Recently, Progress Energy Inc.‘s (PGN) efforts to achieve a carbon-free energy infrastructure paid off with the North Carolina Utilities Commission’s approval to replace coal-fired generation with new natural gas-fueled units at its existing Sutton Plant in New Hanover County.
The Commission has permitted Progress to build a 620 megawatt combined cycle power plant at the utility’s New Hanover County facility. Progress plans to close its three coal-fired units at the plant in 2014.
The Sutton Plant has been a vital part of the company’s resources for more than half a century, serving about 1.5 million households and businesses in North Carolina and South Carolina. Replacing the plants will provide significantly cleaner air, and reliable and affordable power to the company’s customers. Furthermore, this initiative will serve as a catalyst for economic growth and development by increasing natural gas supplies in southeastern North Carolina. The new gas-fueled units represent an estimated investment of about $600 million.
Progress Energy is also building a new natural gas generation unit replacing the coal units at its Lee Plant in Wayne County, which received approval in Oct 2009. The 950 megawatt Lee plant is expected to become functional in 2013, with a projected investment of about $900 million. The company has also been working towards improving gas supply in the region with the construction of a natural gas pipeline to the Wayne County site.
Background
Switching from coal to natural gas is a part of Progress Energy’s balanced solution strategy aimed at using capital effectively to meet customer requirements, along with moving to a low-carbon energy future. The company’s initiatives are underway on three fronts: aggressive energy-efficiency programs, innovative alternative- and renewable-energy projects, and a state-of-the art power system.
The company is making progress with its strategic plans through investments in smart grid infrastructure, advanced power plant emission controls, plug-in hybrid vehicle technology, and natural gas generation in the Carolinas and Florida.
Our Take
We continue to like Progress Energy for its increased generation capacity, market expansion, cost-cutting initiatives, debt reduction, high dividend yield and improving balance sheet. In the long-term, the company anticipates a growing dividend, achieving a 70% to 75% payout ratio and growing EPS by 4%-5% annually.
In addition, we are positive about the company’s initiatives to switch to natural gas-fueled generation. However, we believe the positives stated above are already embedded in the share price, leaving no room for further upside. We maintain our Neutral recommendation on PGN, justified by our Zacks Rank #3 (‘Hold’).
Read the full analyst report on “PGN”
Zacks Investment Research
