Why Duke Just Bought This Solar Energy Portfolio In California

February 8th, 2017 by Trefis Team
-1.90%
Downside
95.93
Market
94.10
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DUK: Duke Energy logo
DUK
Duke Energy

Duke Energy (NYSE: DUK) recently acquired a portfolio of three solar power projects from SunPower Corporation in California. The combined capacity of the three projects is 55MW and takes Duke’s overall solar power generation capacity to 2,900 MW. The company’s overall power generation capacity is 52,000 MW, which makes the company’s solar generation capacity feel small by comparison, but it has grown by over 50% in the past year or so.

There are two reasons why this is significant. First, California is the top state in the U.S. by installed solar power capacity. The state had over 13,241 MW of installed solar capacity at December 2015. Duke’s acquisition gives it more presence in this state and will allow it to add commercial buyers as new customers, a segment that it generates less than 10% of its overall value from according to our estimates.  Additionally, solar power capacity is expected to grow by 8,500 MW in 2017 and 2018 according to the U.S. Energy Information Administration.

The second reason is that Duke has seen its per capita energy consumption decline in recent years as a result of energy efficient technologies and demographic trends that result in lower consumption of energy. Additionally, the company hasn’t been able to grow the number of customers registered with it at a rate higher than around 1% per year. This means that the company’s core business is stagnating. This business requires significant ongoing expenditure in the maintenance of the infrastructure required to support it. Consequently, the company is trying to cut down on expenditure required to maintain this infrastructure and instead directing those funds towards potential growth opportunities in renewable energy assets. Duke can leverage these assets to gain long term contracts with commercial consumers of electricity. These contracts come with stable cash flows and can effectively finance the investments that the company makes in adding to its renewable energy portfolio.

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Have more questions about Duke? See the links below:

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Duke Energy
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