$370 billion: That’s the investment Edison International
Getting there will require replacing fossil fuels with electricity in transportation, HVAC systems for buildings and industrial processes. Combined with population growth and data demand potentially augmented by artificial intelligence, that adds up to an 82 percent increase electricity demand over 22 years, or 3 percent annually.
California’s plans also call for phasing out fossil fuel generation in the state. And presumably, its last nuclear plant—PG&E Corp’s (PCG) Diablo Canyon—will be eventually be shuttered as well. So getting there also means trebling the state’s renewable energy generation and doubling usage of rooftop solar.
Assuming this investment is made, it’s relatively easy to put together a list of beneficiaries. Electric vehicles hit 20 percent market share in the state in Q2. And while competition from manufacturers has increased, leading manufacturers like Tesla
In the past year, California regulators have dialed back net metering, a subsidy previously paying rooftop solar owners premium prices for power sold back to the grid. That’s hit share prices of SunPower Corp (SPWR) and Sunrun Inc (RUN) quite hard, by further undermining business plans yet to demonstrate consistent profitability.
Nonetheless, these companies too can expect robust sales growth, as global prices for solar components drop and Inflation Reduction Act tax credits at least somewhat offset higher interest rates. And the combination of IRA tax credits and U.S. tariff walls will continue to boost sales at solar manufacturers like JinkoSolar Holding (JKS).
The surest, biggest beneficiaries of California’s drive to Net Zero are the utilities, with investment increasing earnings and dividends. And as the state’s largest pure electric company, Edison has the clearest path.
As I pointed out in the August 31 Income Insights “Why Utilities Could Get a Post-Storm Season Boost,” Edison has reduced the number of destroyed structures and acres burned in its service territory in fires involving its equipment by 98 percent and 92 percent respectively in just five years. Outright shutoffs are now used as a fire prevention strategy just “10 percent of the time.” And credit rater Moody’s calculates fire damage risk now 85 percent lower since 2017-18, and still dropping.
Edison is currently requesting California regulators OK recovery over a 30-year period of $2.4 billion in losses related to 2017 wildfires. Assuming a amicable decision by early next year, management can then turn its attention to upgrading the grid. That investment is expected to generate long-term rate base growth of 8 percent at year, fueling 5 to 7 percent annual earnings growth through 2028 with commensurate dividend increases.
That’s a strong value proposition Edison stock, with trades at just 14 times expected next 12 months earnings. The yield of roughly 4.4 percent at current prices was increased 5.4 percent this year and is headed for a similar boost in December.
When California deregulated electricity in 1996, it required utilities with rare exceptions to divest their power generation. As a result, Edison’s growth opportunity is 100 percent upgrading its transmission and distribution grid. And its projects can typically be proposed, sited, permitted and built in less than a year, limiting risk of cost overruns to ensure regulatory approval and strong investment returns.
Edison’s investment plan is also pretty much immune to an unlikely backtracking on Net Zero goals by the state. And the company has a cost argument as well: Dr Pizarro cites U.S. Department of Energy and Department of Transportation data to project inflation-adjusted savings of 40 percent in California’s total customer energy bills from full electrification.
There’s even a reason to believe 40 percent savings will prove conservative. Mainly, gasoline currently accounts for a bit more than half energy expenditures. And after a more than 10-year global oil and gas investment drought, supplies are likely get tighter and prices possibly much higher in coming years.
Of course, those savings will only show up after significant investment is made. At this point, no major utility system in the world runs on 100 percent renewable energy. And the magnitude of storage technology needed to overcome intermittency in solar and wind generation is not currently available let alone affordable, though both cost and efficiency are advancing.
Taking EVs from 20 to 100 percent of California’s new vehicle sales calls for a similar leap in efficiency and cost, even with generous federal and state subsidy. And while technology to fully electrify buildings and homes is there, economically retrofitting statewide is almost certainly going to be a slog.
At the end of the day, political will is likely to be as important as future technological advance for how much of Pizarro’s $370 billion actually gets spent. And the same will be true across the U.S., with state governments and regulators still by and large calling the shots for how electricity gets generated, transmitted and distributed—as well as who pays for it and how much.
Ironically, the one state where investors don’t need to worry about renewable energy’s prospects is one of the currently reddest politically. That’s Florida, where NextEra Energy
You won’t hear management asserting it can run the Sunshine State on 100 percent renewable energy, as utilities and regulators do in some of the bluer parts of the country. But by demonstrating the cost and reliability argument for solar deployment, NextEra is also making the case why its stock is America’s highest percentage bet on renewables’ growth—particularly at a time when all things energy are unfortunately becoming increasingly, intensely political.
Source: Fox Business
Philadelphia bans ski masks: ‘No discernible public or private good’
Over $5M awarded to school-based mental health clinics across New York
Florida GOP Chairman Christian Ziegler involved in criminal investigation
Newsom trolls DeSantis over flailing 2024 bid in hostile Fox News debate
DeSantis, Newsom clash over COVID-19 in testy debate: Live updates
Feeding Tampa Bay serves hundreds a traditional meal for Thanksgiving
39 Black Friday Treadmill Deals to Shop Right Now 2023
43 malls in Massachusetts for all your shopping needs
31 Best Black Friday Mattress Deals You Can Shop Right Now 2023
12 Best Running Shoes for Women, According to Experts in 2023
Paul McCartney Loved This Ballad That Became a Beatles B-Side
The Strongest Cybersecurity Stocks In Q3
Celtics have reportedly ‘kept tabs’ on Grizzlies swingman in possible trade
‘The Golden Bachelor’: Gerry Turner’s Ex Claims They Started Dating a Month After Toni Turner’s Death
Bills linebacker Von Miller turns himself in on felony domestic violence charge
Lifestyle23 hours ago
Don't Miss These Extended Cyber Week Deals — Up to 88% Off
News17 hours ago
Who Paid for Mike Johnson’s Trip to Israel?
Tech22 hours ago
Do You Use Okta? Hackers Probably Have Your Name and Email Now
News23 hours ago
What Barack Obama Said When He Gave Paul McCartney an Award
Tech8 hours ago
Millions of lead pipes would finally be ripped out under proposed EPA rule
Tech22 hours ago
Biotech teams are gearing up for a $101M competition to boost healthy lifespan
News16 hours ago
Gaza war an irritant to Biden’s bigger China plan
News22 hours ago
Christmas Came Early for ‘13 Going on 30’ Fans