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Amid ESG pressures, utilities tout renewables growth, emissions reduction plans


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Amid ESG pressures, utilities tout renewables growth, emissions reduction plans

U.S. utilities are increasingly highlighting growing clean energy portfolios and greenhouse gas emission reductions on earnings calls to appease investor concerns within and beyond the industry.

"We have been working actively over the last several years to reduce carbon emissions, to transform our generation fleet, to introduce new tools for our customers and to drive productivity," Duke Energy Corp. Chairman, President and CEO Lynn Good said in a Feb. 13 phone interview prior to the company's fourth-quarter 2019 earnings call.

Duke Energy outlined environmental, social and governance investments and practices as an "essential component" of its strategy. As part of this outreach, the company plans an investor day with a specific focus on ESG in May.

"We see this as a wise push to increase the company's appeal to this massive and growing investor base," Scotia Capital (USA) Inc. analyst Andrew Weisel wrote in a Feb. 13 report.

Several utilities embracing the clean energy transition through the retirement of uneconomic coal plants in favor of cheaper renewables have a $64 billion spending opportunity on top of double-digit earnings accretion, Morgan Stanley & Co. LLC said in a recent research report.

At the forefront of this transition, NextEra Energy Inc.'s competitive generation division NextEra Energy Resources LLC added more than 5,800 MW of wind, solar and energy storage capacity to its backlog in 2019. NextEra Chairman, President and CEO Jim Robo said the company anticipates that the new wind capacity will be in the $20/MWh to $30/MWh range and new solar will be between $30/MWh and $40/MWh.

"Our confidence in renewables being the low-cost generation alternative in the middle of this decade remains stronger than ever," Robo said on a Jan. 24 earnings call. "We expect the disruptive nature of renewables to be terrific for customers, terrific for the environment and terrific for shareholders by helping to drive tremendous growth for this company over the next decade."

American Electric Power Co. Inc. is a step closer to its planned acquisition of three wind projects in Oklahoma from developer Invenergy LLC. The Oklahoma Corporation Commission on Feb. 20 approved a settlement agreement that allows AEP subsidiary Public Service Co. of Oklahoma to execute its plan to acquire a 45.5% ownership, or 675 MW, stake in the 1,485-MW North Central Wind projects.

"If we get approval from the Oklahoma [Corporation] Commission ... and then we get approval from Arkansas, we have the critical mass for the project to move forward," AEP Chairman, President and CEO Nicholas Akins said on a Feb. 20 earnings call.

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Expanding renewables is also working in conjunction with the sector's growing number of targets to cut emissions.

Dominion Energy Inc. on Feb. 11 set a target of achieving net-zero carbon dioxide and methane emissions by 2050 for both its power generation and natural gas operations. To hit its target, Dominion plans to extend the licenses of its nuclear generation fleet, "invest heavily in wind and solar power" and retire coal-fired generation.

The company in September 2019 announced plans to develop more than 2,600 MW of offshore wind capacity by 2026 about 27 miles off the coast of Virginia Beach, Va.

"From a credit viewpoint, it is one thing to spend $300 million on a completely new endeavor for the company (offshore wind) that has been ordered by the legislature and quite another to spend $8 billion of ratepayer money on the same untested new business line," CreditSights Inc. analyst Andrew DeVries wrote in a Feb. 11 report. "There is a real potential for regulator pushback on future rates if the $8 billion turns into $10+billion."

Weisel said Dominion is "surprisingly well-positioned to ride the ESG wave."

"Despite deriving [approximately] 40% of EPS from natural gas infrastructure (LDCs and midstream), management has been aggressively pursuing its ESG appeal — a wise strategy, in our view," the analyst wrote in a Feb. 12 report.

ESG importance

The banks and investment firms providing crucial capital to these utilities are taking a harder stance on ESG issues and climate change.

BlackRock Inc. CEO Larry Fink announced on Jan. 14 that the world's largest asset manager would make sustainability a core focus of its investment strategy, noting that "climate risk is investment risk" and climate concerns will change finance forever.

Some utilities across the country have already recognized the potential domino effect on ESG investing. In December 2019, Eversource Energy announced it would make the utility carbon neutral by 2030 not only to comply with various emission reduction mandates across New England, but also to appeal to the financial community.

"Setting this aggressive carbon reduction goal makes us more attractive to ESG-focused investors, who now comprise about 10% out of the 1,600 domestic and international funds currently invested in Eversource shares," Eversource Chairman, President and CEO Jim Judge told analysts and investors on the company's Feb. 20 earnings call.

But some companies may continue to catch heat for investments in new gas capacity.

Xcel Energy Inc. Chairman, President and CEO Ben Fowke said the utility needs natural gas to achieve its goal of 80% carbon reduction by 2030.

"Early action is pretty darn important in addressing the risk of climate change," Fowke said. "We're going to get pushed back on natural gas. But I think the key is to make sure that people understand, you shouldn't make perfection be the enemy of a great plan."

Dominion views gas infrastructure as a key part of its strategy.

Dominion Energy on Feb. 11 announced plans to increase its stake in Atlantic Coast Pipeline LLC as part of a $175 million transaction with Southern Co. Dominion will own 53% and Duke Energy will own 47% of the halted pipeline, which is the subject of legal challenges before the U.S. Supreme Court and the U.S. Appeals Court for the 4th Circuit.

"We continue to see significant risk in getting that project completed," Morgan Stanley analyst Stephen Byrd said in a Feb. 11 phone interview.

Southern Chairman, President and CEO Tom Fanning said pipeline investment has become tough with environmental criticisms over regulations and permits. While Fanning believes gas will be part of the nation's decarbonization efforts, selling Pivotal LNG Inc. and its stake in the Atlantic Coast pipeline helps simplify the business.

The company also is betting big on its Alvin W. Vogtle Nuclear Plant expansion as a key strategy to cut carbon emissions in half by 2030.

"As we assess pathways to further decarbonize our footprint and diversify our generating fleet, we remain mindful of potential economic, community and environmental impact to society," Fanning said. "This effort will be a multi-decade transformation for our industry."