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Duke Energy Corp. (DUK - Analyst Report) unveiled plans to build three natural-gas-fired power plants in Florida to help meet the state's mounting energy demand. The total package is expected to cost $1.86 billion.

Following a month-long request for proposals process, Duke Energy Florida finally opted for building a 1,640-megawatt (MW) natural gas plant in Citrus County located next to its nuclear plant retired last year. The plant will be fueled by gas through a new pipeline to be built and operated by Sabal Trail Transmission, a joint venture of Spectra Energy Corp (SE - Analyst Report) and NextEra Energy Inc. (NEE - Analyst Report). The construction of this plant will cost an estimated $1.5 billion.

The company expects to start building the plant in early 2016 upon successful approval from the required regulatory bodies. The initial 820 MW of power is slated to come online in the spring of 2018. The second 820 MW will be operational by Dec 2018.

The Citrus County plant will be built on 400 acres adjacent to the existing Crystal River Energy Complex. The project is set to create 600–700 jobs at the peak construction phase and construction activities will likely add several million dollars to the local tax base.

To conform to evolving environmental regulations, Duke Energy plans to retire two coal-fired units at its Crystal River Complex once the new natural-gas facility comes online. Earlier, the company had already submitted plans to decommission its nuclear plant at Crystal River to the federal regulators.

Duke also plans to spend $197 million on two simple-cycle combustion turbine generators at the Suwannee Plant near Live Oak. The generators will have a capacity of 320 MW and are expected to be pressed into service in 2016. Moreover, Duke also plans to install upgrades at its gas-fired power plants at the Hines complex in Polk County. For that, it will deploy $160 million to add 220 MW to its output.

Duke Energy Florida provided the Florida Public Service Commission an update on these projects and plans to formally submit the plans for approval on May 27. The proposed project, upon successful approval, will benefit customers by enhancing system-wide reliability and efficiency while reducing emissions.

Going forward, we believe the closure of the Crystal River nuclear plant will lead to substantial cost savings for the company thereby improving margins. Moreover, the company will derive significant benefits from its natural gas assets given its recovering prospects.

Currently, Duke Energy carries a Zacks Rank #3 (Hold). We presently prefer the Zacks Rank #1 utility Calpine Corp. (CPN - Snapshot Report).

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