Xcel Energy ranks highly in Entelligent report on climate, financial investment metrics
Energy investment news and information provider Entelligent (www.entelligent.com) has given Xcel Energy (NYSE:XEL) its highest ranking in a report released today that measures utilities against a combination of several financial and climate criteria.
The Minneapolis-based utility holding company scored in the top quartile, with Entelligent labeling it an “Innovator” as it lessens its reliance on coal-fired generation, develops initiatives to reduce greenhouse gases, and makes improvements in disclosures and plans for limiting future risk from climate change and increased environmental regulation.
“Xcel’s planned changes to its fuel mix and commitment to (renewable energy programs) contribute to Xcel being rated as an Innovator,” the report said.
Between this year and 2020, Entelligent expects the company’s reliance on coal to dip toward around 55 percent from current levels above 60 percent from its owned electric generation (excluding purchased generation) and the gap will be filled by lower-emitting generation from combined cycle natural gas turbines.
By 2020, Entelligent expects the utility to have reduced its greenhouse gas emissions from its owned electric generation to 45 million metric tons from 2012 levels of around 55 million of CO2. This comes even as peak and total demand for Xcel’s electricity is expected to rise.
According to Entelligent’s modeling, these steps will help reduce Xcel’s annual carbon liability over that time to $1.1 billion from $1.4 billion if a theoretical $25/ton carbon price is used and to $453 million from $545 million if a $10 price is used. Currently, the U.S. carbon trading market is at best nascent compared to Europe’s.
Xcel has already reduced emissions 19 percent from 2005 through 2013 and has indicated it is on track to reduce them by 31 percent by 2020, according to the Entelligent report.
“Xcel’s management team has been a leader in renewables for a long time,” said Travis Miller, director of utilities research at Morningstar Inc.
The utility’s service area includes Texas, Colorado, Minnesota and Michigan and has provided the company with environmental, geographic and regulatory factors that are favorable for wind energy, he said.
The Entelligent report is based on what Entelligent calls an E-Score, which analyzes results of a company’s historical and projected efforts to manage risk, ability to capitalize on new opportunities, transparency in both financial and environmental disclosures and historical stock price performance against an industry composite ranking. Companies that score in the top 25 percent when compared to a benchmark are listed as Innovators, followed by Leaders, Laggers and Followers for each subsequent quartile.
“They were definitely pioneers as far as adding renewables to their system,” said Angie Storozynski, utilities and renewables analyst with Macquarie Research.
The biggest factors prompting Xcel and other utilities to move away from coal are the age of coal-fired power plants and the relative cheapness of natural gas, she said. That means utilities’ emissions will be coming down regardless of Environmental Protection Agency emissions rules currently in the works, she said.
Even though Xcel continues to have a large amount of coal generation that would be at risk under the EPA rules, the company may be favorably placed compared with other coal-burning utilities because it has already invested heavily in renewables in its service areas, Miller said.
“While more dramatic reductions may eventually be required to comply with a tighter regulatory environment, the decline in Xcel’s anticipated greenhouse gas emissions indicate that it is effectively addressing the risk of future potential regulation,” the Entelligent report said.
Of course, regulatory and physical process risks aren’t the only risk factors out there. There is also market risk.
For example, customer-sited distributed generation could threaten Xcel’s market share, the report said.
But the report also projected that the company’s revenue for regulated operations could grow by more than 9 percent over the next five years, providing ample cushion.
On the financial front, the company’s share price has risen at a fairly constant rate — up 15 percent in the 52 weeks up to the reports preparation — indicating consistent demand for the company’s stock, even amid recent market volatility, the report said.
The report also noted Xcel’s 4 percent dividend yield, which is almost double the Standard & Poor’s average.
An Xcel spokesman declined to comment for this article.
View the full report here.