Dominion Energy plans to spend $72 billion on decarbonization by 2035

Dominion Energy's planned $72 billion capital investment in decarbonization by 2035, touted as the largest amount of any regulated US utility, should help drive a 10% annual shareholder return for its regulated utility operations through 2025, executives said Feb. 12.

Dominion Executive Chairman Tom Farrell said the company has identified $72 billion in "total opportunity" for capital investment for decarbonization through 2035, which he described as "the largest regulated decarbonization investment opportunity in the country."

"We plan to invest tens of billions of dollars over the next several years to the benefit of the environment, our customers, our communities and our local economies," Farrell said in the company's quarterly earnings call.

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The company plans to spend about $32 billion between 2021 and 2025 supporting its "clean-energy profile," according to the written presentation, up from about $22 billion from the prior guidance for the period of 2019 through 2023.

That total is expected to be spent on the following:

• $17 billion: zero carbon generation and energy storage
• $6 billion: transmission and distribution
• $6 billion: customer growth and other
• $3 billion: natural gas distribution modernization and renewable natural gas systems

This spending is designed to generate 6.5% annual earnings per share growth and an approximately 3.5% dividend yield for a total shareholder return of about 10%.

Offshore wind, solar initiatives

One big capital expense for Dominion Energy Virginia over the next several years is the implementation of its 2.6-GW offshore wind project, which ultimately could cost about $8 billion, including transmission, according to the written presentation. The goal is to have this installed and operating by the end of 2026.

Dominion estimates the levelized cost of energy for power from this offshore project at $80 to $90/MWh. As of Jan. 29, the latest date for which the S&P Global Platts M2MS system has forward curves for PJM's Dominion Hub, on-peak power in 2025 was indexed at an average of $35.15/MWh.

Dominion Hub day-ahead on-peak locational marginal prices averaged $23.39/MWh in 2020.

Dominion plans to cut its generation from gas-fired and coal-fired generation from 45% and 10% of the mix, respectively, in 2020 to 25% and 5%, respectively, by 2035, while boosting power from zero carbon resources such as nuclear, wind and solar from 45% in 2020 to 70% by 2035.

The Virginia Clean Economy Act of 2020 calls for building 5.2 GW of offshore wind by 2036 and the retirement of all coal units by 2025, except for those jointly owned with cooperatives and co-firing biomass.

The VCEA also calls for installing 3 GW of solar statewide, including third party-owned projects, of which Dominion's share would need to be 2 GW. These numbers scale up to 16.1 GW and 10.5 GW respectively, by 2036.

Dominion currently owns or has long-term contracts for 2.2 GW of solar, which the company expects to grow to 6.4 GW by 2025, 10 GW by 2030 and 13.4 GW by 2035.

Energy storage and nuclear relicensing also factor in Dominion's longer-term decarbonization capital investment plans.

Quarterly results

Dominion reported GAAP earnings of $682 million, or 82 cents/share, for the fourth quarter of 2020, compared with net income of $1 billion, or $1.21/share, for the same period of 2019. For the full year 2020, Dominion reported a net loss of $401 million, 57 cents/share, compared with a net gain of $1.4 billion, $1.62/share, for all of 2019.

The company reported operating earnings of 81 cents/share for Q4 2020, compared with $1.02/share for Q4 2019, with "corporate and other" expenses accounting for 17 cents of the 21-cent decrease. For most of the remainder, a 7-cent/share decrease in contracted assets revenue was offset by a 4 cent total increase in earnings from Dominion Energy Virginia and Dominion's gas distribution subsidiaries.

Dominion had previously announced Q4 operating earnings guidance of 73 cents to 87 cents/share.