Power Line: Not enough bank for bankruptcy — A $400 billion hole in energy investment — More fuel for fusion

Fusion startups are racing to bring clean energy to the grid.Tokamak Energy

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We love a short week, and I spent most of it working on a feature about my hometown — "America's most unusual town," according to Oprah. So that must be true. Advertisement

It might be. Fairfield, Iowa is home to thousands of disciples of the late Indian guru, Maharishi Mahesh Yogi. People here meditate together daily in large golden domes, eschew wifi and smart meters, and live in unique structures that are said to nourish their occupants.

The feature will go live on Sunday. In the meantime, let's get to this week's energy news.

When things are so bleak in the oil industry that you can't afford to file for bankruptcy

Last week, I learned that you actually have to pay a ton of money to file for Chapter 11 bankruptcy.
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  • Among the costs are steep fees for lawyers, financial advisors, and industry consultants.

Some energy companies might not be able to afford to file, according to a partner at the law firm Allen & Overy. Oil has recovered its April losses, but it's still down about 50%.

What happens if you can't afford Chapter 11? You might be forced to file for Chapter 7 instead, a far more dire form of bankruptcy, according to Ken Coleman, head of Allen & Overy's US restructuring and banking group.
  • Essentially, Chapter 7 is a fire sale. Your business gets liquidated, instead of being restructured.
  • Coleman said this downturn will see more Chapter 7 filings than previous ones.
  • The problem, he says, is that a lot of these companies won't have an apparent exit — a problem we explain in detail here.
OK, but: Chapter 7 filings will still be rare, another lawyer told me. Advertisement

  • Small companies in the oilfield services industry will be most likely to file for Chapter 7, Patrick Hughes of the law firm Haynes and Boone, said.
  • Far more likely than chapter 7 filings will be creditors converting debt to equity, he added.

Phrase of the day: "Naked 363 sale."

  • Sign me up! Just kidding. This is actually bad.
  • Section 363 of the bankruptcy code is the provision that allows you to sell assets or whole businesses, Coleman said. What makes it naked is when there's no buyer. It's basically like an auction, he said.
  • Similar to the protection that lenders have when they provide financing, buyers in a 363 sale also get added protection.
  • "That's why you see a lot of sales that could otherwise happen outside of a bankruptcy happen inside of bankruptcy because the buyer wants those special benefits," Coleman said.

A $400 billion hole in energy investment

At the start of 2020, the International Energy Agency estimated that capital investment in energy would grow by 2% this year.

Wrong! Advertisement

How wrong? "2020 is now set to see the largest decline in energy investment on record," the IEA said in a report this week.

  • The agency is expecting a reduction of one-fifth, or almost $400 billion, in capital spending, relative to last year.

Is this shocking? Not really, considering that oil accounts for half of consumer spending on energy, and as we know, oil crashed. But a few figures from the IEA report are.

  • The agency projects that spending on oil will fall by more than $1 trillion this year.
  • "Among other implications, this would mean an historic switch in 2020 as electricity becomes the largest single element of consumer spending on energy," the agency wrote.
How do renewables stack up? Better than oil, at least. Investment in renewable projects is expected to fall by 10% this year, the IEA said, far less than the overall decline in investment of 20% across the energy sector. Advertisement

  • IEA expects an investment of about $280 billion in renewable power this year, down from $311 billion last year.
  • "Clean energy investment has been relatively resilient in the downturn, but a flat trend of spending since 2015 is far from enough to bring a lasting reduction in emissions," the agency said.
Commonwealth Fusion Systems

A buzzy fusion startup raises another $84 million

Skeptics of fusion energy — the same reaction that powers the sun — like to joke that commercial fusion reactors have been 30 years away for the last 100 years or so.

One startup may be close to putting that joke to rest. MIT-spinout Commonwealth Fusion Systems (CFS) just received another $84 million to build its tokamak reactor, which it says will be ready in prototype-form by 2025.Advertisement

Singapore's Temasek Holding led the funding round and Norwegian oil giant Equinor also invested, among other firms.

Why fusion is important: It's a source of clean energy that can be turned on whenever we need it, unlike other forms of clean power like wind and solar.
  • Fusion comes with fewer downsides than nuclear fission — what most people mean when they refer to nuclear power.
One big hurdle remains: Proving that it takes less energy to produce fusion than the reaction generates, or net energy gain. Advertisement

4 top reads from May

Monday is June 1. I can't even.

What I can do is take this opportunity to promote myself. Here are my four favorite reads of this past month.

Got feedback? Pass it along at bjones@businessinsider.com. Advertisement

Solar-powered yachts made by the company Soel YachtsSoel Yachts

Highlights from my inbox this week

If reading my email doesn't grab your attention, I don't know what will. But in all seriousness, there are a lot of interesting tidbits I missed. Here are the highlights.

Oil & CoalAdvertisement

  • Rystad Energy says its new forecast for global oil demand projects a decrease of 11.5%, or 11.4 million barrels per day, for the year. Demand for May alone is down almost twice that, meanwhile 2021 is looking like it will nearly match demand last year.
  • 729,000 vehicles were sold in the US in April, the lowest total since early 2010, per the US Energy Information Administration.
  • Coal companies are more likely to default on their debt as a result of the coronavirus pandemic, according to a new analysis by S&P.
  • David Lawler, will take over from Susan Dio as chief of bp's US division, bp America. He was formerly the CEO of BPX energy, bp's US onshore oil and gas business.
  • Chevron will cut 10% to 15% of its global workforce, Reuters reported.
Clean energy
  • Investment in solar and wind projects by oil majors like Shell and bp is set to reach $17.5 billion over the next five years, according to Rystad. More than half of that will come from Norway's Equinor, which is investing heavily in offshore wind.
  • I'm not really sure who's buying solar-powered yachts and sailing them to the Caribbean right now, but a company called Soel Yachts is selling them. And dang, they look cool!

Electricity

  • Surging energy consumption by people working and living at home in the wake of the pandemic could threaten grid reliability as droves of people start turning on air-con, according to the firm Logical Buildings.
That's it! Have a great weekend.Advertisement

- Benji

Ps. Last weekend, I went searching for frogs in ditches around Iowa, you know, like a normal person about to turn 30. Here's a lil cutie I found.
A lil frog I foundBenji Jones for Business Insider
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