Obama Fails as Energy Investment Officer- in-Chief

Tom Borelli

6/15/2012 12:01:00 AM - Tom Borelli

While the liberal media obsesses with jobs losses from Bain Capital’s private equity investments, it conveniently ignores the mounting economic cost of President Obama’s command and control energy policy that has destroyed billions of dollars in investment capital in the coal and renewable energy sectors.

The high profile bankruptcy of Solyndra that drew initial attention to Obama’s aggressive support of renewable energy and highlighted his failed business acumen will be only the tip of the iceberg.

With such staggering losses in capital currently being accumulated in publically traded companies, additional bankruptcies and massive job losses will soon follow.

Using the regulatory controls of the Executive Branch, Obama wanted to bankrupt the coal industry and replace its electricity production with renewable energy.

Obama’s centralized planning failed.

The President’s strategy to bankrupt the coal industry is on track, but the renewable energy sector is also suffering catastrophic losses for investors trying to cash-in on Obama’s clean energy economy.

The President’s energy policy is having devastating consequences for coal mining stocks and the plummeting share price correlates with Obama’s regulatory assault.

On July 6, 2011 when the EPA issued the Cross-State Air Pollution Rule (CSAPR), Peabody – the largest coal company – had a closing share price of about $60 a share. By the time the EPA followed with the Utility MACT Rule – another regulation that targets coal-fired utilities – in December 2011, Peabody’s closing price was $34.

When the EPA issued its proposed rule to limit greenhouse gases from power plants on March 27, 2012, Peabody was trading at $29 and during the second week of June it’s trading around $23. That’s about a 60% drop in price in less than a year.

Alpha Natural Resources, Arch Coal, James River Coal Company and Patriot Coal – smaller coal companies – suffered devastating losses of about 75, 71, 84 and 89 percent respectively, during the same period.

The crashing of these stocks simply reflects the staggering regulatory cost of these regulations on utilities – the coal company’s customers. The Utility MACT Rule, for example, is expected to cost about $10 billion a year and the proposed greenhouse gas rule, if enacted, would be a

de-facto ban on new construction of coal power plants.

It’s been estimated that 57 to 140 coal-fired power plants will be closed, all or in part, due to the Utility MACT and CSAPR Rules.

According to the U.S. Energy Information Administration, the amount of electricity generated from coal has dropped from 44.6 percent to 36 percent just in the last year. With the regulatory burden facing coal, utilities are rapidly switching to natural gas whose price has been extremely low.

While Obama has punished the coal industry his aggressive promotion and support of renewable energy has failed to reward shareholders of renewable energy stocks.

Unlike coal, a free-market demand for renewable power such as solar and wind power does not exist. The use of renewable energy is artificially driven by government through state mandates and financially supported by state and federal subsidies.

Accordingly, investors in renewable energy are subjected to an enormous amount of political risk. Even without coal, its high price energy faces competition from low natural gas prices.

The spectacular failure of the share price of First Solar – a solar panel maker – highlights the risk for investors betting on Obama’s clean energy policy.

Before the stock market crash, First Solar hit its high around $300 a share and since then it’s been all downhill. In May 2009, when the Waxman-Markey cap-and-trade bill which included a national renewable energy mandate passed the House of Representatives, First Solar was trading at about $190 a share and at $120 in July 2010 when the Senate Democrats officially declared the end of the legislation.

This week First Solar is selling at around $13 a share. In addition to the absence of a federal mandate for renewable energy, the company was hurt by falling government subsidies in Europe and competition from China.

In April, First Solar announced it was reducing 30 percent of its employees and closing two production facilities in Germany. Reduction in European subsides was the major reason for its business problems.

The dependency of the company’s business on government support was made clear when a company official stated its business in Europe “is not viable without significant subsidies.”

Similarly, wind energy has also been a loser for investors. A wind energy exchange trade fund FAN, whose investments are concentrated in wind power companies, has dropped from about $11 a share to about $6 during the last year.

A major concern for investors is the Production Tax Credit for wind power. The income tax credit of 2.2 cents per kilowatt-hour for wind energy producers is scheduled to expire at the end of this year unless Congress acts to extend the tax incentive.

President Obama’s effort to direct the power sources for electricity production has resulted in enormous losses for investors and jeopardizes thousands of jobs. Through his executive powers, Obama showed he can destroy an industry but he is helpless to override the inherent limitations of renewable energy to create a market.

As many investors and employees in the energy sector will testify, President Obama fails as energy Investment Officer- in-Chief.