As you probably have realized, the utilities are changing course…..away from fossil fuels and moving more and more toward renewables. Duke Energy, located here in the Carolinas, may be a good example of this change.
Over the past few years Duke Energy has moved carefully toward these renewables and away from their fossil fuel production. Duke Energy now has over 23 solar projects operating in the Southeast and just last month Duke Energy Renewables acquired three new solar projects in California, giving them a total of 2,900 MW from renewables.
Although 2,900 MW is a small contribution in the grand scheme of things, accounting for ~5.5% of Duke Energy’s total capacity of ~52,700 MW. Renewable capacity for Duke Energy has increased nearly 50% since 2015.
The move toward renewables by the utilities is all about growth. Since the current electricity demand is stagnant and in some regions even declining, there’s no growth in the core business. However, due to various incentives renewable projects aren’t totally reliant on a growing customer demand because they usually come with a long-term contract to sell the energy they produce to either commercial customers or other utilities. So in a sense, buying renewable energy projects is like purchasing a bond for the utility. If they can finance the purchase, which they usually can due to the relatively low cost of capital, they can generate financial benefits which result in strong returns from these projects, satisfying the stock holders.