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Feature Article

Key Takeaways from First-Quarter Earnings

By Roger S. Conrad on May. 14, 2017

Dominion Resources and other electric utilities continue to accelerate their investment in renewable energy, while regulated and merchant power producers still plan to close thousands of megawatts’ worth of coal-fired plants this year.

The economic incentives for transitioning from inefficient coal plants built decades ago to gas-fired facilities and renewable energy remain compelling. These capital expenditures also add to utilities’ rate base, driving earnings and dividend growth.

And state regulators across the country favor investment in the power grid and renewable energy, even in the few places that lack a renewable portfolio standard.

Several states are also on the verge of mandating greater adoption of clean energy; for example, a bill making its way through the legislature would require California to generate 100 percent of its electricity from renewable sources by 2045.

Utilities also take a multi-decade view when planning their capital expenditures. Although the Trump administration has taken a friendlier stance toward the coal industry, electric utilities can’t overlook the future legal and regulatory risk associated with these power plants.

Despite the Trump administration’s plans to gut the Environmental Protection Agency, no US utilities have announced the construction of new coal-fired capacity or a reprieve for existing facilities slated for shutdown.

The leading US electric utilities continue to leverage their scale to dominate the solar-power market, buying and building large-scale facilities that operate roughly 4 times as efficiently as an equivalent amount of distributed rooftop panels.

Tesla’s (NSDQ: TSLA) business of leasing solar panels to homeowners has never generated a profit, leaving the door open for the regulated model to win the day. Utilities have also emerged as preferred partners for the US military and major tech companies looking to build solar-power projects.

This month’s update to the Utility Report Card highlights several companies that made big investments in solar power over the first four months of 2017. Expect more by the time our coverage universe reports second-quarter results this summer.


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