The Democratic National Convention begins Monday in Milwaukee, and it’s safe to say that it will be unlike any other, ever. The COVID-19 pandemic has forced the convention to adopt a virtual format, during which speakers will join the convention by video connection and presumptive nominees Joe Biden and Kamala Harris will deliver acceptance speeches Wednesday from Wilmington, Delaware.
Among the many plans put forward so far by Biden, perhaps the most comprehensive and the one that could generate the most comment is his plan for a clean-energy future. Electricity generation contributed 27% of total U.S. greenhouse gas (GHG) emissions in 2018, according to the latest data from the U.S. Environmental Protection Agency (EPA). Only emissions from transportation (28% of the U.S. total) surpass electricity generation as a source of GHG.
Biden’s stated goal is to achieve a carbon pollution-free power sector by 2035 and net-zero U.S. emissions by 2050. That means that in 30 years no more coal and virtually no natural gas will be used to generate U.S. electricity. To make that happen, big investments will be needed in wind, solar and nuclear power generation.
Those investments will come from the $2 trillion Biden has promised to spend over four years to renovate and modernize U.S. infrastructure. He hasn’t specified a total, but the American Society of Civil Engineers (ASCE) estimates a total cost through 2025 of $934 billion to upgrade the nation’s electricity generation industry.
The ASCE further estimates that all but $177 billion of that is already funded, primarily due to the fact that investor-owned utilities serve more than two-thirds of America’s electricity customers. But investor-owned utilities make up just 6% (around 200) of the country’s more than 3,300 electricity providers. The money for the other 3,100 will have to come from somewhere, and the federal government is the likeliest suspect.
Here we’ve taken a look at the five largest (by market cap) electricity generators in the United States. Some also have trading operations and natural gas transmission assets. All take advantage of both the investment tax credit (for solar) or production tax credit (for wind). These tax credits are scheduled to phase out over the next several years, but the Biden plan calls for these incentives to be reformed and extended.
NextEra Energy Inc. (NYSE: NEE) generates electricity at wind, solar, nuclear, coal, oil and natural gas facilities. The company operates some 14,100 megawatts (MW) of wind generation and expects to add another 5,500 by the end of next year. Wholly owned subsidiary Energy Resources operates 16,000 MW of wind and 3,000 megawatts of solar.
NextEra closed at $282.99 on Monday, in a 52-week range of $174.80 to $289.41. Analysts have a $284.53 price target on the stock, indicating that shares are fully valued while trading about 2% below their 52-week high. The company pays a dividend yield of 2.00%, and shares traded at a multiple of 28.7 times expected 2021 earnings.
Dominion Energy Inc. (NYSE: D) shares Biden’s goal of achieving net-zero carbon emissions by 2050. About 10% of the company’s generation last year was field by coal and oil, while natural gas accounted for more than 40% of total generation. The company’s Millstone nuclear plant generates 47% of Connecticut’s electricity and 90% of the state’s carbon-free electricity. The company also generates about 2,200 MW of electricity from solar and is working toward a long-term goal of at least 15,900 MW.
Dominion stock closed at $78.68 on Monday, in a 52-week range of $57.79 to $90.89. The price target on the stock is $81.85, indicating a potential upside of about 4% for a stock trading about 13% below its yearly high. The company pays a dividend yield of 4.77%, and the stock traded at a multiple of 20.3 times expected 2021 earnings.
Duke Energy Corp. (NYSE: DUK) operates 3,000 MW of wind (2,300 MW) and solar (614 MW) generation spread over 14 states. Duke also operates 12 coal plants, six nuclear plants and 32 natural gas-fired plants. The company also operates 31 hydroelectric plants in the Carolinas and 21 wind farms and 52 solar farms across the United States.
Its shares closed at $82.60 on Monday. The 52-week range is $62.13 to $103.79. The consensus price target is $92.43, implying an upside of about 11.9%. The stock trades about 20% below its 52-week high and at a multiple of 15.8 times expected 2021 earnings. Duke pays a dividend yield of 4.70%.
Southern Co. (NYSE: SO) generates about half of its 42,000 MW of electricity with natural gas. Another 22% is coal-fired, while 16% is nuclear-powered and 12% uses renewable sources. The company’s Georgia Power subsidiary is currently the largest partner in a consortium building the first two new nuclear units in the United States in more than 30 years. One is scheduled to enter service in November 2021 and the other a year later, and each has a generating capacity of 1,100 MW.
The stock closed at $53.59 on Monday, in a 52-week range of $41.96 to $71.10 and with a consensus price target of $60.00. At the closing price, Southern’s shares have an implied upside to the target price of about 12% and trade nearly 25% below the 52-week high. Shares traded at 16.2 times expected 2021 earnings and the stock pays a dividend yield of 4.78%.
American Electric Power Co. (NYSE: AEP) currently generates about 45% of its electricity by burning coal, with plans to cut that by half to 28% by 2030. Renewable sources like hydro, wind and solar currently account for 17% of generating capacity, and the company plans to boost that to 37% by 2030. Natural gas generation, currently at 28%, is planned to fall to 25%. AEP also expects to reduce carbon emissions by 70% by 2030 and 80% by 2050, as well as add more than 8,000 MW of wind and solar generating capacity by 2030.
AEP stock closed at $81.23, in a 52-week range of $65.14 to 104.97. The $92.88 consensus price target implies an upside of about 14% on a stock trading about 22.6% below its 52-week high. AEP pays a dividend yield of 3.38%, and shares traded Monday at around 18 times expected 2021 earnings.