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Why America's Dirtiest Power Companies Are Investing Billions in Clean Energy

Wind And Coal Power Plant

The U.S. energy industry is in a state of transition, and there may be no company whose situation exemplifies that more than Duke Energy (NYSE: DUK) . As recently as last year, Mother Jones ranked it the dirtiest power company in the U.S., primarily based on the large number of coal power plants it operates. But that report was based on 2013 data, and the Duke Energy of 2016 is rapidly changing along with the rest of the industry. Formerly dirty utilities like Duke Energy, AEP (NYSE: AEP) , and Southern Company (NYSE: SO) , which were on the top 5 of the dirtiest companies list, are now all leaders in renewable energy. But Duke's transition may be the most surprising given its investments in coal over the last few decades.

Wind And Coal Power Plant

Image source: Getty Images.

At this point, moving into green energy isn't a political or environmental move for these utilities: They're buying renewable assets for the money.

When a wind or solar power plant is built, it normally signs a power purchase agreement with the local utility for 20 years or longer. This creates a dynamic where cash flows are easily predictable for the project owner, creating a bond-like investment. Utilities can then use the low-cost capital from their consistent utility business to generate strong returns on the projects. Renewable energy is a great investment for utilities.

The recent attractiveness of renewables as an investment is combining with the aging of our coal power plant infrastructure to propel a huge transition in what utilities look like today.

Getting out of the coal business

There are very few coal power plants being built today, and the bigger trend is coal plants being shut down because they're no longer cost effective. In 2014, Duke Energy shut down the 1.4 GW W.C. Beckjord Station coal plant, and this year the Wabash River Generating Station was closed.

Its 376 MW coal plant in Asheville, North Carolina, is also going to be decommissioned, and replace with two new 280 MW natural gas plants and more solar energy.

In short, Duke Energy is shutting down the dirtiest plants in its arsenal and replacing them with wind and solar. That's a sign of where energy is trending today.

Driving the renewable energy future

When dirty coal-burning companies become the biggest buyers of renewable energy projects in the country, you know the face of the energy business is changing. And that's exactly what's happened. Duke Energy and counterparts like AEP and Southern Company are investing billions to buy, build, and purchase electricity from renewable energy power plants. And with the nearly guaranteed returns coming from them, they're a better bet than aging coal-fired plants in today's energy business.

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Travis Hoium owns shares of American Electric Power. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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