Digital technology represents a serious of very specific challenges to the nuclear industry based on its regulatory structure and current market pressures.
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Jaime Arias
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Nice try Watson, almost had me believing you were a human. I think journalism will be one of the last spaces where algorithmic writing threatens jobs, as I view it in a similar way to acting or other artists. In theory, virtual actors can largely replace real life actors even with current technologies, but the consumers of the product still prefer that emotional connection they develop with the actor. Journalism is very similar, and in many instances consumers seek out articles made by specific authors for a specific opinion. Look forward to seeing you write a few NY Times articles, though, Watson.
Jaime
I am a bit more optimistic on firms like Civis because I think they can help solve one of the big problems that polling still has and that is overcoming the unconscious biases of the pollers themselves. Making the process more scientific and objective can help alleviate some of these tensions, but not all of them. Poller bias can really affect as they optimize the polls for variables which they may have determined as important but that may not be as important to the people that they are polling. Building on Alejandro’s point, I think it is also important to realize that there is now no going back to less poll bombardment. The trend going forward will be more poll results every day up to the election day, and these are having very strong effects on voter turnout, where supporters for the losing candidate in the poll may be more inclined to vote versus those that see their candidate winning by a comfortable margin and may feel more inclined to stay home. So far, this effect hasn’t been studied in depth and hasn’t been built into predictive models to forecast the shift from poll-election, which could help bring more accurate results in the future.
Jaime
I’ve always found the scale of Coin’s failure fascinating. I find it hard to fault the consumers in this case; I believe the industry has not yet risen to the challenge of providing a truly flawless, integrated, and completely substitutive experience. In the case of Coin and ApplePay, it is still only accepted in a limited number of locations; therefore, you still need to carry around your old cards, completely defeating the point of reducing clutter. Think of digital receipts and why these have not taken off; each company wants you to give them your email address and there is no integrated solution out there.
The experience also needs to be easy and transparent; the complexity of Apple Pay is still too high in my opinion. I tried it once, and after fumbling with the terminal for a minute trying to get it to work, I gave up and returned to using the cards. I suspect many people would also be turned off by such an experience. Paying usually has a time constraint, and if you can’t figure it out within 30 seconds, you are going to go back to your backup method as a lot of times you have a line behind you or some other sort of time constraint. I would like to see these initiatives be developed more, as there is definitely strong market demand for these products and services.
Jaime
Anthony,
How do you view the threat of increased competition as barriers to entry into the industry reduce? It seems to me that the margins are really going to get challenged going forward as brand differentiation is more difficult to sustain online. Indochino, one of the more prominent players in this space, has already slashed prices to where the average suit price is 60% of what it was 3 years ago. I foresee a future where more and more companies are providing these services online and competing on price, particularly through Pure India or Pure China plays. The net result will be lower prices for consumers, but a business whose profit margins won’t look nearly as attractive as they once did.
Jaime
Ldubs, appreciate the post, and definitely agree that localizing the solutions is the way to go. This is really the only way to address Anthony’s concern over the packaging emissions which account for 52% of their emissions. Looking at some of the things Coca-Cola has done, it looks like they have made some progress in things such as their use of Bioplastics, but I do wonder about the financial viability of this packaging in all markets. As Coca-Cola’s model of packaging operations involves the actual bottling and packaging occurring at the local level; I do believe there must be some ways in which the environmental impact can be reduced by thinking locally rather than globally. Innovation in product delivery can lead to this – Coca-Cola already has experimented heavily in trying different sizes and different price points to try and capture the sweet spot for each market. An extension of this approach could be something like Coca-Cola “fountains”, in which for a few cents, one could get a couple of sips of Coca-Cola with no packaging impact to worry about at all. In a lot of markets this would not be viable, but I have a strong feeling that in others it would be.
Anthony and BAL,
The reason NextEra is structured as such is because in the public markets, regulated utilities are seen as the lowest risk business out there, since they are monopolies with a guaranteed rate of return and a captive consumer base. The FP&L business allows NextEra a very low cost of capital which allows it to invest in renewable energy projects in deregulated markets. The biggest challenges I see with NextEra expanding its renewable approach to its FP&L side are the following:
1-NEER owns and operates renewable assets. As a power generator in competitive markets, they operate as technology agnostics and will go towards the most attractive cash flow projects, which happen to be wind and solar projects – this trend is likely to continue going forward. As a vertically integrated utility; however, FP&L cannot be technology agnostic, as it must bear the cost of any grid upgrades which must be done in order to accommodate the increases in grid fluctuations caused by increased renewable penetration. It can be argued that these costs should be seen as less than the costs implied by the rising sea levels, but I still see this dilemma as a factor which will hold back renewable development in FP&L for the next few years.
2-Would investors see this diversification of their utility business as a step away from the reliable business model and therefore bump up NextEra’s cost of capital?
Jaime
V., AEP is going through the same challenges a lot of the coal heavy utilities have been going through these past 5 years (Duke and Southern Company also come to mind). What these players have found, as you have pointed out, is that the economics have been working out drastically in favor of natural gas plants by itself without factoring in any environmental benefits. Where I am struggling with in your thesis is, if coal power is indeed being priced out of the market, then how are they able to find any consumers willing to buy it through this direct purchase agreement at all? It would make sense then that these customers would get cheaper power from buying it from the grid then.
Interesting perspective. In the particular case of Exxon, do you feel that there is room to diversify into clean alternatives in an aggressive way? This would help maintain regulatory goodwill and reduce the risk of large regulatory change, but I am not sure if it fits into Exxon’s structure or core competencies. The fact remains that while Exxon can factor in the cost of carbon for new capital investments, most of its current investments were made without factoring that, and a high price on carbon could turn many of these investments unprofitable overnight.
JPrice and Concerned Corker,
I actually believe the market potential for off-grid backup power is huge, but it is directly tied to whether companies like GoElectric can offer a compelling enough value over traditional diesel powered backup generators. Paradoxically, as renewable penetration increases in the national grid, the grid becomes less reliable because these sources are highly variable and place a heavy strain on the grid. For any company that has any sort of high value manufacturing, the value of lost load for even a fraction of a day can very quickly turn into millions of dollars, and so investing in backup power is something all these plants already do. Additionally, the growth in manufacturing in the US is primarily concentrated in states like South Carolina and Texas, places which are very vulnerable to storm interruptions; therefore, the value is there. The point comes back to these large companies are already investing in back up power when they build these plants, and companies like GoElectric need to offer compelling value over traditional backup power solutions in order to gain any substantial amount of market share.
Jaime
Concerned Corker,
I agree that in principle it would make sense to raise prices until consumption is brought down to levels where shortages are no longer a concern, but in practice I would not take this approach for PRASA and Puerto Rico. PRASA already had to enact a 67% rate hike in 2014, which has pushed the water bill of the average household to over 6% of household income, way over the average 2% of income in the US. Additionally, the economy in Puerto Rico is currently very weak, and any additional cost on business deepens the effect of the recession. Finally, as PRASA loses over 60% of the water that it produces, it is a hard pill to swallow to raise prices again to control resources when they themselves are not managing the available resources effectively.
Jaime