Political Winds Drastically Shifting Into Favor Of Dominion
Summary
- New legislation in Virginia dramatically shifts the regulatory environment in favor of Dominion.
- Mandated renewable investment will allow Dominion to add projects to its rate base, without fear of repercussion.
- While risks remain, the market downturn is a great opportunity to add this safe name to portfolios.
Dominion (NYSE: D) is likely to be a beneficiary of the new Democratic legislature in Virginia. Already, Virginia has passed a new bill which promises 100% clean energy by 2050. Dominion will be able to use this opportunity to make massive investments, while also placing these projects in its rate base. This growth seems almost risk-free with the full support of both regulators and its usual adversaries in the political sphere.
The Virginia Clean Economy Act
The Virginia Clean Economy Act (VCEA) seeks to eliminate CO2 emissions by investing in clean energy technology and energy efficiency programs. The Democratic legislature passed this bill under the climate change umbrella, earning praise from the Virginia League of Conservation Voters (LVC), who called the legislation a “turning point.”
Under the terms of the bill, Dominion Energy must retire all-electric units that release carbon emissions, and at the same time buying or building new renewable generation.
Dominion must complete its 100% renewable energy transition by 2045. By 2035, Dominion will have 2,700MW of energy storage capacity. In addition, Dominion is also required to develop offshore wind projects with a total capacity of at least 5,200MW by January 1, 2034. The biggest argument against offshore wind has always been the steep costs, especially now with the pending expiration of PTCs. But with a mandated build, Dominion will have no trouble spending this capex and placing the projects in its rate base.
Note, Dominion's original low-cost, long-term, growth plan:
Source: Dominion Energy
This plan includes no offshore wind and no energy storage due to the prohibitive costs. However, with the new law, Dominion has been able to propose 3 additional plans which meet the new law's requirements, which place cost considerations seemingly on the back burner. The 3 plans are outlined below. Each plan accounts for about 3 GW of fossil fuel retirements, including the coal-fired Clover Plant Units 1 and 2 by 2025.
Source: Dominion Energy
Under the following two plans, an additional 9.7 GW of natural gas units would be retired in the next 25 years. 
Source: Dominion Energy
Due to the passage of the law, the utility is seeking permitting approval from the U.S. Bureau of Ocean Energy Management for the Offshore Wind requirements, and is actively considering other wind projects, which are notoriously expensive. These ambitious plans give Dominion generation to put into its rate base and allow the company to curry both PR and political favor, which transition nicely into the next point.
The Political Winds Have Shifted in Dominion's Favor
The political winds have certainly shifted in Dominion's favor. Its usual adversaries, such as the Virginia League of Conservation Voters and the National Resources Defence Council (NRDC), have applauded this bill and stand behind it 100%, and have already started to applaud Dominion's proposed expansion of solar power under its proposed plans. The Virginia policy director of the NRDC has said “the Virginia Clean Economy Act marks a historic advance in zeroing out power plant carbon pollution by 2050, protecting Virginians’ health and livelihood from climate change."
With climate change now the main focus in the state, Dominion can use this to its advantage by building new projects, adding projects to its rate base, and have this bill as the catalyst. No longer will electric rates be the main focus, as the utilities are simply following the law and combating climate change.
Additionally, as a win for Dominion, the company was able to water down some energy efficiency programs that appeared in the original draft legislation. This ensures Dominion will still have robust load to serve and keep its revenue growth from slowing.
Existing Risks
While this bill certainly will aid Dominion, there remain concerns over Dominion's Atlantic Coast Pipeline project. As I have written about in another article on Duke Energy, a partner on the project, the risks on the pipelines are likely priced in and overly dramatic. Astute investors should use this market volatility to add Dominion to their portfolios near the cheapest EV/EBITDA level in the past year. Dominion is a safe company with secular growth trends and the political winds at its back.
This article was written by
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Comments (31)
You can't fix stupid.
These "renewables" will be a big shit sandwich for all those naive enough to believe weak, intermittent and expensive electricity can replace powerful, compact, reliable and affordable electricity.
