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Duke, Strata in Solar Deal

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Duke Energy Corporation (DUK - Free Report) has struck a 20-year contract with Strata Solar under which it will purchase all the energy and renewable energy credits generated from the Kings Mountain Solar facility developed by the latter.

Kings Mountain Solar, one of the largest facilities in the state, demonstrates the company's commitment to use solar energy to meet general renewable energy compliance requirements. The $22 million solar project with a total of 22,000 new solar panels is mounted on 28 acres off Dixon Dairy Road, Cleveland County, in North Carolina. The plant has the capacity to generate sufficient power for 616 average-sized homes in the region. 

To meet the majority of the requirements laid out in the Renewable Energy Portfolio Standard, Duke had planned to depend on biomass energy for power generation produced by wood-burning power plants. However, since permits for woody biomass projects became difficult and the costs of solar projects continued to drop, the company ultimately decided to buy solar energy credits to meet the general renewable-energy requirements.

Duke Energy has invested $1.75 billion in the renewable energy space, including wind and solar, since 2007. In December 2011, Duke Energy had purchased two solar projects with a total electricity generation capacity of 20 MWs from Recurrent Energy. Besides these 20 MW projects, the company already owns seven PV facilities that are in operation which include one 14-MW solar farm in San Antonio, Texas, one 6-MW project in Orlando, Florida, and five 1-MW sites in North Carolina. Also, the company is building a 5-MW facility in Murfreesboro, North Carolina.

Duke Energy Corporation’s U.S. electricity and gas operations (spread over North Carolina, South Carolina, Indiana, Ohio and Kentucky) generate a relatively stable and growing earnings stream. In addition, its strong balance sheet and ongoing capital expansion projects add visibility to the story.

However, the valuation continues to be restrained by a number of factors, including the present unfavorable macro backdrop, predominantly fossil-fuel based generation assets, tepid demand for electricity, foreign currency exchange volatility and pending regulatory cases.

Like its merger partner Progress Energy, Inc. , the company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock. The Duke-Progress merger is expected to close by July 8, 2012.

Charlotte, North Carolina-based Duke Energy is a diversified energy company with a portfolio of domestic and international, natural gas and electric, regulated and unregulated businesses which supply, deliver, and process energy for customers in North America and selected international markets.




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