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Major utilities planning big boosts to renewables investments


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Major utilities planning big boosts to renewables investments

Threeof the country's largest utilities recently said they will add to theirrenewable energy holdings, underscoring the improving competitiveness of windand solar power and the importance of industry tax breaks that Congressextended last year.

Overtwo days at the end of April, DukeEnergy Corp., NextEraEnergy Inc. and SouthernCo. announced plans to build or buy more renewable energy capacityover the next few years, with NextEra executives citing the financial benefitsof the production and investmenttax credits and the need to plan for tighter carbon regulations.

Dukeplans to own or buy8,000 MW of renewable capacity by the end of the decade, up 33% from a targetthe company set in 2013. Southern expectscapital spending at its competitive generation subsidiary to exceed forecastsin 2017 and 2018, with an emphasis on acquiring wind assets. And NextErasaid it will likelybring online three times more wind capacity over the next two years than thecompany previously thought.

"Allthree of the companies have been interested in renewables for a long time;NextEra is probably by far the most, and they have the biggest portfolio,"Moody's Associate Managing Director Michael Haggarty said. "But [Duke andSouthern] have been in it for three or four years in a big way. Both of themjust see it as an opportunity, I think, to diversify into what we would view asa kind of quasi-regulated business: Even though it is unregulated, it'scontracted, for the most part long term, to other utilities, cooperatives ormunicipal utilities."

Congress'decision late last year to extend the tax credits, which improve projecteconomics, was probably a "key" factor in the timing of the utilityannouncements, Haggarty said.

Additionally,huge project pipelines that developers amassed in anticipation of the ITCexpiring at the end of this year has created a glut and a buyers' markets, GTMResearch Associate Solar Director Cory Honeyman said.

"Witharound [9,000 MW] of utility-scale solar slated for completion in 2016 despitethe federal ITC extension, buyers like Duke and Southern can be that much morepicky about which projects they acquire and hold that much more leverage when itcomes to asset pricing," Honeyman wrote in an email.

GTMResearch expects solar installations to spike by more than 119% this year toaround 16,000 MW. Wind installations are expected to total 9,400 MW this year,according to Bloomberg New Energy Finance, up from about 8,600 MW .

Withjunk-rated companies facing volatile capital markets, strategic buyers likeutilities likely have a cost-of-capital advantage over other marketparticipants, Moody's Vice President and Senior Credit Officer Toby Shea said.

NextEraexpects to spend up to $9 billion in the 2017-2018 period to develop 4,100 MWof renewable energy assets. The company said it could bring between 2,400 MWand 3,800 MW of new wind capacity into service, three times previous forecasts.New solar installations are expected to total between 400 MW and 1,300 MW.

Lastyear, NextEra Energy ResourcesLLC signed contracts for approximately 2,100 MW of new renewableenergy projects, boosting its development program for 2015 and 2016 to morethan 4,000 MW — 500 MW above the midpoint of guidance.

"Wecontinue to believe that the fundamentals for the North American renewablesbusiness have never been stronger," NextEra Executive Vice President ofFinance and CFO John Ketchum said on an earnings call April 28. Mentioning thecontinuation of tax credits, falling technology costs, state renewableportfolio standards and expected regulations on carbon emissions, Ketchum saidhe expects the U.S. wind and solar markets to continue growing into the nextdecade.

"Wewill continue to leverage our core strengths in solar and wind and invest inrelated areas, such as energy storage, in order to offer our customersinnovative, low-cost and high-quality projects that we expect to furtherenhance our competitive position," Ketchum said.

AtSouthern Power, capital expenditures in 2017 and 2018 are likely to exceed the$2.5 billion the company forecast, Southern Chairman, President and CEO ThomasFanning said on an earnings call April 27, likely with more wind projects thanthe company has done in the past, he added.

"We'llhave solar in there for sure," Fanning said. But "I think with thePTCs, we're seeing a lot of interest there" for wind power. "I thinkyou also see certain state … policy-level encouragements. You're seeingcompanies getting ahead of the Clean Power Plan, We're just in a good marketfor it." The company pointed to partnerships it has formed with solardevelopers First Solar Inc.and Recurrent Energy LLCas models it could use for moving into wind.

Includingprojects that are under construction and acquisitions that have yet to close,Southern Power owns more than 1,500 MW of solar generating capacity in sixstates and 450 MW of wind power in Oklahoma, according to a companypresentation.

Haggartysaid the renewable energy businesses at NextEra and Southern primarily revolvesaround developing or acquiring projects and selling electricity to municipaland cooperative utilities in the Midwest. Southern is buying some solar powerto meet state requirements, "but that's really small," he said, "kindof window dressing for now."

Dukeincreased its renewable energy goal after realizing it would easily surpass theprevious target, company spokesman Randy Wheeless said. Across its regulatedutilities and holdings in competitive markets, Duke owned or purchased nearly4,400 MW of renewable energy resources at the end of last year, with 49% comingfrom wind, 39% from solar and 12% from biomass.

"We'refinding that it's competitive" on a cost basis, he said of renewables. "Itmakes good business sense." Referring to the company's decision to hikeits renewable energy target 33%, Wheeless added: "If that's greenwashing,it's very expensive greenwashing."