Perspective on Energy

There are times when investors need perspective as much as a new investment idea.  Following are a few facts for a clearer view on the energy industry.  In 2016, consumers and business in the United States consumed 97.4 British Thermal Units (BTUs) of energy from a mix of sources.  For the first time renewable energy sources accounted for 10% of the country’s energy production, surpassing nuclear. 

There are other changes afoot.  Coal has declined in importance as emissions standards have encouraged power producers to gravitate toward cleaner fuel sources.  Coal-fired power plants now provide 15% of the country’s energy needs compared to 21% in 2009.

 

Energy production is impacted by the availability of federal government subsidies that alter the economic circumstances. Subsidies take the form of tax breaks, favorable regulations and grants for research and development, among other benefits.  Tax breaks represent the most significant federal assistance for coal, oil and natural gas, but renewable energy sources such as solar power also benefits from tax breaks for commercial and residential installations.  The government also awards grants and loan guarantees to all power sources for new technology development.  Presently, coal and nuclear benefit the most from government technology programs.

The oil and gas industry has received substantial support totaling $447 billion between 1918 and 2009.  That is an average of about $5 billion per year over the 91 years the fossil fuels industry has dominated the U.S. economy….and the U.S. political scene.  Nuclear is the second winner in the federal subsidies.  The first subsidies for nuclear power producers came along in 1947 and by 1999 had topped $185 billion.  That is about $3.6 billion per year for the 52-year period.  Most of these tax breaks and financial support continue today despite the apparent maturity of both industries.

Despite favorable treatment by the federal government for the oil, gas and nuclear power sources, industry executives frequently complain about subsidies provided to the renewable energy sources.  This is apparently more jealousy that concern about the value of the federal government support.  Oil and gas continues to benefit to a far greater extent than any other power source.  Beginning in 1990, the federal government has been providing support to the biofuel industry.  Over the 20 years from 1990 to 2009, the biofuel producers received and average of $1.6 billion per year.  All other renewable energy sources have received about $6 billion over the 15 years from 1995 to 2009, representing about $395 million per year in extra help.

The imbalance in support by the federal government has kept fossil fuels and coal at the apex of the U.S. energy industry.  Yet even with small amount of help, renewable fuel sources have surged ahead.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.