Duke Energy’s third-quarter earnings report on Thursday revealed success in managing the effects of the coronavirus pandemic on its multistate utility operations. But it also highlighted the near-term steps the utility is taking to achieve its clean energy aspirations and how its long-range decarbonization strategy will influence the pending debate over a clean energy plan for its home state of North Carolina.
Duke has won recent settlements with solar groups in its core North Carolina territory on solar interconnection challenges, as well as a settlement with renewable energy groups on a new rooftop solar net metering program to be submitted to South Carolina regulators.
Duke Energy’s $58 billion capital plan through 2024 is already heavily weighted toward decarbonizing its generation fleet as part of its pledge to reach net-zero carbon emissions by 2050, CEO Lynn Good said during Thursday's earnings conference call. Duke has shifted the $2 billion it planned to invest in the canceled Atlantic Coast Pipeline project to more clean energy and grid investments to reach its goal to double its share of renewables from 8 gigawatts to 16 GW by 2025.
This will give it "a pivotal role" to play in the upcoming negotiations between North Carolina Governor Roy Cooper, a Democrat, and a state legislature that remains in Republican control after Tuesday’s election, over the future of Cooper’s 2018 executive order seeking to reduce the state’s power-sector carbon emissions by 70 percent by 2030, she said.
"Historically, energy policy in North Carolina has moved in a bipartisan way," she said. The utility's recent settlements with environmental and clean energy groups, and its buy-in from stakeholders on its long-range decarbonization plans, indicate Duke's progress so far in creating consensus among business groups, environmental advocates and other disparate stakeholders. “That points to broad support for critical infrastructure investments that will drive jobs and economic development."
Duke’s long-range plans and looming home-state political decisions
No matter the results of elections at the federal and state levels, “our capital plan offers meaningful solutions” toward making “significant progress on the clean energy transition” in the coming years, Good said. Those include its large-scale solar procurements in the Carolinas, and Duke Energy Florida’s $2 billion effort to build 750 megawatts of utility-scale solar and another 750 MW in a "shared solar program" that will subscribe customers in the state.
Duke’s 15-year integrated resource plan (IRP) for the Carolinas, set to be considered by regulators early next year, contains six alternative pathways for retiring fossil fuel power plants, increasing its wind, solar and energy storage capacity, and potentially turning to offshore wind farms or still-in-development small modular nuclear reactors to reach different degrees of carbon reduction by 2035.
The IRP’s base-case scenario, set to reduce emissions by 50 percent to 55 percent by 2030 through new renewables and retiring its roughly 10,000 megawatts of coal-fired power plants, can be done “under existing statutes,” Good stated. But for its more aggressive plans to reach 70 percent carbon reduction in the next decade, which could include offshore wind, nuclear power and long-duration energy storage, “having some legislative support…would be helpful.”
Duke's decarbonization plans haven't been embraced by all stakeholders. Most of its IRP scenarios call for building new natural-gas plants, which critics say will lock in carbon emissions from resources that may end up as stranded assets as renewables backed by energy storage become more cost-effective solutions. Duke argues that its wintertime peak loads can't be covered by today's lithium-ion batteries and other cost-effective energy storage options, and that it will need to invest in pumped hydropower, new-generation nuclear reactors, or green hydrogen or other replacement fuels for natural gas to fill in that gap.
Duke also faces scrutiny over its efforts to recover from ratepayers part of the $8 billion to $9 billion it will spend on coal ash cleanup in North Carolina. The utility is awaiting a ruling from the North Carolina Supreme Court on the matter, and an unfavorable decision could harm its credit rating, Good warned.
Bipartisan promise for infrastructure investments and regulatory reform
While it’s unclear if a Republican-controlled legislature will work with a Democratic governor on a state decarbonization plan, “I believe critical infrastructure, focused not only on carbon reduction but job creation, has a durable credibility across both sides of the aisle," Good added.
That infrastructure would include Duke’s long-awaited grid modernization plan, which has won support from stakeholders in a slimmed-down $2.3 billion proposal after an initial $13 billion plan was rejected by regulators last year. The new plan awaits regulatory review.
Good noted that Gov. Cooper’s executive order also calls for exploring regulatory reforms that could help encourage the development of "critical infrastructure" and its associated carbon reductions through measures such as multiyear rate plans or performance-based incentives for hitting efficiency and customer benefits targets. Just what those options might be will emerge from a stakeholder process set to wrap up around year’s end, she said.
Coronavirus impacts and NextEra merger questions
Duke’s adjusted third-quarter earnings of $1.87 per share beat analyst estimates of $1.79 per share, and were up from $1.79 in the same quarter last year and $1.08 per share in the second quarter, which saw the utility take a hit from the Atlantic Coast Pipeline cancellation. Coronavirus pandemic impacts to its electricity and gas sales haven’t been as harsh as Duke initially predicted, and moves to increase operations and maintenance efficiency have paid off, CFO Steve Young said.
Duke projects full-year 2020 earnings per share in the $5.05 to $5.25 range and 2021 earnings per share of about $5.15, he said.
Good also responded to analyst questions about last month’s proposal from Florida-based NextEra Energy, the country’s leading renewables developer, to merge with Duke Energy.
“Our focus is on the strategy of clean energy transition; it’s on the strategy of building stakeholder support in the Carolinas,” Good said. Duke rejected NextEra’s overtures, which would require approval from regulators in the six states it serves.