The company has set goals of cutting its carbon emissions in half by 2030 and becoming net-zero by 2050. The GIC investment will help Duke “to effectively finance our robust investment plan in a clean energy future and continue delivering sustainable value to our investors,” Chief Executive Officer Lynn Good said in a statement.
The deal comes as utilities that once relied mostly on wind and solar developers for clean-energy generation now want to build their own renewables and hold those assets on their balance sheets. The sale is a good way to get the money to build those projects, said Kit Konolige, a Bloomberg Intelligence utilities analyst.
“Now that it’s pretty clear we’re in a long-term bull market for renewables, utilities are definitely saying, ‘Hey, the more renewables we do, the higher our earnings are going to be,’” Konolige said.
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Duke might even try to sell GIC more of the Indiana unit in the future so it could develop renewable energy in North Carolina or modify its grid across its footprint, Guggenheim analyst Shahriar Pourreza said in an investor note. “Private companies have a different view on what assets are worth and, in many cases, are willing to pay more for assets than the public market,” the note stated.
The agreement also will provide Duke with an infusion of cash just months after it rebuffed a takeover offer from NextEra Energy Inc., the world’s largest utility owner by market value. It sends the signal that Duke is “going on its own,” said Konolige. “It certainly looks like they’re not interested in any kind of large scale M&A activity.”
Duke said the deal, which will require approvals from federal energy regulators and the Committee on Foreign Investment in the U.S., will bolster the company’s long-term adjusted earnings-per-share growth rate of 5% to 7% through 2025, up from a previously stated 4% to 6% growth rate.
“This is a creative, unorthodox tactic for Duke to use,” said Pavel Molchanov, an analyst at Raymond James. “For Duke shareholders, the benefit is avoiding the dilution from the company’s previously planned equity issuance.”
Duke’s Midwest operations run almost entirely on coal and gas. GIC said its investment will help the utility accelerate its clean energy transition over the next five years. It’s part of the sovereign wealth fund’s broader strategy to engage with carbon-intensive businesses and support them in transitioning to cleaner emissions rather than divesting from industries that burn coal and oil.
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GIC in 2016 bought a 19.9% stake in U.S. powerline operator ITC Holdings Corp. for $1.23 billion in cash. It also purchased a stake in Oncor Electric Delivery Co., the owner of the biggest transmission network in Texas, along with Canadian investors in 2008 but later sold the stake to NextEra.
Duke Energy Indiana supplies power to about 810,000 residential, commercial and industrial customers. Duke shares rose as much as 2.4% after the close of regular trading in New York.
J.P. Morgan Securities LLC served as Duke Energy’s lead financial adviser, and Centerview Partners also served as a financial adviser. Barclays served as GIC’s financial adviser.