Solar Power and Pensions

July 21, 2016
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Quality, Consequences and the Construction Industrial Complex (part 74) – All IMHO:

What is the relationship between power utility firms and their pension fund commitments? Answer, reduced pension payments in the long run.

IMHO, going forwards firms, particularly public power utility firms, will lose their ability to meet their pension payout obligations. I think the large pension obligations of firms and municipalities will be the defining economic issue in 10 years time. There is a perfect storm brewing of demographics and technology that will require some deft politics to resolve.

Demographics trends lead to less skilled workers plus increased pension fund withdrawals
If “demographics are destiny”, there is reason for power utility firms and the Construction Industrial Complex in general to worry. For example, currently 50% of all MEP engineers in the USA are over 56 years old and less than 15% are under forty years old! (Source: Editor in Chief, Consulting & Specifying Engineer). This creates a double whammy of pension fund withdrawals plus skilled worker shortages with increased skilled labour costs. In North America baby boomers (29% of Canadian population. Source: Statscan) are retiring at record rates, requiring pension funds to pay out more than they receive in a zero interest rate world. This is mathematically impossible at many government and firm pension fund levels.

Solar technology trends lead to reduced net and off peak electricity demand
We have been living with the false dawns of solar technology for so long solar is now under our radar. However, I now think solar (PV & solar thermal) is disruptive technology, a slow motion disruption that could be as significant as driverless cars.

Deployment of power producing solar technology together with advances in building standards has reduced building energy demand and consequentially reduced net and off peak electricity demand. In short, solar power technologies are screwing up the power utilities business models by changing the demand curve from “camel” to “duck” shaped and reducing net demand for power generation.

The business as usual demand curve is generally camel shaped and for California in 2012 is shown below.

(Source: Inside Energy /Jordan Wires-Brock Oct 2014)

As solar technologies deployed and ramped up, the demand curve changed to a “duck” shape as below.

(Source: Inside Energy /Jordan Wires-Brock Oct 2014)

What is wrong with this? Well, it creates demand management issues with steep peaks in the morning and evenings plus there is the danger of over production of electricity during the day. Also there is a reduction in revenues from the net reduction in demand.

This is no fad, solar is not going away. For the first time ever, utility-scale solar projects will add more new capacity to the USA grid than any other industry this year. (Source: U.S. Energy Information Administration March 1, 2016).

This effects Canadians. Many parts of Canada are as sunny (not warm) as Southern California. Canada has massive potential for solar PV and solar thermal technology deployment.

Consequences
So the trend is higher payouts from pension funds and higher wages for skilled people coinciding with reduced pension fund contributions and lower demand for coal, nuclear and gas fuelled electricity. How will power utility firms deal with this? I think I have started to see the answer to this with my home electricity provider.

Last year was a cool summer plus a mild winter and electricity use in Ontario was lower than usual. My electricity provider increased my monthly payments this year by 39% despite the low use of electricty. When I complained the excuse was reduced subsidy from the provincial government, reduced revenue form the previous year and they felt (with no substantiation) I would use more electricity going forwards!

Just like that, I am a top up fund for my electricity provider. Ah, the power of legal monopoly.

Extrapolating this trend to the extreme, if everyone went solar our bills would be increased to compensate for lost revenue. It would probably become illegal to leave the gird (for our own safety of course) to ensure we can provide revenue to prevent job loses and keep pensions paid. I think the Ontario government are already foreseeing this issue and starting to support power utility companies prospects by championing electricity over gas for households.

What can be done?
It is complicated in a federal plus provincial political environment as the provincial government rely on power utility firms to bring in revenue. From the provincial governments perspective, public power utility firms profits are effectively tax income. In my province of Ontario we are ~ $300 billion in debt so there is no room for government bailouts for pensions. Property owners and tax payers will be paying to perpetuate or resolve these issues. Therefore if I was “omnipotent for the day” I would commit heresy and;

Move all power utility firms pensions to defined contribution RRSP’s (401K’s)
Privatize the public power utility firms
Offer the workers and provincial residents discounted shares in the privatization

In Liberal Ontario the chances of this happening are pretty much zero. However something has to be done and privatization seems to me to be the only way to enable power utility firms to shed excess labour, reduce pension liabilites and reinvent themselves for efficiency in a world where solar power is significant.

Let the Liberal trolling begin!

#59 – Solar has entered the 1% ( https://www.linkedin.com/pulse/solar-has-entered-1-adam-muggleton?trk=mp-author-card )

#0.5 – Public sector ability to invest & deliver infrastructure projects ( https://www.linkedin.com/pulse/20141030163720-253985-public-sector-ability-to-invest-deliver-infrastructure-projects?trk=mp-author-card )