This energy company plans to invest up to $ 72 billion to clean up its law


Energy of Domination (NYSE: D) recently unveiled a bold plan to decarbonize its wallet. The utility company could invest up to $ 72 billion by 2035 to switch its primary energy source from fossil fuels to zero-emission alternatives. It represents the biggest decarbonization investment in the country and a massive spending plan for the Dominion, especially since its enterprise value currently stands at just under $ 100 billion.

The utility believes that this investment could pay big dividends to shareholders in the long run. It should clean up its emissions profile while helping it generate powerful total returns.

Image source: Getty Images.

A bold bet on clean energy

Dominion presented its massive decarbonization plan during its recent fourth quarter conference call. The company plans to invest $ 32 billion by 2025 to improve its emissions profile. This is an increase of $ 10 billion, or 43%, from his original five-year plan which he unveiled in early 2019 after adjusting for last year. sale of its natural gas transport and storage assets To Berkshire Hathaway.

The public service plans to allocate this capital to the following initiatives:

  • $ 17 billion for carbon-free power generation – offshore wind, nuclear power life extension and solar energy – and energy storage
  • $ 6 billion for power transmission and distribution projects such as making its system more resilient to cyberthreats and climate threats
  • $ 6 billion on customer growth and other related activities
  • $ 3 billion for the modernization of natural gas distribution and renewable natural gas systems

More than 80% of these investments will reduce emissions.

Dominion estimates that this level of investment should increase its earnings per share at an annual rate of about 6.5% through 2025. This should give it the fuel to increase its dividend from 3.5% to 6% per share. year. As a result, its dividend payout ratio would remain around the industry average of around 65% of its earnings. This combination of dividend yield and earnings growth is expected to generate a total shareholder return of around 10% annualized, which is solid for a utility.

An offshore wind farm.

Image source: Getty Images.

An even greater long-term opportunity awaits you

Looking further, Dominion sees an even greater opportunity for decarbonization. Executive Chairman Thomas Farrell said on the call that the company has:

Identified more than $ 70 billion in green investment opportunities between 2020 and 2035, almost all of which will be eligible for recovery of regulated service costs. This is, to our knowledge, the largest regulated decarbonization investment opportunity in the industry. And the accelerated electrification of the transportation sector promises to drive growing demand for large-scale, zero-carbon, low-carbon generation for many years to come.

The company seized this opportunity during the call, noting that it could invest up to:

  • $ 17 billion for offshore wind projects, including about $ 8 billion to build a 2.6 gigawatt (GW) offshore wind project in Virginia that it hopes to complete by the end of 2026
  • $ 20 billion on solar projects, with company planning to expand capacity from 2.2 GW to 13.4 GW by 2035
  • $ 7 billion for energy storage projects
  • $ 4 billion to extend the life of its zero-emission nuclear power plants
  • $ 15 billion on power grid transformation projects
  • $ 9 billion on natural gas and renewable natural gas distribution modernization projects

Add it all up and the total investment opportunity will be around $ 72 billion by 2035. That would increase its zero-carbon energy sources (renewable energy and nuclear) from 45% last year to 70% by 2035 while improving its zero and low carbon sources (including natural gas) from 90 to 95%. Dominion is also investing in early stage hydrogen projects to see if this emission-free fuel could replace natural gas in its gas distribution system and for power generation.

Assuming Dominion delivers similar returns on these investments, the utility could continue to generate earnings per share and dividend growth of around single-digit to single-digit each year. This would give the company the power to continue to generate double-digit total annual returns for shareholders.

An intriguing utility stock for long-term investors

Dominion Energy plans to spend up to $ 72 billion to clean up its generation profile and modernize its distribution systems over the next fifteen years. She believes these investments will yield attractive returns, allowing her to grow her earnings and high yield dividends at healthy rates. This increases the attractiveness of Dominion stocks, especially for investors seeking dividend growth fueled by clean energy.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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