Duke books $1.3bn charge on US renewable energy arm as sale faces 'modest delay'

Duke Energy booked a $1.3bn impairment charge in the fourth quarter on the sale of its commercial renewable energy business that the US utility giant now expects to close later this year, and which has been labelled among the largest ever transactions in the American green power sector.

The division consists of two businesses. The larger one develops, owns, and operates large solar and wind farms that competitively sells electric power to corporations, government entities, and utilities. It also provides related services such as operations and maintenance.

The other involves distributed generation such as development and sale of rooftop solar systems for commercial customers, often those with large retail stores such as Home Depot, IKEA, Target, and Walmart.

Duke said the write-down reflects the fact that the wind and solar assets are most profitable early in their life, describing it as an “accounting adjustment”.

“We do have a lot of interested parties. The portfolios are complex. They have a lot of financing on them, joint ventures associated with them,” he added. “So, the parties are just working through the details trying to fine-tune the price they’re willing to pay for this.”

In 2019, Duke sold a 49% interest in 19 wind projects and large minority stakes in 21 solar PV farms to John Hancock Infrastructure Fund for a reported $1.25bn. John Hancock’s parent is Toronto-based Manulife.

At the start of 2022, Duke’s renewable business owned 4.32GW of utility-scale clean power capacity including energy storage (64MW), solar (2.3GW), and wind (about 2GW), according to American Clean Power Association, a national trade group.

This ranked ninth overall among clean power owners in the US, fourth for solar, fifth for storage, and 18th for wind. The portfolio is among the largest available for acquisition since the US became a major global renewables market 15 years ago.

Last August, Duke said the renewables business had a book value of about $4bn, including $1bn in tax attributes. Savoy declined to say how much Duke expects it to obtain from the sale that was announced in November.

End of unregulated power foray

Duke’s upcoming exit will bring the curtain down on the company’s strategy to become a major player in the unregulated US renewables power sector that posted meteoric growth over the last decade.

The company invested heavily to become a top 10 player among project developer-owners and is well-respected by its peers and leading clean energy buyers. Still, the business is one-seventh the size of industry pacesetter NextEra Energy Resources’ portfolio.

Scale matters to obtain better pricing for construction services and procurement of equipment, and source capital to leverage and augment an existing renewables fleet.

Even gaining ground on Duke's bigger competitors who are one-third to one-half the size of NextEra would require additional billions of dollars. Most of its peers are owned by major, well-capitalised European energy and utility holding companies such as Electricite de France, ENI, Iberdrola, and RWE.

That is capital Duke executives believe will yield better returns in its sprawling regulated utility businesses where low double-digit margins are often the norm after costs are covered from the rate base.