How Many Light Bulbs Does It Take To Be You?

OAKCLIFF CAPITAL

VALUEX 2013

Why did our current wealth happen?

Technology?   Markets?Trade?

All had an impact

But one factor is the biggest…2

Lance Armstrong Average Undoped Human

Watts 250(500 uphill burst)

40

40W Light Bulbs 6 1

kWh/Day (if 24/7) 6 1

How much energy can a human being generate?

3

4

One Human Working 24/7 = One Light Bulb = One kWh / Day

One Horse = 18 Humans (but needs sleep and hay!)

Some historical solutions:

• Sparta:  7.0 Slaves / Citizen

• Roman Empire:  0.5 Slaves / Citizen

• Confederacy:  0.6 Slaves / Citizen

• Medieval Europe:  0.2 Horses / Human

Wealth In The Olden Days

125

250

UK US China

40

Total Energy Used (kWh / Citizen / Day)

5

Wealth Today Includes:‐ Transport‐ Heating‐ Electronics‐ Lighting‐ Food production

Read this book to learn more!

But MacKay focuses on physics, not cost…

Traditional Base Load Wind Solar

Nuclear Coal Gas CCGT Onshore Sahara Zurich

Capital Cost / Watt $8.00 $2.50 $1.00 $2.00 (1) $2.00 (1)(2) $2.00 (1)(2)

Capacity Utilization 95% 90% 90% 30% 25% 13%

kWh / Year 8.3 7.9 7.9 2.6 2.2 1.1

Fuel Cost small $50/ton $3.50/Mcf Zero Zero Zero 

Cents / kWh:

Capital (3) 9.8 3.2 1.3 7.8 9.3 18.6

Fuel 0.7 2.1 2.8 0.0 0.0 0.0

O&M 0.5 0.5 0.2 1.0 0.8 0.8

Total 11.0 5.8 4.3 8.8 10.1 19.4

Total With Peakers 12.4 14.0 24.1

$20/ton CO2 Impact 0.0 1.8 0.9 0.0 0.0 0.0

EIA 2017E (4) 11.1 9.8 6.6 9.6 15.3

The Utility Manager’s Perspective:  How Much Does a kWh Cost? 

(1) Does not include backup to achieve 90% capacity (gas peakers at 6.0 cents/kWh) or transmission. (2) Assumes $0.60 for panel and $1.40 BOS costs.(3) Assumes 8% return and capital amortized over 20 years.(4) EIA Annual Energy Outlook 2012. 6

cents per kWh250 kWh / Day times 365 days

annual $ per capita

% of U.S. GDP / capita

5 91,250 $4,563 9%

7 91,250 $6,388 13%

9 91,250 $8,213 17%

11 91,250 $10,038 20%

13 91,250 $11,863 24%

15 91,250 $13,688 28%

17 91,250 $15,513 32%

The Numerate Politician’s Perspective (1)

(1) Yes, they do exist.

1. Fiscal Cliff “Solution” Raised $60B / year = 0.4% of GDP2. Total U.S. Federal Personal Income Taxes / GDP = 6‐10%

3. Yikes!

7

The Chinese and Indian Perspective

2011 Coal Consumption (billions of tons)

Proposed New Coal Plants(1)

Produced Imported Consumed GWbillions of tons of coal

China 3.6 0.2 3.8 558 1.8

India 0.6 0.1 0.7 519 1.6

US 1.1 (0.1) 1.0 16 0.1

ROW 2.4 (0.2) 2.2 308 1.0

Global 7.7 0.0 7.7 4.5

(1) World Resources Institute, November 2012.  Peabody forecasts that 1 billiontons of incremental production will be required by 2016, of which 700 million tons will be consumed in China. 8

Why Should Our 250 Light Bulbs Cost More Than Yours?

Mining Cash Cost/ton:• CAPP ‐ $70• ILB ‐ $30 (and rivers)• PRB ‐ $10 (but railroad)

ROIC and Leverage:• Alliance – 28%, 1.3x• Peabody – 14%, 3.1x• Arch – 4%, 3.8x

The China Price:• $50/ton cost for barge and ship• $100/ton price in Shanghai• Need to watch China shale gas

Impact of $20/ton CO2 Price:• $20/ton disadvantage to coal vs. gas• CAPP/NAPP/ILB production uneconomic  need 10 Tcf gas/year to replace• 10 Tcf 2x the fracking unclear that gas stays at $3.50

The Investor’s Perspective

9