Over the next decade, utilities will be facing more disruption than they've ever seen in their history. Customers with solar on their roofs and storage in their garage will be able to forgo electricity from the grid and potentially cut the cord altogether. Meanwhile, wholesale power markets are falling apart as natural gas kills coal and wind and solar plants eat up formerly high-margin peak electricity demand.
To adapt, utilities are spending billions to build or buy their own renewable energy power plants with contracts to sell electricity to other utilities for decades. These four companies are the utilities making the shift faster than competitors.
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AES is leading the renewable charge
AES (AES 1.51%) operates in the U.S., Latin America, Europe, and Asia, so it already has a pretty diverse business. But it's really turning its focus to renewables, building or buying 3,602 MW of renewables between the start of 2017 and the end of 2020. At the end of 2015, 23% of its electricity capacity was renewable energy, and by the end of 2020, that figure will jump to 30%.
What may be even more consequential long term is AES's leadership position in energy storage. It formed a company called Fluence with Siemens to develop energy storage technology and services. As more renewable energy hits the grid, energy storage will be an important asset for utilities and businesses that are trying to control their energy consumption and use energy most efficiently. Taking a leadership role could be a lucrative position as the energy storage industry grows.
As AES increases its exposure to renewable energy and energy storage, it builds a utility that's built to last.
The biggest game in town
NextEra Energy's (NEE 2.45%) power-generation arm NextEra Energy Resources calls itself the "world's largest generator of renewable energy from the wind and sun." Between 2017 and 2020 alone, the company plans to build 10,100 MW to 16,500 MW of wind and solar projects. And its regulated utility Florida Power & Light plans to spend $2.8 billion by 2020 on solar energy. In total, renewable investment will exceed $10 billion by a wide margin.
On top of the assets within the utility, NextEra Energy also controls NextEra Energy Partners (NEP 0.88%), a yieldco that owns renewable energy assets and pays dividends based on annual cash flows. Currently, the yieldco has about 3,000 MW of renewable energy assets and will acquire projects from NextEra Energy Resources or third parties to fuel growth.
When it comes to utilities with the scale and willpower to grow their renewable energy investment, NextEra Energy is a company that investors shouldn't overlook.
A new renewable energy power
Duke Energy's (DUK 1.55%) power-generation business has long been dominated by coal, but that's beginning to change. The company has grown wind and solar assets from 239 MW in 2008 to 2,893 MW at the end of 2016. And over the next 10 years, it expects to grow renewables from 4% of its energy mix to 9% (a target I think it will exceed by a long shot).
In the next 10 years, Duke Energy plans to invest $11 billion in "cleaner generation," which includes natural gas. Over the next five years, it plans $1 billion in commercial renewables on top of $1.3 billion invested in carbon-free generation in its regulated utility business.
Duke Energy isn't a visionary utility like AES or NextEra when it comes to renewable energy, but it's quickly learning that there's more money to be made in renewables than dying coal plants or expensive nuclear power. And I wouldn't be surprised if management doubled down on renewables in the future.
Buffett's renewable energy star
No individual utility has done more to build a renewable energy future than Berkshire Hathaway's (BRK.A 0.43%) (BRK.B 0.47%) MidAmerican Energy. The company already gets 48% of its generation from wind, an abundant resource in Iowa, and has a goal of reaching 100% renewables. A big part of hitting that goal is a 2,000 MW project called Wind XI, which will cost $3.6 billion when completed.
MidAmerican's wind investments are just part of the 6,200 MW of wind and 1,300 MW of solar in Berkshire Hathaway's portfolio. Warren Buffett is quietly one of the biggest renewable energy owners in the country, and it looks like his utilities will charge ahead, investing billions more in the future.
Utilities have to adopt renewables to survive
The drive to own renewable energy isn't part of a desire to reduce carbon emissions or have cleaner businesses -- it's all about economics. Coal plants are no longer profitable to build and are being shut down by the hundreds, while wind and solar are now the low-cost energy providers. That makes the decision to buy more renewable energy in the future an easy one, and these four utilities are leading the way.
