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Duke Energy Corporation (DUK) |
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WIKI ANALYSIS
Duke is one of the five largest electric utility companies in the United States, providing 28,000 megawatts of electricity to 3.9 million customers in North Carolina, South Carolina, Indiana, Ohio and Kentucky[1][2] - enough electricity to power over 20 million homes. Duke is unusual among electric utilities in that it produces only 1/3 of its electricity from coal. This effectively insulates it against increases in coal prices and means its power generation portfolio is more diverse than that of its peers.
Business Overview
Business & Financial Metrics[3]
In 2009, Duke generated a net income of $1.08 billion on revenues of $12.73 billion. This represents a 20.1% decrease in net income and a 3.6% decrease in total revenues from 2008, when the company earned $1.36 billion on $13.21 billion in revenue.
Business Segments[4]
U.S. Franchised Electric and Gas (85.6% of EBIT)
U.S. Franchised Electric and Gas (now U.S. Franchised Electric post Spectra spin-off), operates in North Carolina, South Carolina, Indiana, Ohio and Kentucky.
Commercial Power (1.0% of EBIT)
Owns and operates unregulated power plants primarily within the Midwest. Develops, owns and operates electric generation sources that serve large energy consumers, municipalities, utilities and industrial facilities.
Duke Energy International (13.5% of EBIT)
Operations are located in Central and South America with approximately 4,000 MW of generation, primarily hydroelectric, in six countries: Argentina, Brazil, Ecuador, El Salvador, Guatemala and Peru.
Key Trends/Forces
Rising Fossil Fuel Prices
Prices for fossil fuels, the key energy input for many of Duke’s electrical generation plants, have risen steadily over the past few years with the price of oil approximately quadrupling since the year 2000.[5] The booming overseas growth from industrializing counties such as China and India have pushed fossil fuel demand and prices new to new heights. To hedge against a sustained high energy price environment, Duke Energy, other utility companies and the government, have been forced to look at alternate means of energy production which are cost effective and clean. Duke which only produces 56% of its energy from coal, is already well below the industry average in its use of fossil fuels.
Nuclear Power & Electricity Generation
The key difference between nuclear and fossil plants is the cost structure. Nuclear plants require very large capital investments (to construct the plant) but little expenditure for fuel because it takes relatively little uranium to power a plant. On the other hand, fossil fuel plants require relatively little capital investment but have high fuel costs because they require large amounts of coal, oil or gas. In the past, low fossil fuel prices gave given fossil fuel plants a cost advantage over nuclear plants. The cost advantage, compounded by the stigmas of nuclear energy (the not in my backyard phenomenon) has prevented new nuclear construction for almost 30 years.[6] Record fossil fuel prices have begun to reverse this trend. The possibility and implications of peak oil may reinforce this reversal. Already, nuclear utilities such as Duke Energy, Exelon and Entergy have begun filing for permits for construction of new nuclear plants.
Of course, it is critical to remember that a substantial portion of Duke Energy's business remains vulnerable to rising energy prices and could see a negative impact on earnings if fossil fuel prices continue to rise.
In all, the legislative environment is favorable for Duke Energy. Increasing concern over global warming makes US carbon emission legislation likely in the short to midterm. Because a significant portion of Duke's portfolio is in nuclear energy any legislation based on carbon trading markets will allow Duke to offset emissions at its carbon based plants with carbon credits from its renewable and nuclear plants.
Global Warming and Environmentalism
Over the past few years, global warming has moved from the fringes to become one of the single greatest single challenges facing the world today. A growing body of scientific evidence ties carbon dioxide emissions to rising temperatures. As a result of growing popular awareness of the risks of global warming, many large corporations have stepped up their efforts to project greener images. Additionally, many expect the U.S. government to enact more stringent legislation limiting carbon emissions. Environmental awareness is another key trend driving the renaissance of nuclear energy. Compared to their fossil fuel peers, nuclear energy plants have negligible emissions. Duke operates a number of hydroelectric, alternative and renewable energy plants. The company recently began to push for higher efficiency standards and other environmentally friendly state policies in the areas it operates, probably hoping that a paradigm shift will facilitate a shift towards renewable energy, ultimately benefiting the company.
Competition
Duke's competitors include:
References
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