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Three new power plants of Duke Energy Corporation (DUK - Analyst Report) – the Cliffside Steam Station Unit 6, the H.F. Lee plant and the Dan River natural gas fired plants –recently began their commercial operation. Taken together, these three plants represent an investment of $3.65 billion. The initiation of these plants has allowed the company to retire several old coal plants.

Located in Mooresboro, North Carolina (NC), Cliffside 6 coal-fired unit has an electric generation capacity of 825 megawatt (“MW”). It came online on December 30, 2012. Being a highly efficient plant, Cliffside Steam Station burns less coal per megawatt-hour in comparison to other coal units in the nation. Its unique combination of air quality controls is capable of eradicating 99% of sulfur dioxide, 90% of nitrogen oxides and 90% of mercury.

In October 2011, Duke retired four old coal units at Cliffside. It is also planning to retire another 1,469 MW older coal generation unit in NC allied to Cliffside Unit 6. Again in 2011, Duke had also introduced a scrubber to the existing unit 5 at Cliffside site.

Taking into consideration all the upgrades and modernization programs, currently Cliffside can generate more than twice the electricity with 80% less sulfur dioxide and 50% less nitrogen oxides and mercury than it did previously.

Cliffside Unit 6 has one of the most stringent air quality permits in the country. However, it has cleared all tests and all its controls are performing very well. Moreover, its versatile nature, which allows it to burn a wide range of coals enables the company to purchase all kinds of cost-effective coals, thereby generating additional savings for customers.

The H.F. Lee Plant has an electric generation capacity of 920 MW. Located near Goldsboro, NC, this highly efficient natural gas combined-cycle power plant began operations on December 31, 2012. Three older coal units and four combustion turbines at the H.F. Lee Plant were retired in 2012.

The third plant, Dan River Combined Cycle natural gas-fueled generation plant in Eden, NC with a generation capacity of 62 MW came online on December 10, 2012. It effortlessly compensates a 276 MW coal unit retired by the company in 2011. It generates more than twice the electricity provided by this retired plant. Also, the company had retired three older combustion turbines at the site at the end of December 2012.

Also, one other natural gas combined-cycle Sutton Plant near Wilmington, NC is under construction. The 625 MW plant will also easily compensate the 575 MW soon to be retired older coal-fired generation unit. This new gas plant is expected to come online by the end of 2013. Another project in the pipeline is the Edwardsport coal gasification plant in Indiana that is expected to come online in mid-2013.

Of late, the company has been investing in new plants, retiring older plants as well as working on modernization and upgrade of plants to reduce emissions across its service area. Since 2007, the company has invested approximately $6 billion in new plants and has retired up to 6,800 megawatts of older coal capacity.  All the more, it has invested another $7.5 billion for plant upgrades.

These developments indicate the company’s commitment to meet electricity needs through advanced and cleaner generation and bring in revenues at the same time. Also, the acquisition of Progress Energy Inc. seems to be a smart move made by the company. It has increased the company’s ability to build new power plants to meet future greenhouse-gas emissions limits.

However, we still remain concerned due to the unfavorable macro backdrop, predominantly fossil-fuel based generation assets, tepid demand for electricity, a sudden change of its CEO and pending regulatory cases.

Like its peer American Electric Power Co. Inc. (AEP - Analyst Report), Duke Energy presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.


 

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