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Dominion (D) Gains From Investment and Its Renewable Focus

Dominion Energy D has been gaining from steady investments in regulated infrastructure, contribution from inorganic assets and the addition of clean sources to the production portfolio to achieve net-zero emissions by 2050.

Its earnings surpassed estimates in the last four quarters, with an average of 0.97%. Its long-term (three to five year) earnings growth is projected at 6.4%.

Tailwinds

The company plans to invest $73 billion to strengthen its infrastructure and add more clean power-generation assets to its portfolio in the 2022-2035 period. Through its portfolio-realignment strategy, the company is focusing on regulated assets, which is evident from its investments in regulated infrastructure and other fields whose outputs are sold under long-term purchase agreements (PPAs).

Dominion Energy is in the process of adding 4,000 megawatts (MW) of solar or wind generation in the state of Virginia. Its long-term objective is to add 24 gigawatts (GW) of battery storage, solar, hydro and wind (offshore as well as onshore) projects by 2036 as well as increase renewable energy capacity by more than 15% per year, on average, over the next 15 years.

The company aims to cut emissions by 70-80% and attain net-zero emissions of carbon and methane from its electricity generation and natural gas infrastructure by 2050 from the 2005 levels.

Dominion Energy has plans to upgrade its electricity infrastructure by installing smart meters and grid devices, as well as enhance services to customers through the customer information platform. The company is also working on a project of strategic undergrounding of 4,000 miles of distribution lines.

The company has already completed undergrounding 1,300 miles of outage-prone overhead power distribution lines in Virginia. These initiatives will increase the resilience of its operation and enable it to serve the expanding customer base more efficiently and boost its profits.

Headwinds

Dominion Energy is exposed to risks associated with the operation of nuclear facilities and unplanned outages at power stations in which the company has an ownership interest. This might derail management’s planned production goal and adversely impact its earnings. Even if planned outages continue longer than the forecast period, it can adversely impact the company’s earnings.

The Legal challenges resulting in the discontinuation of the Atlantic Coast Pipeline will definitely impact the company’s long-term growth plans. The ongoing increase in interest rates will also increase the project’s cost-impacting margins.

Other Stocks to Consider

Some other utilities in the same industry with well-chalked-out investment plans for strengthening their services are NextEra Energy NEE, American Electric Power Company, Inc. AEP and Exelon Corporation EXC.

NextEra Energy aims to invest $85-$95 billion from 2022 through 2025 to strengthen its infrastructure. Courtesy of persistent renewable asset additions to its generation portfolio and execution across all business segments, NextEra Energy expects to witness a CAGR of more than 10% for earnings per share through 2025 from the 2021 adjusted EPS of $2.55. The long-term (three to five year) earnings growth of NextEra Energy is currently pegged at 9.66%.

American Electric aims to invest approximately $24.8 billion in its transmission and distribution business during the 2022-2026 period to construct a more efficient grid and deliver custom energy solutions to customers.

Such investments should enable AEP to make infrastructural upgrades in its transmission and distribution of utility services to resist adverse climate conditions and offer better facilities. Its long-term earnings growth is currently pegged at 6.11%.

Exelon plans to invest nearly $29 billion during the 2022-2025 forecast period in regulated utility operations for grid modernization and to increase the resilience of its infrastructure to benefit customers. Such systematic investment is going to boost the long-term earnings of the company. The current dividend yield of the company is 3.4% and its long-term earnings growth is pegged at 7.11%.


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