Renewables are the Uber of Energy Policy
Uber did to cabs what renewables are doing to electrical infrastructure
Executive Summary: Bloomberg was quick to blame natural gas for failing during the polar vortex blackouts in Texas last February, but it ignores reality. Just as Uber did to cabs, renewables are doing to affordable and reliable energy. The market distortion that has occurred through subsidies has led unintended consequences and resulted in a much more volatile system.
Fun Facts: Driving for Uber was one of my favorite jobs.
Additional Reading: The Raven. Economic Injustice from PPP.
Before I drove for Uber, I thought a lot about their business plan (because I’m weird like that.) Similar to Airbnb, it is hard to believe that these are almost $100 billion companies and their only real asset is YOUR car or YOUR house.
Even more remarkable in hindsight is that cab companies missed the opportunity for themselves and instead, found their business model in shambles.
“Hey, Jim. There’s this new thing called Uber that uses a free app for your smartphone. Wherever you are, you just press a button, a car arrives, it knows where you are going, includes the tip and auto bills your card.” Silence.
“Who would ever use that?? Waiting on the phone with our call service is an experience not to be missed when you are running late for the airport and our bald tires and badly maintained cars are the best in the business…..!!”
Yeah. So that happened.
For many, Uber was a game changer. I remember the first Uber I took from downtown Denver to my house. A cab was $20-25. Uber was $9, tip included! I couldn’t even believe it. All of a sudden, late evenings of drinking and NOT driving were enabled because of the simplicity and convenience, and equally importantly, because it was so cheap! People loved it and the results were obvious. It’s estimated that drunk driving fatalities have been reduced by 6% (at 94% effective, it’s better than the vaccine…… I kid … like the vaccine trial’s math, I just gave you the number without context to make it sound better). Pre pandemic, there were 5 million drivers globally and in 2021, drivers earned $9.5 billion on more than $90 billion in gross bookings.
I started driving for Uber in 2021 and I’ve shared stories in my speeches and previous posts. It was, if I’m totally honest, one of my favorite jobs. But driving an A8 as an UberX driver was not profitable and “the earnings” I quote above put all the costs of ownership on the driver. The only way to make it truly economic is to drive a Prius (hybrid, goes forever, cheap to repair) and drive in the 5-9 am and 3-8 pm windows. It’s why Uber can generate so much leverage from their $1.85 billion in property, plants and equipment. But this post isn’t about that. It’s about what’s happened BECAUSE of Uber.
Uber devastated the cab business. In New York, where owning a car makes 0 sense, medallions peaked at $1,000,000 in 2013. In July if 2019, three were auctioned off at $137,000. Professional drivers couldn’t compete and the taxi commissions couldn’t stop consumers from wanting to pay 65% less with 1,000,000% more convenience. It helps that in Uber’s history, their accumulated shareholder deficit is $23 billion dollars and 2021 was the first year they eked out a very small profit, which included gains on investments.
But the cab business was ruined. Shareholders “subsidizing” (yes, it’s a tricky word to use here) Uber’s losses ensured that their liquidity could outlast cab owners solvency. And they have, but post pandemic, we have a problem.
Drivers have realized that on the $90 billion of gross bookings, Uber pulls 20.1% of that (compare with 10% for drivers). With used cars at a premium, gas at $4/gallon ($5 in California), and inflation increasing everything from insurance to repairs, there are less drivers. Less drivers is forcing Uber to offer more incentives (quick side note from my driving days: drivers kept 100% of the tip, and got small bonuses for 2 or 3 consecutive trips, but the real money is when you did 60 or 80 trips in a 4 day period and would make $350 bonuses). The net result is that it is making Uber VERY expensive, if you can even get one, and undermines the primary reason consumers took it in the first place!
Quick story: This morning going to the airport, I got canceled once, told they were 20 minutes out the second time, and quoted $99.96 for a $33 ride the last time. The real problem for Uber? I took the train, and if I have less than a 3 day trip, I’ll just park at the airport. Airports are 13% of their gross business.
Now that you know more than you ever wanted to about Uber, let’s chat about the parallel to renewables. Do you see a similar pattern? As Governments have mandated renewables (Colorado must be 85% carbon free electricity generation by 2030), electricity prices have been climbing. After all, it’s a regulated business and Xcel Energy gets 10.2% no matter what they do. Decommission a coal plant they just built? Charge you! Build new solar in the middle of nowhere with huge transmission lines to replace the coal? Charge you again!! And we are only at 11% of electricity generation in the United States being wind and solar.
Grids are getting less reliable, and when there is a surge in demand, such as there was last year during the Polar Vortex, natural gas prices surged 3,000% in places on the spot market. To hear Andrew Dessler on the Joe Rogan Experiment explain it: “We expect wind and solar to be down sometimes, so it’s natural gas that is to blame when it can’t back it up.” He’s 100% wrong, as were Bloomberg and all the mainstream media companies when they pushed that narrative last February.
For our society, electricity is a must. Without it when it’s cold, people die. And to have 50% renewables means you need 50% coverage as “back up.” Consumers are waking up and realizing “there is no such thing as a free lunch” but the hour is late and momentum keeps rolling.
It was a strategic necessity of Uber to destroy cab companies. That’s why prices were low, driver incentives high and they burned $23 billion of cash. Mission accomplished! But when you’ve destroyed the business model of your competitors after having burdened them with all the costs and vilified them for your own gain, when the time comes to pay the piper, they may be longingly staring at their medallion on the wall, remembering better days.
As the goal of utilities moved from “affordable and reliable energy” the goalposts have become “clean but volatile.” Similarly, there is a reason that Uber stock is down 45% from the highs and 20% from their IPO.
When political will and subsidies distort markets, the snap back felt by consumers can be extremely painful and undermine the whole system. Which is why when natural gas prices hit $1,000/mcf when the wind fails to deliver, it’s equivalent to the $200 cab to get to the airport. And, Mr. Dessler, it is precisely the fault of the “uber” renewables.
As with many other gogogogrowth stocks that many of us own (here's looking at you, Amazon and Tesla), the business models became secondary to pumping the stock to keep the money coming in until they were able to overwhelm and push out the competition. But instead of being subsidized by state regulators, they were "subsidized" as you say by the free choice of their investors, and the results are being spread across all of us. People who don't spend their days watching their portfolios are wondering why their natural gas based heating bills went up this year in Houston. One part is the 100% jump in the natural gas commodity price since late last year as Europe and Asia tightened the market - doing our part for the global economy. The other is the multi-billion tab ratepayers (another name for customers) have been stuck with by the state to pay for the gas that the gas fired power generators bought at record high prices to turn their plants on. Having the regulators cut off the gas to "industrial" users, without stopping to realize that also meant power generators, cost us lives and a lot of money. Their not being ready for winter by having cheap gas in storage cost us even more. Regardless, bottom line is that energy costs are going up, no matter where it comes from. That message somehow keeps getting lost in the argument between advocates/lobbyists for renewable projects and the oil and gas industry. But it's really the only one that matters much to most consumers.
Uber always seemed to good to be true to me. I never drove, but wondered how they made money at the driver level. I used to ask out of curiosity and generally the drivers seemed satisfied with the deal. It's too bad the systems couldn't have merged as they did in Asia. I lived in Kuala Lumpur for a couple of years and used an app. It was fantastic and included the licensed taxis in the city. Payment was abysmal and I used to tip generously as even in Ringgit a ten-mile trip was crazy cheap.
Your comparison to renewables is also appropos. I have been doing some work on wind farms that will be posting to my substack blog soon. No one is making any money. Yet people continue to invest. A head scratcher, that. Cheers and thanks for another thougtful read.