Cattle graze in front of windmills. (AP Photo/Javier Barbancho) Photo credit: ASSOCIATED PRESS
The bill for greening your electricity is going to be as big as the banking bailout.
More specifically, the net cost of replacing all fossil fuel power stations with renewable energy will total more than $700 billion over the next three decades. That’s comparable to what the U.S. Treasury paid to rescue the broken U.S. banks a decade ago.
That’s also the low estimate.
The cost forecast comes via a recent paper from the National Bureau of Economic Research titled “The Cost of a Carbon-Free Electricity System in the U.S.” by Geoffrey Heal, professor of economics and finance at Columbia Business School.
“My conclusion is that the likely net investment required to go carbon-free is now as little as $0.74 trillion,” the paper states.
Or in more commonly used units, that’s more than $700 billion. Or a net figure of $23 billion a year from now through 2050.
The report continues:
This figure of $0.74 trillion includes offsets from fuel savings as we no longer need to buy coal or gas, and also includes capital cost offsets reflecting the fact that most coal plants in the US have to be replaced well before 2050 as they are already near the ends of their useful lives. [my emphasis]
In Heal’s estimation, the necessary replacement of obsolete plants means that the costs of the new carbon-free facilities shouldn’t get included in his total bill.
He says that the net figure of $23 billion a year is now half what the U.S. industry spends each year.
However, if the replacement costs for the obsolete power plants do get included then the total spending per year would be $150 billion a year for the next three decades, he says. That’s about $4.7 trillion in total.
Or put another way, the required spending would total an additional $100 billion a year over current spending levels.
He says that such a figure isn’t really anything to do with going green.
[I]t must be emphasized that most of this has nothing to do with the cost of the transition to clean energy: it reflects the fact that we have a lot of very old power stations that badly need to be replaced.
So what?
That means that if the U.S. wants to convert its entire stock of power stations from coal and natural gas, then there will be a lot of spending happening from which investors can profit.
Who benefits?
Major engineering firms will likely prime beneficiaries of such a program of upgrading the country’s infrastructure. Such companies could include privately-held Bechtel, as well as Flour Corporation (NYSE: FLR) and Jacobs Engineering NYSE: JEC), all of which have experience with major construction projects.
When or if that happens, it would make sense to buy shares in the firms that get the contracts.
