Californians have recently been enduring rotating blackouts – short term loss of power due to excessive demand. When the lights go out and the a/c units no longer hum, it’s always political. Oddly, both sides can agree that climate change is to blame. Liberals attribute the extended high temperatures in southern California to the gradual manmade warming that is afflicting the planet. Conservatives see a reliance on unreliable renewables as the cause – underlying the power supply shortfall was the loss of 100MW of output from a wind farm.

Perhaps global warming is making it less windy. Environmental extremists will argue that fighting climate change is ever more urgent, while pragmatists will note that using more intermittent renewables is leaving consumers vulnerable to shortages.

What’s happening in California is important to all Americans, because it’s a preview of what an energy policy run by environmental extremists could look like if inflicted across the entire country.

For the past decade, California has been steadily pushing renewables’ share of power generation. For much of that time natural gas was easily the biggest source of electricity, since coal use stopped completely in 2015.

But environmental extremists have been single-minded in their desire to run everything with solar panels and windmills. Although the state has not banned natural gas, it does allow cities and counties within the state to do so. Diablo Canyon, California’s last remaining nuclear power plant, will close its two reactors in 2024-25.

In 2018, California passed a law mandating 50% of its electricity to be from renewable sources by 2025, 60% by 2030 and 100% by 2045. There are no plans to build new nuclear capacity, so it looks like sun and wind will be the major source of power.

America has been reducing its CO2 emissions, but oddly California has been lagging the rest of the country, with a slight worsening since 2011. This fact must sit uncomfortably with those thoughtful advocates of California as a leader in renewables. The problem, as anyone trying to drive around Los Angeles knows, is that transportation still relies heavily on fossil fuels. A couple of years ago when I was visiting clients with a salesperson for a couple of days, traffic estimates were critical to our meeting schedule. In fact, every meeting seemed to open with a brief chat about the 405. Automobiles and traffic jams generate a lot of California’s emissions.

California’s renewables effort has focused on electricity, but that’s less than 14% of total energy consumption. This is why the popular image of green California isn’t reflected in reduced emissions.

The average retail price of electricity in California is 16.58 cents, versus 10.53 cents for the country as a whole. Unreliable power that costs 57% more than the average, along with a slower rate of emissions reduction, are not the hallmarks of a successful policy to combat climate change. This is where the drivers of Joe Biden’s energy policy are hoping to take us. The Biden-Sanders Unity Task Force has recommended, “…eliminating carbon pollution from power plants by 2035”. This is a decade ahead of California – because it’s going so well there.

California’s power blackouts are in part because the wind has inconveniently not been blowing when needed. This is why natural gas is such a good compliment to intermittent renewables – it’s always available. Many other U.S. states have embraced this, including Nextera (NEE), loved by environmentalists and investing in natural gas pipelines.

Energy density is another challenge that will lead to NIMBY problems.

An article in the Financial Times (see Green power needs to be dense power) compared the 950 acres required for a UK solar farm to produce 350 megawatts of power with the 80 acres to house a nuclear project with 3,200MW of output. Not only is this 9X the power output on under 9% of the land, but the solar plant is only expected to operate at 11% capacity, versus 90% for the nuclear. The power output per acre is 1,000 times lower for this solar installation compared with nuclear, a significant problem in densely populated Britain.

Any solar installation in the UK is a green extremist triumph in willful denial of the climate – but at least they’re still building nuclear plants, because they do want to keep the lights on.

California’s blackouts show what happens when climate extremists run energy policy. The silver lining for investors is that such policies lead to, and desire, high energy prices – both as a constraint on demand and also because it makes renewables less uncompetitive. Returns on energy investments tend to follow energy prices. Green policies that constrain supply need not be bad for the sector.

We are invested in all the components of the American Energy Independence Index via the ETF that seeks to track its performance.

Important Disclosures

The information provided is for informational purposes only and investors should determine for themselves whether a particular service, security or product is suitable for their investment needs. The information contained herein is not complete, may not be current, is subject to change, and is subject to, and qualified in its entirety by, the more complete disclosures, risk factors and other terms that are contained in the disclosure, prospectus, and offering. Certain information herein has been obtained from third party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed. No representation is made with respect to the accuracy,  completeness or timeliness of this information. Nothing provided on this site constitutes tax advice. Individuals should seek the advice of their own tax advisor for specific information regarding tax consequences of investments.  Investments in securities entail risk and are not suitable for all investors. This site is not a recommendation nor an offer to sell (or solicitation of an offer to buy) securities in the United States or in any other jurisdiction.

References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in an index and do not reflect the deduction of the advisor’s fees or other trading expenses. There can be no assurance that current investments will be profitable. Actual realized returns will depend on, among other factors, the value of assets and market conditions at the time of disposition, any related transaction costs, and the timing of the purchase. Indexes and benchmarks may not directly correlate or only partially relate to portfolios managed by SL Advisors as they have different underlying investments and may use different strategies or have different objectives than portfolios managed by SL Advisors (e.g. The Alerian index is a group MLP securities in the oil and gas industries. Portfolios may not include the same investments that are included in the Alerian Index. The S & P Index does not directly relate to investment strategies managed by SL Advisers.)

This site may contain forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involves a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of SL Advisors LLC or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made. r

Certain hyperlinks or referenced websites on the Site, if any, are for your convenience and forward you to third parties’ websites, which generally are recognized by their top level domain name. Any descriptions of, references to, or links to other products, publications or services does not constitute an endorsement, authorization, sponsorship by or affiliation with SL Advisors LLC with respect to any linked site or its sponsor, unless expressly stated by SL Advisors LLC. Any such information, products or sites have not necessarily been reviewed by SL Advisors LLC and are provided or maintained by third parties over whom SL Advisors LLC exercise no control. SL Advisors LLC expressly disclaim any responsibility for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on these third-party sites.

All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.

Past performance of the American Energy Independence Index is not indicative of future returns.