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Wind Power to Surpass Coal in Texas: 3 Utilities to Gain

Aparajita Dutta

Wind is projected to outpace coal as a power generation source in Texas in 2020. Per a Bloomberg report, Rystad Energy recently forecast that wind turbines in the Lone Star state are on track to generate 87 terawatt-hours of electricity in 2020, surpassing the roughly 84 terawatt-hours of electricity estimated from coal plants.

In July 2019, the Electrical Reliability Council of Texas (ERCOT) reported that wind met 22% of the state's electrical needs of 2019, exceeding coal, which provided 21% of total electricity. The latest prediction is expected to encourage electric utilities operating in Texas, which are shifting toward renewables, to invest more in wind projects.

What’s Driving Wind Energy in Texas?

The fact that Texas produces and consumes more electricity than any other U.S. state makes the state a profitable choice for utilities. Utilities are increasingly expanding their renewable generation portfolio, with wind energy capturing a sizable share, thanks to rapidly declining costs of wind turbines, advance technology and government policies like extension of production tax credit for wind plants. These are some of the primary reasons why wind energy is gaining prominence in Texas.

Not only does Texas enjoy a geographical location appropriate for wind energy production, the state policy also plays a vital role in promoting it in this Lone Star state. To this end, it is imperative to mention that the Public Utility Commission of Texas (PUCT) collaborated with ERCOT to establish the Competitive Renewable Energy Zone (CREZ) transmission project in West Texas. Completed in 2013, the $6.9 billion CREZ transmission project transmits more than 18.5 MW of wind and gas generated electricity across Texas. These transmission lines enable Texas to provide three times as much wind power as any other state.

In this context, the Southern Legislative Conference, a public policy forum for Southern states, mentioned that wind power in Texas has boomed as it is the only state in the nation that operates its power grid without federal oversight. The state’s grid is not connected to other states. So, it does not come under the jurisdiction of the Federal Energy Regulatory Commission. This allows transmission projects, needed to bring power from remote wind farms to population centers, to move ahead without going through the federal permission process, thus opening markets for wind energy developers.

What’s Next?

The aforementioned factors have allowed wind power to become the fastest-growing source of electricity in recent years in the ERCOT region that serves the majority of Texas. Since the beginning of 2018, the industry has added 3 gigawatt (GW) of wind generating capacity and plans to add another 7 GW before the end of 2020, per EIA data. These additions are expected to result in an increase of nearly 50% from the 2017 wind capacity level in ERCOT.

Stocks in Focus

Considering the solid growth projections for wind energy in Texas, investors eyeing utilities should focus on those expanding their wind generation portfolio in particular. Below we have mentioned a few companies, which investors can keep in their watchlist, given their earnings growth prospects.

Duke Energy Corp. DUK: This utility major recently signed a 12-year virtual power purchase agreement (VPPA) with mobile network operator Sprint Corporation S to build a 182-megawatt (MW) wind power project, Maryneal in Nolan County. In April, the company announced its plan of building a 200 MW wind project in Mesteño, Starr County.  It carries a Zacks Rank #3 (Hold) and has a long-term earnings growth estimate of 5.7%.

Xcel Energy XEL: This utility provider is currently working on Texas’ Hale Wind Project, which it purchased from NextEra Energy Resources, a subsidiary of NextEra Energy NEE. The Hale Wind Project has a capacity of 478 MW.  It also carries a Zacks Rank #3 and has a long-term earnings growth rate of 4.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Electric Corp. AEP: This utility purchased 75% interest in the Santa Rita Wind Farm, with a generation capacity of 227 MW, for approximately $356 million. The Hale Wind Project has a capacity of 478 MW.  It also carries a Zacks Rank #3 and has a long-term earnings growth rate of 5.7%.

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Duke Energy Corporation (DUK) : Free Stock Analysis Report
 
NextEra Energy, Inc. (NEE) : Free Stock Analysis Report
 
American Electric Power Company, Inc. (AEP) : Free Stock Analysis Report
 
Xcel Energy Inc. (XEL) : Free Stock Analysis Report
 
Sprint Corporation (S) : Free Stock Analysis Report
 
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