Entergy Corp.’s (ETR - Free Report) subsidiary, Entergy New Orleans, has recently received the New Orleans City Council’s approval to construct a natural-gas fired power plant in the city. Notably, this latest development is in sync with the company’s efforts to include renewable energy in its generation resource portfolio for diversification.
About the Plant
The New Orleans power station, composed of seven natural gas-fired reciprocating engines, comes with an electricity generation capacity worth 128 megawatt (MW). Entergy expects the plant to commence its services by January 2020.
Entergy will invest $210 million in this project, which includes transmission and other project-related costs and contingency. Moreover, it expects to issue a full notice to proceed to the engineering, procurement and construction contractor by end of March 2018.
Impressively, the reciprocating engines installed in this plant have self-start capability, thus enabling the company to start the unit even when there is no power on the electric grid. These engines will also help in grid stability and storm restoration by providing a local source of power generation. Markedly, the New Orleans Power Station will use minimal groundwater.
Economic Benefits of the Plant
Apart from generating clean energy, the power plant will help in boosting New Orleans’ economic development. According to Louisiana economist, Dr. Loren Scott, the plant's construction phase will generate new business sales worth $206 million in Orleans Parish and new household earnings worth more than $28 million in for parish residents.
Moreover, during the construction, an average of 92 people will get employment per year while the Orleans Parish treasury will gain approximately $1 million in the form of new sales taxes into. On completion, the plant will employ approximately 20 people.
After realizing the fact that alternative energy sources like solar, wind and natural gas are important for future, many electric utilities have started restructuring their generation resource portfolio to include renewable energy. In this context, Entergy is no exception. In fact, we believe the New Orleans power plant is part of the company’s commitment toward pursuing up to 100 MW of renewable resources to serve its New Orleans customers, which account for more than 20,000 individuals.
Notably, retail sales of electricity in Louisiana, the state in which New Orleans resides, are among the highest in the United States. Per a U.S. Energy Information Administration (“EIA”) report, total renewables used in the electric power sector are projected to increase 41% in 2018. Naturally, electricity providers will try to make most of this opportunity and enhance their renewable resource portfolio in this state. Therefore, in line with this, the construction of the natural-gas fired power plant seems to be a strategically efficient decision by Entergy.
Furthermore, with Louisiana being one of the top five natural gas-producing states in the country, the New Orleans plant is expected to never run out of natural-gas reserve. This will allow Entergy to cater to the growing demand for electricity in the city and in turn boost its profit margin.
In a year’s time, Entergy’s shares have gained 4.2% against the broader industry’s decline of 3.7%. The outperformance can be attributed to the company’s disciplined investment in growth projects for the modernization of grid along with evolving customer demand and regulatory support to recover investments.
Zacks Rank & Key Picks
Entergy has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are CenterPoint Energy (CNP - Free Report) , Exelon (EXC - Free Report) and NextEra Energy (NEE - Free Report) . While CenterPoint Energy sports a Zacks Rank#1 (Strong Buy), Exelon and NextEra Energy carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CenterPoint Energy pulled off an average positive earnings surprise of 11.50% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings moved up 14 cents over the past 90 days.
Exelon boasts a long-term earnings growth rate of 5%. The Zacks Consensus Estimate for 2018 earnings climbed 15 cents over the past 90 days.
NextEra Energy posted an average positive earnings surprise of 4.75% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings moved north 49 cents over the past 90 days.
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