unfortunately, a common tactic is to milk an investment as long as possible, then sell off or dispose of it rather than spend more money on keeping it going.
Toys-R-Us is a prime example.
I'm glad you brought up retail - that is my milieu. Spent 17 years of my 25 year career doing retail big box stores.
When this happens (been through 3 of them myself - totally NOT my fault, I swear!!!!) it is because the store group itself can't replace inventory due to owing vendors more than the profit of the new inventory costs. So, the store operator is paying $X to operate stores (lease + operation + labor), and selling all the inventory in the store would generate < $X dollars. Therefore you close. It's a no-win situation. You can't reorder replacement inventory, because your vendors are now requiring pre-payment terms (Cash upfront) and by selling it all off, you can't buy new.
IN terms of Windmills - they do have residual value - the leases are worth $$ reselling, the material itself has value, but bringing them down costs $$, so material value < cost to dismantle. Cheaper to sell lease and existing property and refurbish than build new + new lease + new investigation of virgin land for exploration.
The issue I have with the story is that businesses will simply "walk away" and you will have all these collapsing turbines. There is always a buyer. And as a Finance person, ANY $ value is greater than $0 is worth selling, as sunk costs DO NOT MATTER. Only a non-financial person would make a sunk cost decision, and this author seems to adhere to a sunk cost theory of business. I guess that is my biggest contention. Never let an asset go without milking every last dollar ot tax break out of it.
As an adviser to najor finance players in some multi-billion dollar operations over the past two decades - I see this as a possible windfall AND a business opportunity over a possible liability. If nothing less, it would be a chance for consolidation, and f I have learned anything - consolidation and concentration of operation is always a benefit - to the company
If I recall correctly, Toys-R-Us had something like 40% of the toy market even in its final years, and so I am not certain that it was a lost cause. Introduce a few people with the parasite as a business model, and there you go.
And until maintenance costs exceed revenue, you keep maintaining
Isn't that the point the article is making? That maintenance costs are poised to skyrocket just as subsidies might be in jeopardy?
No, I believe what it was saying is that if maintenance is required, then they will need to be decommissioned:
The life span of a wind turbine, power companies say, is between 20 and 25 years.
"So we're coming in on 10 years of life and we're seeing blades need to be replaced, cells need to be replaced, so it's unlikely they're going to get 20 years out of these turbines," she said.
The article then IMMEDIATELY says :
Estimates put the tear-down cost of a single modern wind turbine, which can rise from 250 to 500 feet above the ground, at $200,000. With more than 50,000 wind turbines spinning in the United States, decommissioning costs are estimated at around $10 billion. In Texas, there are approximately 12,000 turbines operational in the state. Decommissioning these turbines could cost as much as $2.3 billion. Which means landowners and counties in Texas could be on the hook for tens or even hundreds of millions of dollars if officials determine non-functional wind turbines need to be removed. Or if that proves to be too costly, as seems likely, some areas of the state could become post-apocalyptic wastelands steepled with teetering and fallen wind turbines, locked in a rigor mortis of obsolescence.
So it goes from "Turbines are seeing signs of age to "tear down costs" and how companies will be steepled with teetering and fallen turbines.
That's a big jump from "signs of needing maintenance" to "teetering and fallen turbines."
Generally, you will budget for maintenance so that as long as the turbine is running and generating the revenue that producers get in Texas, they will keep replacing parts. When the costs to run and maintain exceed that revenue stream, it will come down, or most likely, be sold, leases and all.
The article says :
Most wind farms, which pay landowners on average around $8,000 a year per turbine, have contracts with renewal clauses that stretch out to 50 or 60 years
and then says
some of the smaller wind farm companies operating in Texas, with fewer financial resources, may be tempted to just walk away when aging turbines no longer spin a profit...."It could be a very ugly situation in the next five years when we see turbines need work, and are no longer under warranty and not generating enough electricity to keep running them," Linowes said.
I see this as unrealistic, due to liability AND due to landowners not going to allow them to just walk away.
Interesting. The article seems to be implying that businesses will just walk away from revenue producing streams, which is the opposite of what I have seen in my career as a consultant dealing with upper management. Generally, once you have invested in a revenue stream, you want it to keep going (hence how cash cows are born). And until maintenance costs exceed revenue, you keep maintaining. At that point, you defer to finance, and you make the finance decision on what to do. Rarely do you just walk away, simply because of liability issues. Better to sell it off (and the liability) than have that Sword of Damocles over your head forever.
IDK, I am pretty forward on environmental issues - I want to leave a cleaner world than the one I was born into with a Great Lake dead, and a Burning River in Cleveland and smog filled LA.But I also don't have a "corporations are faceless, evil things" attitude. Corporations are made up of people, and people make these decisions. Yes, occasionally you get a person making a bad decision, but I have found it to be rarely an innate trait of a manager to do so. I find it the exception rather than the rule.