CEOs outline 3 trends hitting electricity

Source: By Edward Klump, Kristi E. Swartz and Arianna Skibell, E&E News reporters • Posted: Monday, November 16, 2020

While President Trump and President-elect Joe Biden overshadow most everything right now, the U.S. power sector’s accelerating energy transition isn’t taking a break for the political transition.

For major power companies that held earnings calls in recent weeks, much of the focus was on issues such as expanding renewables and the role for hydrogen under a national push for 100% clean electricity. On natural gas, major companies are approaching investments in different ways as emission concerns simmer. And the COVID-19 pandemic is threatening to delay solar projects and defer grid maintenance, although some companies are faring better financially than expected.

To be sure, politics still loom large. CEOs of Minnesota-based Xcel Energy Inc. and Michigan-based Consumers Energy suggested last month that Biden’s push to have a carbon pollution-free power sector by 2035 is aggressive (Energywire, Oct. 30). State and federal leaders also could institute new policies that affect generating units and transmission lines.

But CEO Curt Morgan of Texas-based Vistra Corp. seemed to speak for many power-sector leaders this month when he took an accommodating stance toward the outcome of national elections. He said the company was looking forward to working with whatever the “congressional makeup ends up being.”

Similarly, Dominion Energy Inc.’s executive chair, Tom Farrell, said, “We’ll wait to see exactly how future policy reflects the final result” when mentioning the election.

“But in any case, we are on an unwavering and industry-leading path to net-zero emissions, consistent with state-level policy priorities. A more sustainable energy future is what our shareholders, customers, communities and employees want, and we intend to deliver,” Farrell said.

Here are three issues that major electric companies are focused on as 2020 winds down:

Managing COVID-19

Effects of the coronavirus pandemic continue to ripple through the power sector as millions of workers stay home and many customers struggle to pay bills.

One effect may be on renewable energy development, as NRG Energy Inc. said a chunk of coming purchased power in Texas may be delayed six to eight months because of supply chain and financing issues related to the virus. That affects the company’s outlook for 2021, although NRG still hopes to mitigate various COVID-19 impacts.

“We now expect our pre-summer ’21 solar [power purchase agreements] to be delayed,” CEO Mauricio Gutierrez told analysts Nov. 5. “This delay creates a headwind versus our midpoint of guidance because our load obligations will be met with more expensive market purchases.”

On the demand front, Gutierrez sought to differentiate “between the short-term impact of economic shutdowns” and a socially distanced economy and the potential “stickiness of stay-at-home trends.” He called shutdowns “a near-term challenge” that will be managed, with the at-home shift “a medium- to long-term opportunity” for revenue from the residential side.

Another tension point involves planned outages. Some power companies deferred maintenance and projects on power plants and parts of their grid if they weren’t immediately necessary for operational, reliability or safety reasons.

North Carolina-based Duke Energy Corp. said that cannot last.

“Some of the tactical efforts that we are achieving in 2020 are not sustainable beyond the current year,” Chief Financial Officer Steve Young said. “Revised timing and the scope of outages is an example of mitigation efforts not sustainable year over year.”

The company’s operational and business transformation groups are looking at digital and automation strategies to help Duke continue to operate more efficiently in efforts to lower costs, Young said.

On the other hand, the economic decline stemming from the COVID-19 pandemic was not as steep as Duke had originally expected because many large commercial and industrial customers restarted operations by summer’s end.

The energy giant said its electricity demand will be down between 2% and 3% during 2020 instead of a projected 3% to 5%. What’s more, Duke said it has added new electricity and natural gas customers across its territory, which includes parts of North and South Carolina, Florida, and some of the Midwest.

Duke has cut roughly $350 million in expenses this year because of COVID-19, according to Young. More cuts are expected by the end of the year, the company said. And Duke is preparing to make more adjustments to its business.

“We will start the year with a lower head count. We have used technology in different ways. We dispatch crews in different ways,” CEO Lynn Good said.

Atlanta-based Southern Co. continues to expect electricity demand to fall about 2% to 5% for the year because of COVID-19, executives said recently. This translates to roughly $300 million, said Drew Evans, the company’s chief financial officer.

Southern’s regulated electric companies have set up payment plans for customers, and state utility regulators have signed off on taking up COVID-19-related expenses and bad debt from customer nonpayments in the future.

Evans said the company will continue cost-cutting measures as the pandemic stretches into 2021.

“[We] came out of the pandemic from its depths a little bit faster than we anticipated, but the duration may be a bit longer,” Evans said.

Renewable and hydrogen push

Every company wants to tout its green side in 2020, even if renewables aren’t its specialty.

Take Texas-based CenterPoint Energy Inc., known largely for its regulated gas and electricity delivery business in Houston.

CEO David Lesar told analysts Nov. 5 that adding renewable energy is a priority for the company’s Indiana utility. And an overall business review at CenterPoint found the potential for billions of dollars of additional capital investment over the coming years, though the company isn’t only depending on renewable projects.

“It is critical that we take advantage of current opportunities to provide renewable energy for our customers,” Lesar said. “This includes aggressively pushing to build renewable generation outlined within our Indiana [integrated resource plan], where we now plan on investing $950 million in both wind and solar generation that we will own as a company.”

He said the company also will work on renewable natural gas and hydrogen renewables in Minnesota, as well as potentially new transmission infrastructure to connect to renewables in Texas.

Vistra drew attention weeks ago when it detailed a green push with more renewable and storage investments planned, along with more coal plant retirements. But Morgan, the CEO, said recently that investors still don’t give the company the proper credit for its assets and plans (Energywire, Sept. 30). He said going private isn’t a panacea, but he’s trying to make a case for Vistra’s strategy.

“We are going to search, as much as we possibly can, to find a way to get the full and fair value of this company,” Morgan said. “And I think part of that is investing in the changing technology on the generation side. But we absolutely have to do that in a prudent fashion.”

Virginia-based Dominion also announced progress it made toward completing a 12-megawatt, $300 million offshore wind test project. It “was successfully energized just weeks ago,” Dominion CEO Robert Blue said on a recent conference call.

Blue said the utility will also submit a permit application for a separate project, a 2.6-gigawatt, $8 billion full-scale installation, by the end of the year. It would be reviewed by the Bureau of Ocean Energy Management.

“We expect BOEM permitting to take around two years, with capital investment to start to ramp up in 2023 and full-scale construction commencing in 2024,” Farrell said.

The renewables king remains Florida-based NextEra Energy Inc., which keeps adding to its queue (Energywire, Oct. 22). Executives said they are optimistic that growth will continue because of increased demand from commercial and industrial customers.

But new customers may be coming into the mix as more companies are making environmental, social and governance issues a priority.

The “pressure that formally nontraditional buyers of renewables are facing from their investor base has really expanded the opportunity for us,” said John Ketchum, CEO of NextEra Energy Resources LLC, the competitive wholesale unit of NextEra.

The company also wants to capitalize on the widespread need for grid transformation to support more renewables. NextEra’s transmission unit agreed to buy Dallas-based GridLiance, which will expand its presence.

On a different front, NextEra said hydrogen will come into play if federal policy accelerates a zero-carbon goal to 2035.

Hydrogen will be cheaper than renewables and storage or stand-alone batteries, the company said. The so-called renewable fuel will be helpful for companies that need new technologies to cut out the last 10% to 15% of carbon from their fleet, Ketchum said.

“Where it gets very expensive to do with batteries, [it’s] much cheaper and more manageable to do with hydrogen,” he said.

For Southern, it’s possible the amount of renewable energy on its grid will surpass that of emissions-free nuclear power as early as 2023, CEO Tom Fanning said recently.

Southern is on a path to be carbon neutral by 2050, and renewables — mostly in the form of solar — could be as high as 20% on a power grid that 10 years ago had none to speak of.

Fanning is calling for material advances in science and technology to ensure that battery storage is a “comprehensive solution,” however.

What’s the role for gas?

Coal is largely on the way out for major U.S. power producers, but natural gas remains a coveted fuel for many companies — even as carbon-free emissions targets loom in the coming decades.

So it follows that executives are continuing to stress the importance of gas-fired generation to the grid and the potential for more gas investments. But companies are also aware of national tension around the fossil fuel and its emissions footprint.

Morgan said Vistra has “a portfolio of highly efficient, low-emitting natural gas assets that can provide reliable, dispatchable power and complement the intermittent nature of renewable resources.” And he said a diverse portfolio enables renewable products that can ensure reliability and an affordable price.

“Every reputable and objective study on the changing power generation landscape has natural gas playing a significant role for several years to come, especially as we electrify the economy,” Morgan said.

NRG, which has headquarters in New Jersey and Houston, wasn’t afraid to tout a bigger natural gas footprint that would come through a proposed acquisition of Direct Energy (Energywire, July 27).

“We expanded the natural gas retail platform with Direct, which is one of the most recognized and best-in-class natural gas retail platforms,” NRG’s Gutierrez said recently. “We enhanced also the products and services that we offer around the customer.”

In an earnings news release, California-based Sempra Energy provided updates on liquefied natural gas projects. And it discussed California and decarbonization plans on a conference call. But Sempra also made a pitch for the value of gas in reducing emissions, noting the International Energy Agency’s study of how building renewables can exist with switching from coal to gas.

“It’s a case study and is being viewed that way all around the world about the importance of getting LNG into developing markets. Whether it’s China or India or Malaysia or Vietnam or Thailand, they have the opportunity to build a lot of renewables” supported with gas, CEO Jeff Martin said.

Still, issues with gas loom, including around pipelines and future demand.

Dominion has been working to exit its interstate natural gas pipeline business. The company sold the majority of its gas transmission and storage assets to Berkshire Hathaway and expects the remaining 20% of the transaction to close early next year, Executive Chair Farrell told analysts Nov. 5.

“This is a major milestone in the strategic repositioning of our company,” he said.

Farrell said the company plans to sink up to $55 billion over the next 15 years into projects that reduce emissions. Under Virginia’s landmark Clean Economy Act, the utility is required to achieve net-zero carbon emissions by 2045.

The company’s plans include “offshore wind, solar, energy storage, nuclear life extension, renewable natural gas and gas delivery system modernization,” Farrell said.

In Michigan, DTE Energy Co. is working through a decision to shed its midstream business, saying it plans to spin off its non-utility natural gas pipeline, storage and gathering business. That would make the company “a predominantly pure-play regulated electric and natural gas utility,” the company said.

At CenterPoint, the company could find a way to exit its interest in a business known as Enable Midstream Partners LP, which transports oil and gas. Oklahoma-based OGE Energy Corp. could shed its Enable interest, as well.

But CenterPoint made clear this month that it’s looking to sell one or two of its local gas distribution companies to help finance spending plans.

“We are committed to better cost control,” Lesar told analysts and investors. “We’re going to become a larger player in renewables. We will manage the business so you don’t have to worry.”