Author Archives: Mark Mulhollem

L11 – Mulhollem – Decentralization – stock market

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This is our last blog so I wanted to mix it up a little. I just wanted to get everyone thinking about what makes the electricity market in the United States different from other countries.

When we look at decentralization of our electrical power, we must take into consideration that the electrical utility companies are for the most part publicly owned and traded on the stock market. These stocks pay very good dividends. Some utility stocks pay 5 – 6 % dividends per year. There are a lot of these stocks in American saving portfolios such as 401K and IRAs funds. If decentralization was to take place on a larger scale it would cut into the dividends utility companies pay to their stockholders. This would affect the stock market along with the savings plans. The federal regulatory agencies realize this so I will be surprised if a decentralization of more than 20% ever takes place. With that said, I do see small scale, behind the meter projects to be the only real growth that could take place.

With the recent advances in battery technology and improvements in appliance efficiency, I would suggest that off grid home electricity will become the next energy entrepreneurial market. If we are able to reduce our residential electrical consumption to 1/4 of what we use now through efficiency, then battery storage could be a viable source of electricity. To take this further, we could re-engineer our homes to use DC current instead of AC current. There is approximately a 30% loss of efficiency in the conversion from AC to DC. All of our computers, TVs, LED lighting and appliances actually run on DC current. AC from your electrical outlet is converted to DC inside the TV through a bridge rectifier. This consumes a lot of power. If future battery storage would be able to run a house overnight, a photovoltaic array could recharge it during the day. Photovoltaic arrays produce DC current so there would be a minimal loss when charging the batteries.

The area that I feel would see a very large growth in the future is the battery storage and battering charging. Batteries need to be charged and cycled properly. I could start a business that would monitor and cycle the batteries as needed. This would be done remotely through a wireless connection. The temperature of the batteries is also critical to the output and life of the batteries. This business would complement the installation of any small scale, behind the meter electrical projects. The batteries will also need to be monitored 24 hours a day. After the installation, my business would charge a small fee for the monitoring and reporting of information pertaining to the batteries. The company could also send a daily usage report to the owner so they would know what level the batteries are at any time. The business would also develop a phone application to receive battery information at any time.

A Hypothetical Business using WACC

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I’m going to take a different approach here to answer the questions. Here is a hypothetical business: Acme Electric Inc. I have used the WACC approach to prove that the project is viable.

Here is a brief description of the business.

  • 20 years in the Electrical maintenance, installation and design of electrical systems
  • Very small debt ratio
  • Gross sales 2.5 million /year
  • Privately owned corporation
  • 50 + employees

Project: Installation and ownership of a 75 megawatt wind farm in the Pocono Mountains, Pa. Owner and operator of the wind farm will be Acme Electric. Land is owned by Acme Electric Inc. Total cost of the project will be 450 million with the following.

Using the XL spreadsheet I came up with the following: Cost of Equity (CAPM)

  • Equity Risk Free Rate – 3%
  • Nova Beta – 1.5
  • Expected Market Risk Premium – 6%
  • Cost of Equity – 12%
  • Market Rate of Return – 9%
  • WACC – 11.1%

The WACC is good enough to get investors to look into the project. Acme Electric will need to get investors to finance 350 million of the project.

They have a few options here.

  1. Apply for government financing or grants
  2. Have a financial company issue 20 year non-rated bonds
  3. Sell stock in the company
  4. Go public and have and ISO
  5. Apply for a conventional loan

They may need to do a combination of some of them.

Acme will also need to supply a financial statement done by a CPA to any institutions looking to invest. This is a doable project with a profitable return and according to a Bloomsburg’s article, “Equity buyers qualified for a tax benefit and one of the debt components offered a yield of about 7 percent, he said. “We raised the money in about six weeks,” he said. “There are a lot of opportunities for smaller-scale wind farm operations.” [1]

Understanding the weighted average cost of capital (WACC) is key to determining if investors will consider financing the project. The investors want to know what the rate the company is expected to pay. Anyone that invests wants to know two things, what is my rate of return and what are my risks? Doing a WACC gives an estimated return on the project. Supplying a certified financial history of the company along with knowing the Beta supplies a good understanding of the risks

[1] http://www.bloomberg.com/news/2012-05-15/small-u-s-wind-farms-to-grow-as-tax-incentives-expand.html

Lesson 3 – Mulhollem – Energy Efficiency Policy

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National Energy Efficiency Policy

When it comes to energy efficiency in the United States there are many policies that could be discussed but there is one major government policy that could promote energy efficiency more than the others. That would be to have a national energy efficiency policy put in place. There needs to be a standard that applies to all the states. Each state needs to do its part in the battle against climate change. Many states are well on their way in doing this but why should other states just sit back and do little or nothing? Twenty-five states have established an energy savings target or an energy efficiency resource standard (EERS). These states make up almost 60 percent of the electricity sales in the United States. (ACEEE 2014) That leaves 40 percent of the states to do nothing or have their own policy. There needs to be a minimum efficiency percentage that each state must make every year. If each state met a 2.5 % energy efficiency every year there would be a very large decrease in energy consumption. If a state went over 2.5% it could carry the excess over to the next year or get federal monies in return as an incentive. A national energy efficiency policy would put the states in competition for funding to comply. This could promote their states economy by funding different state programs to reach their goal.

 

One big issue for the federal government to implement a policy of this size is to verify how much each state actually did? How can they prove that the state has increased its efficiency and at what percent? I would develop a business that would go to different states and audit their energy efficiency policy. My company would also train state employees the correct process to work with private sector companies in getting the approval for energy efficient projects. Along with auditing and training, my company would help in the scheduling and planning of their future projects and goals. Future goals are the key to staying on track. If the state knows what it has to do in order to meet or exceed the minimum percentage it makes it easier to reach the goal. The business would not be involved in the states projects just the process of making sure they are in compliance. We would also send out monthly reports to show where they were in relationship to the set schedule. Someone has to monitor and verify that the states are doing what they say they are. I think a non-governmental private energy auditing company is a good business and a necessary business. The business name would be Energy Auditors of North America. (EANA)

ACEEE. ACEEE Policy Brief. April 9th, 2014. http://www.aceee.org/files/pdf/policy-brief/eers-04-2014.pdf (accessed 9 14, 2014).

Lesson 2 – My Niche – Mark Mulhollem

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There are a few reasons for why renewable energy sources are not being given the attention they should. For example, wind and solar are very good sources and are very plentiful so why are we not investing in installing more of these systems? The main reason is that they are cyclical. They cannot produce electricity on demand like our present day carbon fuels or nuclear power can. A lot of research is going into nuclear to make it safer and more manageable. China has produced a new generation of nuclear reactors that are smaller and less of a danger. However, what if we had a storage system that could store the power that photovoltaic and wind produced? If that storage system could level out the cycles and give a reliable sources of electricity then we would more likely invest in solar and wind?

This leads me to my niche. I have been in the electrical field sense I was 17 years old and I have seen a lot of new technologies. This is possible to do. A few utility companies have tried to store the electricity by converting it from AC into DC and storing it in batteries. I think there are better ways to capture and store electricity and that is where I would like to start my entrepreneurial niche. I know people think it is a long shot but my response to them is, “only those that attempt the ridicules can achieve the impossible”. If a small lighting bug can produce light I think I have a chance.

Lesson 1 – Mark Mulhollem

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Hi my name is Mark Mulhollem and I am an ESP major. I live in central New Jersey but I grew up in both New Jersey and Pennsylvania. I love the outdoors and spend a lot of time in the Pocono Mountains. My father’s family is from Altoona, Pa where we have a long history in the coal industry. I presently work for a large pharmaceutical company as an electrical coordinator. I hold an electrical license and own my own business. When I graduate this spring I plan on doing some consulting in the electrical power, distribution and renewable energy field. A long with consulting, I hope to write sustainable policies for the government and legislators. I look forward to this course. I hope to sharpen my skills that will help me make my future endeavors come true.

I have had a few businesses over the years and still own two. The first business I was a partner in was when I was in college back in the 80’s. While attending PSU in Scranton I sold ultralight airplanes and gave training lessons. I was 22 years old and went into business with my best friend, Tim. The name of the company was Adler Aviation. Adler means eagle in German. We flew and taught on of Tim’s father’s farm in Tafton. We made a grass runway on top of a hill and put up a hanger for the airplanes. Our office was a 40’ long tractor trailer, “the trailer part”, we got for free. We didn’t make any money but we got to fly a lot. It was a lot of fun. We also got to meet some nice people like Mario Andritti, the race car driver. Back then you didn’t need a pilot license to fly an ultralight. We could fold it up and put in on the roof of a truck and transport it anywhere. We even put it on our truck and drove it to Florida to fly at the Sun n Fun air show. I learned a lot about being in business but didn’t make a lot of money. I mention this so that the younger students can see that even if you don’t become a huge success you can still take something away from the experience.

In the future I would like to expand my present business and implement a metering service that provides people with real time knowledge of what their electrical usage is in their homes. I would like to give people the exact price they are paying for every appliance they use. Then give them advice on how to reduce their consumption and their monthly bills.