Duke Energy on Monday reported a $1.6 billion charge related to abandoning the Atlantic Coast Pipeline. The utility also laid out how its renewable energy and grid modernization plans will fill in the capital-investments hole left by the canceled multibillion-dollar natural-gas project.
Duke reported a second-quarter 2020 loss of $817 million, or $1.13 per share, with the pipeline cancellation costs taken into account. Excluding those one-time losses, the multistate utility reported non-GAAP net income of $809 million or $1.08 per share, compared to $1.12 per share in the same quarter last year.
Duke and partner Dominion Energy canceled the Atlantic Coast Pipeline (ACP) last month in the face of project costs that had risen from about $5 billion when it was launched to as much as $8 billion this year, as well as the likelihood of further delays and cost increases from legal challenges by landowners and environmental groups.
Both utilities had planned to use the pipeline to supply their natural-gas distribution businesses and to fuel gas-fired power plants. At the same time, both have pledged to decarbonize their operations completely by midcentury, along with interim goals to significantly cut carbon emissions from their generation fleets over the next decade — a contradiction highlighted by pipeline opponents.
Duke’s zero-carbon plan calls for a 50 percent reduction in emissions by 2030, driven largely by utility-scale solar development in North and South Carolina and Florida, part of a broader plan to double its current 8-gigawatt fleet of renewables by 2025.
Duke also plans to replace closing coal plants with natural-gas-fired power in its key North Carolina service territory, a move that will be complicated by the loss of supply from the canceled pipeline.
Losing the ACP will also leave a hole in its $56 billion capital investment plan for the next five years, including a roughly $2 billion shortfall for 2021. CEO Lynn Good said during Monday’s earnings conference call that the utility is “actively pursuing alternatives” to that capital investment to retain its $56 billion target.
Filling in the gap with renewables, grid modernization
These alternatives include additional solar investments in Florida, where subsidiary Duke Energy Florida is already working on a plan to build 750 megawatts of utility-scale solar. It has also proposed a "shared solar program" to build another 750 megawatts, mostly to supply commercial and industrial customers but with carve-outs for residential, small business and government subscribers as well.
Duke is also looking to grid modernization to fill in the capital investment gap left by the ACP cancellation. The utility is working with stakeholders to gain approval for a revamped grid modernization plan to replace one rejected by the North Carolina Utilities Commission last year. The plan, which has received partial support from environmental groups and ratepayer advocates and is awaiting NCUC approval, calls for about $2.3 billion of improvements and upgrades to electric infrastructure in the Carolinas over the next three years.
Duke is also exploring “contingency plans” for capital expansion of the natural-gas distribution system operated by subsidiary Piedmont Natural Gas, meant to help replace the supply that would have come from the Atlantic Coast Pipeline, Good said. “Gas supply in the Carolinas is currently constrained, especially in the winter.”
Duke’s renewables plans in the Carolinas aren’t expected to expand significantly enough in the short term to fill in for the capital investment lost from the ACP cancellation. But the utility is expecting to reveal more details of its 15-year goals when it files its 2020 integrated resource plan (IRP) in September, which will “outline alternatives to achieving our carbon reduction goals,” including its renewable energy plans, Good said.
It’s also working with stakeholders on defining the clean energy targets of North Carolina’s Executive Order 80, passed by Gov. Roy Cooper in 2018, which is targeting a 70 percent reduction in statewide carbon emissions by 2030. The five-year incremental investment plan laid out on Monday “does not contemplate the full potential from the IRP and the Clean Energy Plan over the next decade,” which includes the potential for expanding on previous targets of up to 300 megawatts of energy storage by the early 2030s to manage its increasing share of renewable energy over that time.
Unlike Dominion, Duke hasn’t yet included offshore wind as part of its renewable energy plan, but Good said the utility "will address offshore wind in the upcoming IRP."
Good also said that Duke sees more potential for offshore wind playing a role in its larger renewable energy plans in the late 2020s and early 2030s, as opposed to Dominion’s ongoing offshore wind development efforts. How much of a role it could play will depend on developments in the state's clean energy strategy, she said.
“[Offshore wind] represents a future investment opportunity, and we will know more as this policy gets finalized," Good said.
Duke’s second-quarter adjusted earnings took a hit from pandemic-related drops in retail electricity and natural-gas sales, but were partly offset by about $170 million in operations and maintenance cost cuts. Utilities around the country have seen similar drops in commercial and industrial energy use driven by pandemic work-stoppage orders and broader economic disruptions, and many are reducing other costs to mitigate the worst impacts of the pandemic.