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Zacks Industry Outlook Highlights: NextEra Energy, SCANA and Dominion Energy
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For Immediate Release
Chicago, IL – May 3, 2018 – Today, Zacks Equity Research discusses the Industry: Utilities, Part 2, including NextEra Energy (NEE - Free Report) , SCANA Corp. and Dominion Energy (D - Free Report) .
The utility sector is currently undergoing a transition as the primary fuel source, coal, is being replaced by natural gas, and we could notice increased usage of clean energy to produce electricity. The new U.S. administration’s coal-friendly moves will definitely lead to some of the coal-based utility plants running for a longer time period than expected.
We advocate that there needs to be a balance between emission control and clean energy generation. A constructive utility rate environment, increase in electricity production from natural gas and renewables, and supporting clean coal-powered projects will enable utilities to efficiently serve a larger customer base.
In the segment below, we discuss the basic strengths of the utility sector.
Transition Toward Cleaner Source
Utility operators are gradually changing the source of electricity production. Abundant cheap natural gas and declining installation costs of renewable sources like solar and wind are acting as tailwinds for the sector. The regulated utilities are also getting ample support from the administration to shut down old and less profitable fossil fuel plants and replace them with more technologically sound new generation units.
The U.S. Energy Information Administration’s (“EIA”) report indicates that the share of U.S. total utility-scale electricity generation from renewable sources will increase from less than 17% in 2017 to 17% in 2018 and increase to 18% in 2019. EIA expects natural gas to generate nearly 34% of U.S. electricity in 2018 and 2019, up from 32% in 2017, while coal is expected to contribute 29% in 2018 and 2019, down from 27% from 2017. The above prediction from EIA indicates the preference to or against the legislation supporting the usage of coal.
Increase in Infrastructure Resilience
Due to its geographical location, the United States is battered by tropical storms, cyclones, extreme cold weather and hurricanes. Natural disaster disturbs normal day to day life including utility services.
Utilities are investing steadily to upgrade and strengthen their existing transmission and distribution lines. Usage of technology for the maintenance of wide-spread electric lines helps to lower the possibility of power outages. Strengthening infrastructure will help utilities serve their expanding customer base efficiently and effectively.
Extensive R&D & Extension of ITC/PTC
In their pursuit of improving the standard of services, utility operators have steadily invested in research and development (R&D). They have introduced new smart meters and strengthened their transmission and distribution lines, which helped in the efficient usage of energy.
Utility operators are also benefiting from the ongoing research in the solar photovoltaic sector. Solar energy is a growing alternate energy source and the new solar cells with higher conversion rates allow operators to generate more power from fewer solar panels. This enables the operators to lower the cost of generating power from alternate sources as these are generally more expensive than fossil fuel sources.
In addition, the utility friendly moves of the U.S. administration through the extension of the validity period of Solar Energy Investment Tax Credit (ITC) and Wind Energy Production Tax Credit (PTC) will help the companies. We will see more utility scale solar and wind projects coming up, which will boost green power generation.
Thanks to the backing from government, EIA expects wind-generation capacity to increase to 735,000 megawatt hours per day (MWh/d) by the end of 2018 and 779,000 MWh/d by the end of 2019 from 697,000 MWh/d in 2017. EIA expects solar-generation capacity to increase to 1705,000 megawatt hours per day (MWh/d) by the end of 2018 and 198,000 MWh/d by the end of 2019 from 145,000 MWh/d in 2017.
NextEra Energy a Zacks Rank #3 (Hold) stock has plans to make long-term investment in clean energy assets. NextEra Energy’s current renewal energy development program aims at nearly 10,100-16,500 MW of new renewable projects (including wind repowering) online over the 2017-2020 time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Acquisitions & Merger
Utility sector operators don’t shy away from merger and acquisition (M&A) activities to supplement organic growth. In addition to giving their operations greater scale and scope, such measures also lead to cost synergies and better utilization of resources. The larger the company, the more access it has to funds essential for vital infrastructure upgrades.
We believe that in a mature energy market like the United States, M&As represent a sure way of enhancing market share. This expands market reach through the usage of transmission and distribution lines, diversifies the generation portfolio and lowers operating costs through the usage of common back office space.
Beginning of this year, SCANA Corp. entered into a merger agreement with Dominion Energy. Per the accord, each stock holder of SCANA will likely get 0.669 shares of Dominion. Considering the assumption of $6.7 billion debt of SCANA by Dominion, the transaction is worth roughly $14.6 billion.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: NextEra Energy, SCANA and Dominion Energy
For Immediate Release
Chicago, IL – May 3, 2018 – Today, Zacks Equity Research discusses the Industry: Utilities, Part 2, including NextEra Energy (NEE - Free Report) , SCANA Corp. and Dominion Energy (D - Free Report) .
Industry: Utilities, Part 2
Link: https://www.zacks.com/commentary/160649/utilities-banking-on-shift-to-clean-sources-for-future-growth
The utility sector is currently undergoing a transition as the primary fuel source, coal, is being replaced by natural gas, and we could notice increased usage of clean energy to produce electricity. The new U.S. administration’s coal-friendly moves will definitely lead to some of the coal-based utility plants running for a longer time period than expected.
We advocate that there needs to be a balance between emission control and clean energy generation. A constructive utility rate environment, increase in electricity production from natural gas and renewables, and supporting clean coal-powered projects will enable utilities to efficiently serve a larger customer base.
In the segment below, we discuss the basic strengths of the utility sector.
Transition Toward Cleaner Source
Utility operators are gradually changing the source of electricity production. Abundant cheap natural gas and declining installation costs of renewable sources like solar and wind are acting as tailwinds for the sector. The regulated utilities are also getting ample support from the administration to shut down old and less profitable fossil fuel plants and replace them with more technologically sound new generation units.
The U.S. Energy Information Administration’s (“EIA”) report indicates that the share of U.S. total utility-scale electricity generation from renewable sources will increase from less than 17% in 2017 to 17% in 2018 and increase to 18% in 2019. EIA expects natural gas to generate nearly 34% of U.S. electricity in 2018 and 2019, up from 32% in 2017, while coal is expected to contribute 29% in 2018 and 2019, down from 27% from 2017. The above prediction from EIA indicates the preference to or against the legislation supporting the usage of coal.
Increase in Infrastructure Resilience
Due to its geographical location, the United States is battered by tropical storms, cyclones, extreme cold weather and hurricanes. Natural disaster disturbs normal day to day life including utility services.
Utilities are investing steadily to upgrade and strengthen their existing transmission and distribution lines. Usage of technology for the maintenance of wide-spread electric lines helps to lower the possibility of power outages. Strengthening infrastructure will help utilities serve their expanding customer base efficiently and effectively.
Extensive R&D & Extension of ITC/PTC
In their pursuit of improving the standard of services, utility operators have steadily invested in research and development (R&D). They have introduced new smart meters and strengthened their transmission and distribution lines, which helped in the efficient usage of energy.
Utility operators are also benefiting from the ongoing research in the solar photovoltaic sector. Solar energy is a growing alternate energy source and the new solar cells with higher conversion rates allow operators to generate more power from fewer solar panels. This enables the operators to lower the cost of generating power from alternate sources as these are generally more expensive than fossil fuel sources.
In addition, the utility friendly moves of the U.S. administration through the extension of the validity period of Solar Energy Investment Tax Credit (ITC) and Wind Energy Production Tax Credit (PTC) will help the companies. We will see more utility scale solar and wind projects coming up, which will boost green power generation.
Thanks to the backing from government, EIA expects wind-generation capacity to increase to 735,000 megawatt hours per day (MWh/d) by the end of 2018 and 779,000 MWh/d by the end of 2019 from 697,000 MWh/d in 2017. EIA expects solar-generation capacity to increase to 1705,000 megawatt hours per day (MWh/d) by the end of 2018 and 198,000 MWh/d by the end of 2019 from 145,000 MWh/d in 2017.
NextEra Energy a Zacks Rank #3 (Hold) stock has plans to make long-term investment in clean energy assets. NextEra Energy’s current renewal energy development program aims at nearly 10,100-16,500 MW of new renewable projects (including wind repowering) online over the 2017-2020 time frame. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Acquisitions & Merger
Utility sector operators don’t shy away from merger and acquisition (M&A) activities to supplement organic growth. In addition to giving their operations greater scale and scope, such measures also lead to cost synergies and better utilization of resources. The larger the company, the more access it has to funds essential for vital infrastructure upgrades.
We believe that in a mature energy market like the United States, M&As represent a sure way of enhancing market share. This expands market reach through the usage of transmission and distribution lines, diversifies the generation portfolio and lowers operating costs through the usage of common back office space.
Beginning of this year, SCANA Corp. entered into a merger agreement with Dominion Energy. Per the accord, each stock holder of SCANA will likely get 0.669 shares of Dominion. Considering the assumption of $6.7 billion debt of SCANA by Dominion, the transaction is worth roughly $14.6 billion.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.