As the global population continues to grow, the energy needs of the people have been expanding at a much faster pace. However, with a limited supply of conventional sources of energy, the world would not last for long at the current rate of consumption. Thus, alternative sources of energy, such as wind, solar, and biomass, are being increasingly used to bridge the gap between the demand and supply of energy. With a belief that renewable resources will play an increasingly important role in the transition to cleaner energy, Duke Energy ( DUK ), one of the largest utility companies in the US, has planned to grow its renewable business rapidly over the next few years. In this note, we talk about how Duke's renewable business could become a potential upside for its value in the long term. We have a price estimate of $84 per share for the company, which is slightly higher than its current market price.
Expanding Renewables Business
Apart from earning a large portion of its value from its electricity generation and transmission business, Duke Energy has a notable presence in the renewable space. Its commercial renewables business primarily acquires, builds, develops, and operates wind and solar renewable projects throughout the US, generating revenue by selling renewable power produced through long-term contracts to utilities, electric cooperatives, municipalities, and commercial and industrial customers.
Duke entered the renewable space in 2007, by acquiring more than 1,000 megawatts (MW) of wind assets under development. Over the years, the company has invested roughly $5 billion to expand its wind and solar power portfolio by acquiring distributed solar companies and projects, building energy storage systems and energy management solutions, specifically designed for commercial businesses. Some of these investments include the acquisition of REC Solar Corp. (a California-based provider of solar installations) and Phoenix Energy Technologies Inc. (a California-based provider of enterprise energy management and information software to commercial businesses) in 2015. As a result, Duke operated wind and solar generation assets of over 2,900 MW across 14 states from roughly 21 wind farms and 63 commercial solar farms, at the end of 2016.
Duke's Wind And Solar Capacity
In order to further leverage the growing demand for electricity generated from renewable resources, Duke is developing innovative renewable energy projects to serve its customers by meeting the demand for reliable, affordable, and increasingly clean electricity, while reducing its carbon footprint. For this, the company completed two new Texas wind power projects, Los Vientos III and IV that have contributed an additional 400 MW of wind energy to its portfolio over the last couple of years. Additionally, the company opened a solar plant at a Walt Disney resort in Florida in 2016, and bought six solar farms in North Carolina through its North Carolina Subsidiary Duke Energy Renewables.
Further, the utility company acquired a portfolio of three solar power projects from SunPower Corporation in early 2017 to strengthen its presence in the solar market. Moreover, last month, Duke opened a 8.8 MW solar power plant in the Sunshine State, which is expected to add 700 MW of new solar power by 2021. Besides, the company plans to begin construction of its Hamilton Solar Plant, the sixth plant in Florida, in 2018. The plant is expected to have a capacity of 74.9 MW and produce clean, emissions-free energy, which will be enough to power more than 20,000 homes at peak production. By 2024, Duke Energy plans to add up to 500 MW of additional solar energy in Florida alone.
In addition to expand its presence through acquisitions and new projects, Duke has managed to sign long-term power purchase agreements with credit-worthy parties over the last decade that will not only boost their top-line in the coming years, but also augment its future growth prospects. Further, the company aims to introduce some new programs in 2018 that will allow its customers to benefit from solar power generation. These would include solar rebates, solar leasing, and community solar programs that will allow customers to own solar facilities or use them at a lower cost.
In the chart below, we show a scenario where Duke's efforts to expand its commercial renewables business could result in an upside for the company in the coming years. You can create your own scenarios about the growth in Duke's renewable business and visualize its impact using our interactive platform.
Impact of Renewable Growth On Duke's Valuation
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