Hot Western Summer 2021: Fires, Low Reservoirs & Diesel Fumes
California in the near term seems destined to have ever hotter weather with periodic power outages accompanied by the sound and smell of diesel generators.
As you have probably heard by now, the Western US has been hotter than hot. It is only July and fire season is starting and the West has been setting all time record temperatures especially up north in the normally cooler and wetter Pacific Northwest.
There are many consequences of this disturbing trend - not least brutal forest fires that wipe towns off the map - but one of the more unappreciated might be the impact that a severe drought has on the Californian and wider West's power grid.
In the Western US there is a close link between a higher dependency on renewable energy and also more diesel consumption.
As we have discussed in Pebbles Nos. 2 and 5 the US is now building an increasing number of large renewable energy projects.
This overall positive effort to combat climate change however, is running up some brutal structural realities of employing increasing amounts of renewable energy during a period of global warming.
Unfortunately and unintentionally, the situation is leading to an all-time boom in the sale of diesel generators. This is, of course, also leading to greater diesel oil consumption from corporate and retail consumers that need reliable 24/7 power.
Well, renewable power is super sweet but not very reliable. The wind does not always blow and the sun does not always shine and even in golden California they have nighttime.
California, like many Western states, tries to smooth this over with their abundant (and renewable) hydropower energy sources from dams in the Rocky mountains.
However, with baking hot temperatures and less snowpack from the drought, those usually steady sources of backup power are no longer there.
California relies on hydroelectric power for ~17% of its power in a good year. In a bad drought year, that can plummet to ~6-8%.
This leads to brownouts or even frequent power outages. What used to be a California problem is now spreading elsewhere. American grids are creaking due to lack of investment combined with the effort to go renewable during searingly hot summers.
Many businesses (data centers! hospitals! factories!) who have no choice or consumers who are desperate to be able to sleep during hotter nights are taking the only action they can - buying a backup diesel generator.
So right now: more renewable power generation = more nat gas + more diesel generators + diesel consumption.
This is leading to outsized profits. Below find one of the leading diesel generator stocks: Wisconsin's own Generac Holdings ($GNRC). It is having a pretty stupendous year and Generac will likely continue to print exponential profits - and burn exponential amounts of diesel - until either the Western drought moderates or power grid realities catch up with our green energy dreams.