Power to 2050, page-33

Well I have a fairly large number of solar panels and even a diesel generator for my small business , I am also a shareholder of ERM and RFX. I have done the numbers and adding just the batteries - I cannot make the numbers work. If I was paying for the electricity after tax it could probably get up but the cost of Solar may be lower these days and hence I have them but the cost of the batteries isnt and in fact I will still be connected to the grid for many years until the RFX units come down in price - The Tesla batteries I am not interested in - I dont want to install battery packs that use lithium ion. Even if I use their models I cannot make it work.

I used to have shares in ORG and then over time I realised the challenges for having such a huge retail base.

I have a couple of mates who have the decision making power on much larger users and in these cases they are being offered deals by both AGL and ORG to allow the supplier to install solar and then to pay for that solar generated and used by the business.

My take on this is simple - Solar is becoming competitive but not for some of the business rates they pay but its pretty close. It is worth it for the likes of AGL and ORG to install solar and derive income from that as most of the businesses they are approaching are using significant peak hour consumption. Batteries - In brand new developments it may be worthwhile to invest the money that needed to connect to the grid to invest in battery backup and have a much smaller grid connection. That will mostly be for housing developments where they can charge the user around 28c per kwh and usage is not that high and doesnt have industrial peaks. Mission critical installations require battery backup and that may use these batteries but they are already using batteries.

Yes over the next decade things will evolve but the shift has already happened - the disruption is already here. Look at the fact that we can close power plants and not build any new ones. That's been happening for at least the past 8 years.

Its not only solar ... - in fact I was made aware by a very astute friend that in fact its the efficiencies  that are being made in the applications of equipment that is a real game changer. The heat pump and its application and efficiency the fact that this is now also in variable speed motors ... Our equipment uses so much less electricity ... The impact of the heat pump on both air conditioning and water heating is huge.

The difficulty I have with many of the negative arguments here is that they have not been thought through - We cannot provide baseload power without the coal fired power stations unless we want to become totally uncompetitive. Solar can provide a partial solution but unless you have generation capacity weather impacts on generation and yet usage stays the same.

Really ERM has a market segment and that is in its industrial customer base and the fact that they have sorted the customer relations and are able to trade power and have a good margin but certainly not what AGL or ORG have as they have been milking the retail customer for years. Thats their risk - as retail customers have been hugely overpaying - now solar is viable for them and as batteries pricing comes down they will find it viable to install. Thats why this small 22 million country is where Tesla and RFX have come. So ERM are already in the more competitive industrial large user end of the market. They dont have retail but are now starting to eat into the SOHO/ SME markets and guess what they can earn better margins there.  

I dont even value the peak stations they have other to stop them potentially incurring a huge cost when the price gets too high so they can fire up and mitigate that risk - its an insurance policy. The deal they did with Sunset power has huge benefits - From 2017 Sunset can take over the supply agreements thereby slowly releasing the cash tied up by ERM as a user. These were estimated at an amount of $60 million - but will only be released over about 5 years.

http://www.aspectfinancial.com.au/d...Jyb3JwYWdlcy9wZGZkZWxheWVkLmpzcA==&popup=true

In addition the big thing for me is that they have identified that technology will drive future use and being customer solution orientated makes sense.

The USA could just be the cherry.

Then the fact that if sunset needs to produce more power I suspect the peakers will be running a bit more as well.

There are a few negatives:

1. I think the dividend is a bit high. A zero franked dividend is just not worth the bother rather repurchase shares in my opinion.
2. I would prefer them to be totally out of EGO - I think that company is toxic. ERM has not covered themselves in glory there.
3. I would prefer more institutional investors and less in the hands of the St Baker family - although I think they are still very good for the company.
4. They may well market superbly to large users but shareholders dont really get any unpacking of what are very complex accounts made more complex by accounting standards that dont cater for their style of business.

I still think its worth a lot more than what it is right now.

I own RFX because I think they will develop into a viable business but right now they are just a dream...