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Lessons from Sacramento for Clean Power

You want the Federal Reserve on your side

California is in crisis due to rolling electrical power blackouts. Households and businesses are facing power losses with no notice, creating chaos on top of the existing COVID-19 devastation.

One cause is a recent heatwave that has been driving additional power demand for air-conditioning. But the other part of the problem is the controls on power generation and distribution under the California Independent Systems Operator (CISO).

This entity oversees more than 80% of electric power that is generated and transmitted by member operators, and it has a history of mismanagement with past cases of blackouts, including the massive crisis in 2011.

The state also shut down three major gas-fired power plants representing nine gigawatts of power without replacing them with alternative fuel power-generating facilities, leaving the state vulnerable to blackouts.

The CISO has been trying to buy out-of-state power that might be transmitted via its power grid system, but it continues to find little to no offers.

Three of the publicly-traded power companies, including Southern California Edison — part of Edison International (NYSE:EIX) — San Diego Gas & Electricity — part of Sempra Energy (NYSE:SRE) — and the continued mess of Pacific Gas & Electric — known as PG&E (NYSE:PCG) — are trying to meet demand.

But under various environmental and market controls, they are largely hand-tied from increasing usable supply.

Edison International, Sempra Energy & PG&E — Source: Bloomberg Finance, L.P.

The state’s response has been to allow generators that ordinarily would be in violation of state and local laws.

Real Problems, Real Solutions

The real problems of the state are not unique to California. State and local authorities continue to demand that power generators move away from fossil fuels and towards wind and solar. And this is aided by Federal subsidies, including tax credits for wind and solar power-generating capacity.

The subsidies and tax credits were extended in 2016 and have been gobbled up by the likes of NextEra Energy (NYSE:NEE), Xcel Energy (NASDAQ:XEL) and Dominion Energy (NYSE:D).

This has resulted in these companies specifically being on the forefront of environmental, social & governance (ESG) compliance and further attracting investment capital.

NextEra Energy, Xcel Energy & Dominion Energy — Source: Bloomberg Finance, L.P.

In fact, this week, Xcel announced huge new projects to refurbish older wind turbines as part of its goal to be carbon dioxide (CO2) free by 2050.

The announced new turbines will result in cost savings of 20% or more, and they are being made possible thanks to the subsidies.

But wind and solar need ancillary power supplies and backups. Yes, battery storage is being developed along with alternative storage systems like water reservoirs and even electrolysis hydrogen (otherwise known as green hydrogen), but these and other technologies are in the works and not in the here and now.

What’s really needed is what California cut off—gas-fired power plants. Natural gas is a low-emission fuel that this nation has coming out of its ears thanks to fracking.

And NextEra, Xcel and Dominion, along with the rest of the dependable utilities inside the Profitable Investing model portfolios, all have efficient gas-fired plants as well as other fuels, such as nuclear energy.

Neil George was once an all-star bond trader, but now he works morning and night to steer readers away from traps — and into safe, top-performing income investments. Neil’s new income program is a cash-generating machine…one that can help you collect $208 every day the market’s open. Neil does not have any holdings in the securities mentioned above.


Article printed from InvestorPlace Media, https://investorplace.com/2020/08/lessons-from-sacramento-for-clean-power/.

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