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The Florida-based utility FPL Group (FPL-OLD) is investing heavily in a new energy plant model, one that combines solar with natural gas.

In 2010, FPL will build the world’s second-largest solar plant, on 500 acres north of West Palm Beach, Florida. The innovation of this project is that it will harness solar power on an industrial scale, by retrofitting a natural gas fired plant with solar as a backup energy source. By using solar power in tandem with natural gas, FPL will be able to cut its natural gas use at the plant during times when it needs the most power, namely the intensely hot Florida summers.

This plant will also be a test of how much you can reduce the cost of solar power, by combining it with natural gas. FPL hopes to cut costs by 20% with this hybrid model, since it won’t have to construct new steam turbines and power transmission lines. The solar part of this plant will generate 75 megawatts at peak times, while the natural gas part will generate approx. 3800 megawatts. (One megawatt can power approx. 150 homes).

This natural gas/solar energy model will hopefully help to solve the problem of having a stable, but renewable energy source. Utilities are being pushed by legislators at state, local and federal levels, to come up with renewable power solutions that reduce carbon emissions, but, since wind and solar energy are sometimes intermittent, maintaining a steady power supply with only these energy sources can often be challenging, and costly. FPL’s use of cheap natural gas in tandem with solar energy in Florida, the “Sunshine State”, could solve the power reliability problem, reduce carbon emissions and foreign oil usage, and provide a working model for harnessing solar power in an economic manner.

The utilities sector is known for its dividend paying stocks. FPL closed at $48.16 on Friday, Mar. 19th, and currently pays $2.00/year, a 4.15% dividend yield. There are also call options and put options available, for investors looking to sell covered calls or cash-secured puts. (See our Covered Call table). The Jan. 2011 $50 call closed at a bid of $2.15 yesterday, a 4.5% nominal yield. If the shares are assigned, this covered call trade would also net the call seller an additional $1.84 in price appreciation, for a total return of $5.49, an 11.4% yield, over a 10-month term, or 13.78% annualized.

Disclosure: No positions in FPL-OLD

Source: Dividend Utility Stock: FPL Combines Solar Energy With Natural Gas