The President's Speech

 | Jun 24, 2013 | 6:56 PM EDT
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President Obama is unveiling major policy initiatives on climate change in a speech set for Tuesday afternoon. Rumors have him focused on carbon, particularly from coal burning sources. More rumors have him pursuing energy efficiency and using federal properties to foster green energy projects.

If you like commercial nuclear power, this speech is tailor made for you. Nuclear power is carbon greenhouse gas free. If the federal government provides incentives for carbon-free energy, nuclear power producers could win. If the federal government introduces penalties for producing carbon, nuclear power producers could still win.

This might explain why Exelon (EXC) was up Monday on a down market. Exelon owns the nation's largest fleet of commercial nuclear power plants. As a company, Exelon is the closest to a pure play on commercial nuclear power.

However, no matter what the Obama offers, there will be no change for Exelon's short-term outlook. Most of their capacity has been sold forward until 2017. The deregulated energy markets respond to supply and demand, no matter what type of plant produces energy.

In fact, adding more renewable energy into the deregulated power markets could hurt nuclear power. The reason is that nuclear power is not a cost leader. On a production cost basis, nuclear power plants cannot compete with wind, solar or energy efficiency.

After President Obama's speech, Exelon may find itself whipsawed. The company will get credit for producing carbon-free power. At the same time, the company will be punished for owning high production cost assets in a market-based environment.

While traders initially focused on Exelon, the real play was NextEra Energy (NEE). NextEra is almost a pure play on carbon-free electricity. Like Exelon, they own commercial nuclear power assets. However, most of NextEra's nukes are operating a regulated state or in a region short on power. They do own three additional units in Exelon's market (Duane Arnold and Point Beach).

NextEra is also the largest generator of wind and solar power in North America. According to their website, they own more than 125 facilities in 24 states and Canada. Approximately 95% of our electricity comes from clean or renewable sources.

Traders gambling on the president's climate change initiative should have been running to NextEra. They will benefit from accelerated climate initiatives far more than Exelon.

Even if the president does nothing, the hands-down winner is energy efficiency. With new market rules already in place, the markets are adopting energy efficiency and rewarding it with margins. Today, the country is on the precipice of implanting nation-wide demand-response programs.

Demand-response programs use smart meters and other technologies to punish consumers during peak periods and reward users during off-peak periods. By using demand-response programs to shave peak periods of demand, less carbon is produced. Demand-response has the double benefit of lowering consumers' power bills.

Two pure plays on energy efficiency are EnerNOC (ENOC) and privately held Comverge. These companies struggle to book revenue and earnings as the nation slowly turns toward demand-response as their new tool to address capacity shortfalls. Perhaps the president's message will give a boost to demand-response.

Finally, it is rumored President Obama will offer federal lands to help foster growth in all sorts of renewable and carbon-free technologies. This is actually an old program that has been in place for several years. It is called Enhanced Use Lease. It allows the private sector to operate commercial business on federal lands for a fee.

Previously, the U.S. Department of Energy announced partnerships to help commercialize small module reactor manufacturers. As part of their partnership arrangement, the DOE offered lands as part of their contribution. More federal lands will likely be offered to companies like Babcock & Wilcox (BWC), which also owns small module reactor technologies.

The fact is the president's options are limited. Major changes to national energy policies will require Congressional action. Other changes will require state concurrences. Neither is likely. As a result, change will come slowly and in small pieces.

The president's speech begins at 1:30 p.m. The speech will be webcast live on

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