Here is the simple production cost math of electricity generated with #naturalgas.

In simplified terms (excluding required investments and operations), it consists of three parts:

(i) fuel cost
(ii) power plant (in)efficiency
(ii) cost to emit CO2

Quick look at each one.

1/
Natural gas is a widely traded commodity with different products for different time periods and geographical areas.

The Dutch TTF gas is currently priced at ~20 EUR/MWh¹

¹ theice.com/products/27996…

2/
The chemical energy of natural gas cannot be fully utilized - some energy is always lost in the process. Damn entropy!

Modern gas power plants operate at ~50% efficiency², hence fuel cost per generated energy unit is 20/50% = 40 EUR/MWh

² wartsila.com/energy/explore…

3/
Burning generates CO2, hence the cost to pollute needs to be added.

EU Emission Trading System (EU ETS) prices CO2 currently at ~32 EUR/tCO2³. One kWh of gas electricity emits ~400 gCO2/kWh⁴ adding +12.8 EUR (0.4 * 32).

³ theice.com/products/197/E…

eia.gov/tools/faqs/faq…

4/
In summary, the production cost of natural gas based electricity:

Fuel 20 EUR/MWh
+ inefficiencies 20 EUR/MWh
+ cost to emit CO2 12.8 EUR/MWh

= 52.8 EUR/MWh

5/
But renewables are cheaper? Yes they are, e.g. wind power is the cheapest new-build electricity capacity in Finland at around 30 EUR/MWh⁵.

The issue is the production profile. At the highest demand peak Jan 15, wind production had fallen by 90%.

st1.fi/tuuliwatti-rak…

6/ Image
This was the simple production cost math of electricity generated with #naturalgas.

Energy systems are fascinating animals and this was simply one angle to few parts of it. As you made it this far, thanks for finding this interesting 🙂

7/

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More from @hkeskiva

20 Jan
Samma på finska 🇫🇮

Katsotaan oheisen ketjun sisältöä mukaillen kasvun kannattavuuksia suomalaisille suosikkiyhtiöille

#Qt
#Harvia
#Talenom
#Admicom

1/
#Qt Q1-3 vuodentakaiseen verrattuna:

- liikevaihto kasvoi +34% noin +14,2 MEUR
- liiketulos kasvoi +3976% noin +10,6 MEUR

Kasvun kannattavuus oli jopa 75%, kun liiketoiminnan kannattavuus oli 20%. Kannattavuus paranee siis kohisten. No news, sanoisi tätä ennakoinut @Inderes

2/
#Harvia Q1-3 vuodentakaiseen verrattuna:

- liikevaihto kasvoi +38% noin +20,5 MEUR
- liiketulos kasvoi +45% noin +4,3 MEUR

Kasvun kannattavuus oli 21%, kun liiketoiminnan kannattavuus oli 19%. Kasvun kannattavuus siis linjassa.

3/
Read 5 tweets
16 Jan
Great value is sometimes hiding in plain sight, such as the value of INCREMENTAL RETURNS.

In this thread (🧵), we'll take a brief look at different cases built on this simple and under-addressed, yet quite powerful concept.

Best served with a hot cup of coffee...

1/
Incremental returns reveal the underlying profitability of future growth, while removing "legacy burden" of the business from the picture.

To get started, imagine a company with the following financials:

YEAR 1
Revenues 100
Earnings 10

YEAR 2
Revenues 120
Earnings 20

2/
First observations:

- Margins on year 1 were 10%
- Revenues grew by 20%
- Margins on year 2 were 17%

These numbers are obviously fine, albeit not stellar. However, there is more than meets the eye, which can be revealed with the concept of incremental returns.

3/
Read 13 tweets
9 Jan
The best long-term businesses and investments are built on the mastery of CAPITAL ALLOCATION.

In this thread (🧵), we'll take a look at different ways to manage capital by well-known companies as examples.

Best served with a hot cup of coffee...

1/
In his excellent book "The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success", author William Thorndike concluded "great CEOs must understand capital allocation".

But how does it work in practice?

2/

amazon.com/Outsiders-Unco…
To allocate capital, the company should earn it first.

If it doesn't, the capital has to come from investors (new shares issued) or creditors (new debt raised).

Hence, our starting point is Operating Cash Flow (money coming in the door), example of PepsiCo below.

3/
Read 12 tweets
8 Jan
You know what they say, it can't be a bubble if many are talking about it.

Forbes, Barron's and Economist:

1/4
FORBES

- Bubbles: From "tronics" to "dot com" (Jan'99)
forbes.com/1999/01/14/mu3…

- Bubble psychology (Mar'99)
forbes.com/forbes/1999/03…

- Outlook: How the bubble will burst (Jul'99)
forbes.com/1999/07/30/mu1…

2/4
ECONOMIST

- When the bubble bursts (Jan'99)
economist.com/special/1999/0…

- Trapped by the bubble (Sep'99)
economist.com/leaders/1999/0…

- Bubble trouble (Sep'99)
economist.com/finance-and-ec…

- Hubble, bubble, asset-price trouble (Sep'99)
economist.com/special-report…

3/4
Read 5 tweets

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