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Duke Energy envisions eliminating coal by 2050 in climate change report

Duke Energy Corp. would need to curb its power plant emissions 72% by 2050, including by phasing out all existing coal generation, under an emissions-constrained future in line with the goals of the Paris Agreement on climate change, the utility said in a new report.

Duke Energy's March 22 report examines how it can avoid potential financial risks, including having stranded assets, by curbing emissions from 2010 levels under a scenario in which all U.S. utilities are forced to reduce emissions by 2050 to limit global warming to 2 degrees Celsius above pre-industrial levels. President Donald Trump has pledged to pull the U.S. from the Paris agreement, but a number of cities, states, large global investors and companies said they will continue pursuing the goals of the agreement.

Duke Energy issued the report after 46.4% of its investors in 2017 voted in support of a proposal for the utility to perform a 2-degree scenario analysis. The utility was facing the prospect of shareholders voting on a 2-degree scenario analysis proposal again this year. Duke Energy is one of the largest utilities in the U.S. and supplies electricity to about 7.6 million customers in Florida, Ohio, Kentucky, North Carolina, South Carolina and Indiana.

The report comes as utilities and other publicly traded companies continue to face pressure from investors to assess and disclose their climate-related risks. As of mid-February 2018, shareholders proposed more than 70 resolutions on climate change for the coming proxy season, which typically runs from late April through early June. Of those, 27 proposals would have companies address the risk climate change poses to carbon-emitting assets, according to a recent report by As You Sow, the Sustainable Investments Institute and Proxy Impact.

Duke Energy in its report envisioned likely having to replace coal-fired generation with renewables and "new zero-emitting generation" capable of ramping up and down to balance out supplies from renewable generation. The analysis assumes that technological advances by 2050 will enable zero-emitting generation, which could include capturing and storing carbon emissions from gas-fired power plants.

Duke Energy said that by 2050, its regulated utility generation mix would consist of 31% nuclear generation compared with 35% during 2017; 33% natural gas-fired generation, down 3 percentage points from 2017; 23% hydropower, solar and wind resources compared with just 1% in 2017; and 13% load-following zero-emitting technologies. The company's dependence on coal-fired generation would be phased out completely.

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The utility acknowledged that its plans could change significantly.

"An actual pathway to emissions reductions would depend on a number of factors, including public policies and technology availability at the time of planning," Duke Energy said. It added that its actual investment plans beyond 2030 will be developed in conjunction with regulators, policymakers and stakeholders.

Duke Energy in 2017 announced plans to curb its carbon dioxide emissions 40% from 2005 levels by 2030 and in the new report said that goal "is consistent" with the path for a 2-degree scenario.

The 2-degree scenario analysis assumed electricity demand would increase 0.45% annually from 2017 to 2050, regulators would relicense all existing nuclear capacity for an additional 20 years, and natural gas prices would remain flat through 2028 and then increase 4% annually.

The scenario did not include any big breakthroughs in new electricity storage technologies beyond making existing lithium-ion technologies more cost-effective. It also assumed federal lawmakers would still be at an impasse on whether to create a national cap-and-trade regime.

Duke Energy is also looking to tackle the physical risks to its infrastructure caused by forecasts that the intensity of extreme weather events will continue to grow. The utility plans to invest $25 billion through 2026 on grid modernization, nearly $7 billion of which will be spent over the first five years for storm hardening and moving hard-to-access overhead power lines underground.

On water supplies, Duke Energy noted that sustained and severe droughts can affect hydropower, fossil and nuclear power plant operations. After a 2007 drought in the Carolinas, Duke created an in-house drought mitigation team to monitor and forecast drought effects on lake-system storage and changed some operations at nuclear and coal-fired power plants to mitigate drought-related risks. Because natural gas-fired generation withdraws less water than coal-fired plants for cooling purposes, Duke said the transition away from coal will further reduce its risk exposure to potential future droughts.

Duke Energy participated in the December 2017 pilot rollout of the Edison Electric Institute's sustainability reporting template aimed at giving investors an easier format to review how utilities are addressing risks tied to environmental, social and governance issues, including climate change.