Utilities plan a surge of solar, wind in Southeast

Source: Kristi E. Swartz, E&E reporter • Posted: Friday, November 13, 2015

The Southeast’s three major investor-owned utilities have big plans to ramp up their renewable energy portfolios across the United States in the near future, citing falling costs and rising demand because of U.S. EPA’s Clean Power Plan.

Duke Energy Corp., NextEra Energy Inc. and Southern Co. each recently told analysts that opportunities to add more wind and solar projects have exceeded their expectations. All three companies plan to invest billions into expanding solar arrays and wind farms, either by buying or building them, despite the possibility of eventual changes in some of the federal tax incentives.

Each company operates large, regulated utilities in the Southeast and has received its share of criticism for being slow to add solar and wind in those territories. A combination of policy changes and political pressure combined with lower solar and wind costs have led the utilities to add those fuels to their output. Executives say there’s more to come.

The robust growth is likely to come outside their Southeast boundaries through their commercial or wholesale power business arms, however.

“We see an ongoing momentum around renewables,” Duke Energy CEO Lynn Good told analysts during the company’s third-quarter earnings conference call.

Duke’s commercial renewable energy business is on track to add more than 300 megawatts of wind and solar projects by the end of the year, Good said. The additional projects will boost the company’s overall wind and solar portfolio to more than 2,700 MW of capacity.

Charlotte, N.C.-based Duke’s foray into wind has been hurt this year by lower wind resources, Good said. As the amount of wind is starting to pick up, Duke will start spending more money on wind projects to reflect a return to more normal weather, she said.

Duke isn’t the only one eyeing such investments. Already the nation’s No. 1 wind energy developer, NextEra Energy Resources recently signed roughly 600 MW of wind projects and 125 MW of solar ones, putting the company on pace to surpass original plans for 2016.

NextEra Energy Resources will reveal future plans for wind in 2017 and 2018 early next year, executives said during a recent earnings conference call. They are likely to be aggressive, based on comments made by Jim Robo, chief executive of NextEra Energy Resources’ parent company, Juno Beach, Fla.-based NextEra Energy Inc.

“We are significantly increasing our internal resource commitment to renewables development, and we expect to as much as double the development resources committed to these activities over the next few years,” he said.

Robo calls the company’s long-term strategy “smart and opportunistic.”

To buy or build?

Key to the company’s growth is Congress extending the lucrative wind production tax credit (PTC). The second factor is a rise in interest for wind because of the Clean Power Plan, which targets greenhouse gas emissions from existing power plants and gives a boost to renewables and other clean energy options.

NextEra Energy Resources wants to capitalize on both of these reasons and seize more even more of the renewable energy market in the United States and Canada, Robo said.

NextEra Energy Inc. formed a “yieldco” in 2014 to hold some of its renewable energy investments. Yieldco stocks have been falling, however, making them not profitable right now. Robo told investors he sees opportunity to gain market share in that chaos, however.

“We’ve been the No. 1 player for many, many years, and last year we gained share,” he said. “My goal for the team is to continue to build to gain share and to build profitable projects that make sense for our shareholders and our customers.”

NextEra Energy Resources has been a longtime builder of wind and solar projects and prefers that strategy over buying them. Robo said the company considers this the better way to create more value for shareholders, and the focus will remain on so-called organic growth going forward.

Atlanta-based Southern Co. has been taking the opposite approach, buying large-scale solar and now wind projects. The company made its first investment in solar in 2010 and now has 1,600 MW that it either owns, is building or has under contract.

This includes a recently announced 15-MW project in California, the company’s eighth in that state. The company’s wholesale arm, Southern Power, is the one behind these deals, frequently partnering with Ted Turner’s Turner Renewable Energy.

Southern CEO Tom Fanning credits the company’s ability to secure projects to its strong tax appetite and its relationship with First Solar Inc.

“Solar particularly has been a really important growth area,” Fanning said in a recent interview with EnergyWire. “The lion’s share [of future growth in renewables] is going to be about solar.”

Through Southern Power, the company spent about $800 million in 2015. For this year, it put together what Fanning considered to be an aggressive growth plan of $1.3 billion.

The company exceeded that and likely will hit $2.3 billion in investments instead.

“The growth has been really significant,” he said.

Going forward, Southern is targeting projects that add up to $1.3 billion, but Fanning is expecting the year to finish about the same as 2015.

“I bet you we get above $2 billion there,” he said.

Federal factors help renewables

Federal tax credits for wind and solar projects have provided an additional boost but also uncertainty for the energy giants. Currently, the 30 percent investment tax credit (ITC) for solar is set to be replaced by a 10 percent credit, going to commercial projects only.

Congress allowed the wind PTC to run out last year, after passing a one-year retroactive extension of the tax credit that expired at the end of December. Its future remains unclear.

Steve Young, Duke’s chief financial officer, said the company likely will have to restructure future contracts and pricing if the tax benefits go away. He is not significantly concerned however because so many states are focused on adding renewable energy.

“Based on what we’ve seen and heard now, there still will be a market for renewable power, as no states are backing off of renewable portfolio standards,” Young said.

Southern has curbed growth expectations to roughly 3 to 4 percent because the solar ITC will step down. Fanning said he expects growth to rebound after that because of a need for certain types of generation under the Clean Power Plan.

Solar and wind may be obvious there, but Fanning said natural gas combined-cycle and combustion turbine plants will also be necessary. This is because solar and wind are intermittent resources and need backup power when they cannot operate.

NextEra Energy Resources continues to sign large, long-term contracts for solar and wind projects, showing the demand remains regardless of tax credit uncertainty.

“I would say, through 2020 at least, whether it’s early action credits under the Clean Power Plan or whether it’s with or without the PTCs, what customers are seeing as a trend to go to more renewables is very positive for us,” said Armando Pimentel, CEO of NextEra Energy Resources.

Pimentel said solar projects will continue to be attractive in 2018, even without the ITC. The company also thinks wind projects will be economical by the end of the decade, even if the PTC goes away.

“There’s obviously some uncertainty about the Clean Power Plan, but I think that uncertainty is actually playing in our favor,” he said. “People want to take action early.”