■ Questionable forecasts – We believe that the rising electricity prices forecasted by the US Energy Information Agency (EIA) in their Annual Energy Outlook 2015 do not account for the dampening effect of rapidly declining renewable energy costs and low
financing costs. In particular, rooftop solar should act as a cap on the price that utilities will be able to charge retail customers while falling wholesale solar prices, set at a fixed price for up to 20 years, could reduce wholesale electricity prices for the long term.

Building on our previous report – Our research report “Scenario: What If Electricity Prices Fell?” released on July 16, 2015, detailed our analysis of the structural changes to the US electricity system that may drive retail electricity prices down. This Flash Commentary shines further light on the historical context of the two previous electricity price declines and illustrates the disconnect between the decreases in renewable energy costs and US EIA forecasts to 2040.

Historical context – We reiterate the striking similarities between the technological and financing conditions during the electricity price drops in previous periods and the conditions currently being experienced. This includes record-low financing costs and rapid technological improvements for power generation that have zero fuel costs.

Electicity Flash_Jul. 27 18.38

For more information about this report, please contact Tanya.Khotin@cornerstonecapinc.com or Alice.Petrofsky@cornerstonecapinc.com.

Please see the attached document for important disclosures.

 

Sebastian Vanderzeil is a Research Analyst at Cornerstone Capital Group and recently earned an MBA as a Dean’s Scholar at NYU’s Stern School of Business. Previously, Sebastian worked as an economic consultant with global technical services group, AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia.

Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Andy Zheng is a Research Associate at Cornerstone Capital Group. Andy graduated from Bowdoin College with an interdisciplinary major in Mathematics and Economics and a minor in Visual Arts.  He spent his junior year studying abroad at Oxford University and the summer prior to that at the Sorbonne in Paris. Andy passed Level I of the CFA Program in January 2014.