Dive Brief:
- Public Service Enterprise Group (PSEG) on Friday unveiled a plan to sell its fossil fuel power plants, retain nuclear generation and focus investments on building a cleaner, more efficient and modern grid. The company plans to complete the sale of its 6,750 MW fossil fuel portfolio in 2021.
- PSEG's announcement came alongside its second quarter earnings report. Due to economic shutdowns related to COVID-19, the utility saw weather-normalized electric sales drop 7% compared with the same period last year.
- The fossil fuel divestiture marks a "major shift" in how PSEG will operate, according to Jeff Tittel, director of the New Jersey Sierra Club. The decision is an economic one, he added: the largest utility in New Jersey can make more money through clean energy investments than it can operating coal and gas plants.
Dive Insight:
PSEG reported 2020 Q2 net income of $451 million, compared with $153 million in the same period last year.
The company also affirmed its full-year operating earnings guidance at $3.30 to $3.50/share, based on confidence that it can manage costs across its businesses and continue making capital investments in its utility subsidiary, Public Service Electric and Gas.
The company beat earnings expectations, but the big news was the decision to sell off its fossil fuel power generation portfolio.
"They are looking to become a full-service utility and focusing on areas with a guaranteed rate of return," Tittel said. That means focusing on investments to help New Jersey meet its clean energy goals, through grid modernization, efficiency, batteries and renewables.
A company spokesman said the sale would include all of PSEG Fossil, which consists of approximately 5,100 MW of combined cycle gas turbines, approximately 1,200 MW of combustion turbines in New Jersey and Connecticut, and 450 MW at the New Haven Harbor peaking plant, which burns gas and oil during times of high electricity demand.
The sale will also include PSEG Power’s Solar Source portfolio of 467 MW of DC solar projects under long-term contracts in various states.
Selling the plants will "reduce overall business risk and earnings volatility, improve our credit profile, and enhance an already compelling ESG position driven by pending clean energy investments, methane reduction and zero-carbon generation," PSEG CEO Ralph Izzo said Friday on the company's Q2 earnings call.
"We recognize the shift in investor preference toward owning regulated utility businesses without commodity exposure to merchant generation and related earnings volatility," he added.
According to Tittel, the move simply makes economic sense.
"When you're investing in [advanced metering] and energy efficiency, you're pretty much guaranteed about a 12% rate of return," he said. In fossil fuel markets, returns can vary based on a variety of factors from 4% to 10%.
Operating fossil fuel plants, "you don't have the same assurance of making money," Tittel said. "Where they're headed, there's clear money to be made without a downside."
New Jersey is aiming to reach 100% clean energy by 2050. In January, Gov. Phil Murphy, D, released a plan detailing how the state could reach that target through investments in offshore wind power, electric vehicle infrastructure and non-wire grid solutions like storage and distributed energy resources.
PSEG said it is continuing to evaluate potential investments in offshore wind and "expects to make a decision regarding the opportunity to invest in Ørsted's Ocean Wind project later this year." The utility company also said it is evaluating participation in upcoming offshore wind solicitations in New Jersey and other Mid-Atlantic states.
