant instead of combusting coal.

          • rhino

            I work with steam. The general principles are the same. The actual plants are different enough that refitting is less practical than scrapping and rebuilding completely.

    • Morbo

      They are at least starting to move in that direction though. Granting that a billion here and there is a few weeks worth of revenue to these companies, but they see the writing on the wall.

  • rhino

    After reading the sentence about the IBEW, I have to say I got my red up:

    So, full disclosure, I am a member of the United Association of Plumbers and Pipefitters.

    It’s time to get rid of trade unions. My union is toothless and ineffective, and so are the rest of them. The world needs an effective way for workers to band together, and the current unions have been completely hamstrung by the capitalists and I see no way for them to recover.

    What I want to know, is how the hell something can be done about it? Because I am sick and tired of watching the constant erosion of everything Canadians and Americans gained by hard work. If I’m going to pay hundreds of dollars a month in dues, I want to see the position of the working man getting better because of it. And I am not seeing that.

    I need leadership. I’m more than willing to man a barricade. Hell, I will follow in my grandfather’s footsteps and club goons with my oddly sturdy picket sign if necessary, but we need a labour movement with fucking teeth again.

    Loomis, this is your field. I hate to put this on you, because like I said i don’t really see a way forward.

    But if anyone has answers, it should be people like you.

    • proportionwheel

      I’ve thought for a good while now that the union model no longer works. For one thing, even without the growth of right-to-work-yourself-to-death laws and other anti-union legislation, more and more work is free-lance self employment that doesn’t lend itself to traditional labor organizing. I’ve been a free-lancer my whole working life. I’m all for union organizing in that minority of environments where it is still possible, but the only way labor (meaning workers, not unions per se) will get stronger is to gain much more influence over the Democratic Party (hard, but easier than building a new party), elect sympathetic reps and senators, and ultimately make changes through legislation rather than negotiation with employers. Not easy, or quick, but can anyone really argue that without legislative change, union organizing will make a comeback?

    • Brad Nailer

      Hear, hear. I love not having a voice in the conditions of my work.

      But seriously, unionize my big-box company? It is to laugh. “Take it or leave it, pal. There’s lots more where you came from.”

  • Area Man

    The dirty energy companies have huge amounts of sunk capital in their coal mines and plants. They’re going to fight very hard to keep those assets from becoming worthless. Ironically, they’re probably the least likely to base their beliefs on hippie bashing; theirs is a cold, hard financial assessment. Hippie bashing is how they get millions of people to agree with them, even though there’s nothing in it for anyone else.

    Of course a dirty energy company can build solar farms, but they don’t have any particular expertise in that and there’s lots of competition. Their primary concern is to keep squeezing what profit they can out of the assets they already own. And when those assets go up in smoke, I for one will feel no sympathy.

    • Area Man

      Let me add that electricity demand has been essentially flat in the US for the last decade, so any new capacity necessarily displaces older capacity. If you’re a coal company who builds a solar power plant, the MWs you generate will come at the expense of your coal business. The remarkable thing is that it happens at all. Either they’re doing it for the PR or they really are about to throw in the towel.

  • ThresherK

    I see, very easily, how radio networks or radio stations naturally played their positions into the TV era.

    However, what kind of advantage do dirty energy companies, without a tilted gaming table, actually have in a clean energy market?

    Tangentially, I’m thinking of all the older companies like Studebaker, Peugeot, and Honda which manufactured something, and then got into the automobile industry. (I also recognize these are three very different industries.)

    • David Chop

      Their advantage is they can provide base load power reliably, cheaply, and on demand. Renewables are getting there on price, but until we crack the storage nut the big power stations are going to keep on spinning.

      • Baseload, to quote John Quiggin, is a bug not a feature in a market where demand varies minute by minute as well as between seasons. Grids have to have balancing despatchable capacity for the very large (2x daily, maybe 3x annually) margin between minimum and maximum load. But if you have this anyway in the form of gas turbines, hydro, geothermal, pumped and battery storage, imports from neighbours, and demand response, it can just as well be used to balance intermittent (but reliable and predictable) wind and solar. This is why actual independent grid operators like UK National Grid, Texas’ ERCOT, Australia’s AEMO, the three German backbone grid operators, etc, do not support the baseload myth and are happy to plan for ever-increasing penetration of renewables.

        • David Chop

          Sorry, engineer stuck my foot into politics/academia. I’ll just be in the corner over there keeping the lights on.

  • Harkov311

    If I were in the energy business, I’d be pouring money into solar and wind R&D, and buying up all the uranium sites I could find. Hydrocarbon power is clearly not going to last, long-term, and better to have as many legs up on the alternatives as possible.

    But, as Loki notes, these companies have a silly amount of capital tied up in the assumption that they can burn all the hydrocarbons. It’s a ridiculous assumption, but then, a lot of businesses seem to operate on similar silly theories that demand will never go away, interest rates will never change, etc.

    • Murc

      If I were in the energy business, I’d be pouring money into solar and wind R&D, and buying up all the uranium sites I could find. Hydrocarbon power is clearly not going to last, long-term, and better to have as many legs up on the alternatives as possible.

      It’s worth noting that you’re approaching this from the standpoint of “the company should continue to exist and serve a public good.”

      Many people running companies 100% do not approach things this way.

      • Harkov311

        True enough. But then, I’m a liberal, so that puts me outside the bounds of most CEOs mindsets right there.

    • DrDick

      Actually, 40 years ago the oil and gas companies recognized that oil was a limited and declining resource and that they needed to proactively address that. My father spent much of his career as a research engineer on those kinds of projects (mostly synfuels at that time). Then the bean counters took over and the “shareholders revolt” diverted more of corporate returns to rents.

    • efgoldman

      these companies have a silly amount of capital tied up in the assumption that they can burn all the hydrocarbons.

      And yet…
      Vehicles are using less petroleum then ever. Kia has introduced a hybrid, and Honda has re-introduced theirs. Electric vehicles are getting a real toehold (wheel hold?) in some markets. Even though the asshole maladministration is going to croak fuel efficiency and pollution standards, people are not going to trade their Prius in for a rolling coal F-250.

  • sam

    I used to do a lot of legal work for utility companies, and the sense I always got was that most of the folks were pretty eager to get into new spaces, but they were constrained by their ability to spend a bunch of new money into “new” technologies when the market hadn’t yet shaken out/proven which ones were going to be around for the long term. It was kind of a chicken/egg situation. No one wanted to be the first out of the gate, because they were going to get punished by their shareholders. It sucked.

    I also remember reading an article years ago – It was an interview with the former CEO of Duke energy (not exactly a bleeding heart liberal), who specifically talked about how the industry basically NEEDED the government to step in and mandate that they use these new technologies, because no single company was going to be the one to step out on a limb and take the risk – they’d get eaten alive by shareholders for spending the money on such ventures. But if it was government mandated, well then…they would ALL just have to do it, and then the competitive pressure to not do it disappears.

    • Crusty

      I sort of get it, but I don’t get it. Netflix used to do a nice business shipping people dvd’s from their queue through the mail, yet they managed to move into/lead the streaming space. Blockbuster did not and paid the price. I know the industries are different, but would investors punish a coal company so badly for making an investment in solar? I mean, there’s an upside there, like being the last man standing. I don’t fully get it. Uber is pushing driverless cars, and I know that’s completely different, because to uber, the drivers are a cost (are they? They bring their own car, are the uber driverless cars going to be part of a single fleet or will people still be “sharing” their car), but they still see that if someone else gets on the driverless car thing first, they’re done.

      • so-in-so

        I suspect investors in energy companies and utilities are a different sort from those investing in Silicon Valley startups.

      • NonyNony

        Netflix was originally built to be a streaming service, the CEO only did the DVD by mail thing to build revenue while waiting for the broadband boom that he knew was coming. That’s why Netflix shifted. The company wasn’t an entrenched DVD company because everyone knew that it was only a stepping stone to streaming.

        If his big idea had been DVD rentals by mail, I doubt that Netflix would have moved like it did and it would have been another competitor who came along and killed Netflix by creating a streaming service.

      • njorl

        I think for a company to get into a new line, there has to be (dare I say it?) some synergy. Netflix probably had databases of viewing habits of a large number of subscribers. That’s useful for a streaming service.
        A coal company has nothing useful for producing alternative energy sources except land that has probably been rendered unusable for almost anything else. Digging coal out of the ground and selling it to a company that burns it to generate electricity doesn’t give you any expertise at generating or distributing electricity.

        • Victor Matheson

          Exactly this. There is no reason to believe that Exxon is good at solar, or at least any better than anyone else. When companies are in the position to have an advantage in clean alternatives, they don’t gripe much.

          The case in point is the ozone hole and CFCs. While the major chemical companies dig drag their heels a bit in acknowledging the role of CFCs in causing ozone depletion (we are talking late 70s and early 80s here), they gave up the fight pretty quickly when they realized they had the inside track to develop ozone-friendly CFC alternatives.

          Exxon isn’t going to give up on $billion of crude in the ground when there is no seriously likelihood that they will be positioned to profit on the alternative.

      • Just_Dropping_By

        Uber is pushing driverless cars, and I know that’s completely different, because to uber, the drivers are a cost (are they? They bring their own car, are the uber driverless cars going to be part of a single fleet or will people still be “sharing” their car)

        As I’ve noted before, I have no clue how driverless cars are supposed to be a net benefit to Uber. They would require Uber to internalize all capital, maintenance, and servicing costs that are currently borne by the drivers, plus for the foreseeable future they’re going to be required to have human “minders” riding along with them, who are presumably Uber employees (while I think Uber drivers are justifiably categorized as independent contractors, I can’t believe “minders” could be since they presumably have to work assigned schedules and would lack discretion in picking up customers) and are also being paid at least minimum wage, which means there isn’t even that big of a savings on the fare split.

    • so-in-so

      So, good to know how well “the market” works and how important it is for the government to stay hands-off…

      • VCarlson

        But if you’re a multiply-failed businessman who does things by “gut” (because you’re a dullard), and a bigot, to boot, who cares about the details? New industries and ways of doing things might give Those Others a slice of the pie.

      • sam

        but that’s just it – the “market” works how it works. The reason why we have so many coal-fired power plants is because coal was cheap and plentiful. It was cheaper than anything else until natural gas came along.

        And the way the population responded to the massive pollution caused by these plants was to demand that the government do something – that’s how we got the EPA in the first place. The EPA then regulated emissions – Plants spent millions and millions of dollars installing scrubbers on their smokestacks, and then when their old coal plants needed to be replaced, they looked around and said – hey – now that coal isn’t so cheap anymore, maybe we should look at gas, or nuclear, or [insert non-coal fuel source here] because that may be a better cost proposition in the long run.

        Of course, each of those alternative fuel sources has their own issues (I mean, nuclear plants produce zero air pollution, but they obviously have *other* issues), but that’s the way the world turns.

    • thequeso

      You probably know this, but there actually were a couple utilities in Louisiana who were bankrupted by Reagan back in the 80s. They had made early investments in solar and wind to comply with Carter’s initiatives and the public utility commission of Louisiana wouldn’t let them include the assets in rate base after Reagan discontinued the initiatives.

      • sam

        but is that “bankrupted by Reagan” or bankrupted by the Louisiana PUC? because reagan (and I’m not defending him by any means) discontinuing the incentives doesn’t by any means force the state regulators to treat those assets as literal garbage, right?

        I mean, I get at a certain level that solar and wind were so new that they were possibly noncompetitive and running at a loss, so without the incentives they may not have been worth building, but the decision of the LPUC seems to go beyond that. But I don’t have all of the facts.

  • Eli Rabett

    Believe it or not Exxon tried to do this in the late 1970s but abandoned their plans when Reagan was elected. Part of it was they were scared by the Arab oil embargo, part that they knew what was happening with the climate and part that they had bought into the idea of nuclear power plants and saw themselves as the source of enriched uranium

    BP also tried to move away from oil, but could not make it pay

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