Duke’s Renewable Energy Push: A Big Bet On Future Demand

Duke Energy (NYSE:DUK) cis one of the most well-diversified companies in power generation. The company’s strategic focus has focused on the future demand for renewable energy that will account for a large portion of future energy demand.

With its present commitment towards wind power, solar power, hydro power and bio power, it has uniquely distinguished itself as a market leader in renewable energy. Duke Energy provides electric and gas services in North America and Latin America. Key competitors to Duke are The Southern Company (NYSE:SO), NextEra Energy (NYSE:NEE), American Electric Power Company (NYSE:AEP) and PPL Corporation (NYSE:PPL).

See our complete analysis for Duke Energy here

Wind Power (JV with Sumitomo) & Hydropower

Duke Energy has pumped nearly $2.5 billion since 2007 into development of wind power. It entered the wind power business with the acquisition of Tierra Energy, back in 2007. With many similar acquisitions in the years since, it has now positioned itself as a leader in this business. The company holds approximately 1,000 megawatts of renewable wind power in commercial operations. Duke Energy Renewables, a segment of Duke’s commercial power, owns and operates a total of 10 wind farms.

It plans to expand its wind power plays in 2012 by adding five new wind farms totaling 770 megawatts, which would raise the Duke’s total wind power contribution to nearly 1800 MW by the end of 2013. Recently, Duke entered into a 50-50 equity partnership with Tokyo based Sumitomo’s American unit to build two wind power projects, which will add nearly 300 MW of power.  On the other hand, Duke’s hydro power contributes nearly 6000 MW to the renewable energy.

Gas Operations Least Impacted by Gas Prices

In the current scenario, Duke Energy appears to be very well positioned to take advantage of the natural gas prices, which are at decade low levels. Since Duke is involved in those natural gas operations which are least affected by natural gas price, it can benefit from the dip in prices. It operates in purchase, transmission and sale of natural gas, which it reports under its U.S. Franchised Electric and Gas Segment, and it also uses gas for its gas fired generators for power generation, which it reports under commercial power division.

U.S. Franchised Electric & Gas and Commercial Power contributes nearly 79% and 9% respectively to the $21 Trefis price estimate for DUK.

Well Positioned for Future

We believe that Duke has aligned its businesses with the current regulatory requirements and its forward looking energy pursuits toward growing demand for renewable energy. However, if it fails to execute the projects in its pipeline, it would still maintain a well diversified portfolio of offerings to sustain value.

Our current price estimate for Duke Energy’s stock stands at $21 which is almost equal to the current market price.

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