Renewable Power Liftoff
The renewable energy business of Birmingham-based Southern Power has made it the fastest growing subsidiary of powerhouse Southern Company.
Southern Power, which currently has two wind facilities, is looking to increase its number of wind farms through strategic relationships, just as it has done with its partners in the solar industry.
A photo of solar panels stands out on the cover of Atlanta-based Southern Co.’s annual report, and it speaks volumes about the company’s years-long push to reduce greenhouse emissions through cleaner and renewable energy sources.
These days at Southern Co., the fastest growth currently is at Southern Power, a Birmingham-based subsidiary formed in 2001. Seven years ago, Southern Power’s portfolio consisted only of natural gas facilities in the Southeast built to reduce dependence on coal for generating electricity. But it now boasts a growing list of renewable energy facilities that includes solar and wind farms from California to North Carolina.
Southern Power owns or has financial interests in nine natural gas facilities in Alabama, Georgia, North Carolina and Florida; two wind facilities in Oklahoma; a biomass facility in Texas, and 23 solar facilities in California, Nevada, New Mexico, Georgia, North Carolina and Texas.
The company acquired nearly five times more projects and facilities in 2015 than ever before. It now has 10,600 megawatts (MW) of generation capacity, including more than 2,000 MW of renewable capacity developed or acquired since 2012.
Southern Power sells electricity wholesale to municipalities, electric cooperatives, investor-owned utilities or, at times, Southern Co. utilities. It does not sell to residential, commercial or industrial customers in the retail market, which is served by the likes of Alabama Power.
The move in a greener direction is bringing in the green. Southern Power’s approach is conservative. It builds or buys generation facilities that have long-term, risk-averse power purchase agreements.
Net income at Southern Power last year was $215 million, a 24 percent increase over 2014. Earnings in the first quarter were $50 million, 51 percent more than $33 million recorded in the same quarter in 2015.
Southern Co. Chairman Thomas Fanning projected Southern Power’s net income for 2016 to be $300 million during an April conference call with stock analysts. That would be a 40 percent increase for the year. “We see a very bullish market for Southern Power,” Fanning said at the time.
Despite its growth, Southern Power remains relatively small within the Southern Co. system. Assets, for example, jumped from $5.2 billion in 2014 to almost $9 billion last year — yet they are still dwarfed by Southern Co.’s other assets of $69 billion.
But the picture is changing. Southern Power represents almost 25 percent of Southern Co.’s total generating capacity of 44,000 MW. It is a major reason why natural gas, which is cleaner than coal, is now used to produce half of the electricity generated by the Southern Co. system.
Southern Power’s most recent acquisition came in March, when it bought the 120 MW East Pecos Solar Facility, its second solar project in Texas. First Solar, a global leader in photovoltaic solar energy solutions, is building the East Pecos facility and will operate it when it is complete.
The East Pecos facility will be located on approximately 1,000 acres and use about 1.2 million of First Solar’s thin-film, photovoltaic solar modules. The plant is expected to begin commercial operation in the fourth quarter of 2016.
“The investment is noteworthy because it marks Southern Power’s eighth investment, either through direct acquisition or partnering with First Solar, an industry leader,” says Buzz Miller, who was named president and CEO of Southern Power in February. “We value our partnership with First Solar, and will continue to pursue opportunities to grow our businesses together.”
Southern Co.’s Fanning sees Southern Power developing the same kind of partnerships to increase its number of wind farms.
“We’re just seeing a good market for it,” he said in April. “As we have shown in our solar business so far, we can strike good, strategic relationships with developers, like with First Solar and Recurrent. We’re starting to strike those same relationships in the wind business. So we kind of have a favored position to be able to strike large-scale deals. We are seeing that develop.”
Miller says efficient operation of existing facilities, including two gas plants in Alabama, is as important as new acquisitions. But the strategic plan definitely calls for more investments in green energy sources.
To that end, Southern Power recently issued $1.2 billion in green bonds to support further investment in clean energy power generation. The company has allocated another $500 million for similar investments in 2017 and another $500 million for 2018, according to the most recent annual report.
“The green bond issuance underscores the company’s commitment to innovation, as the Southern Co. system further develops the full portfolio of energy resources,” Miller says.
According to its annual report, Southern Co. and its subsidiaries have committed $20 billion to developing a full portfolio of low- and zero-carbon emission generating resources. As part of that commitment, Southern Co. closed in July on its acquisition of Atlanta-based AGL Resources, a deal valued at $12 billion. AGL Resources is the parent company of Nicor Gas, which provides approximately 2.2 million customers with natural gas services in northern Illinois.
The combination of Southern Co. and AGL Resources has created the second-largest utility company in the U.S. by customer base — a company with 11 regulated electric and natural gas distribution companies that provide service to roughly 9 million customers and with nearly 200,000 miles of electric transmission and distribution lines and more than 80,000 miles of gas pipelines.
In another recent acquisition, Southern Co. paid $425 million for North Carolina-based Power Secure International, a leader in distributed generation, which refers to on-site electricity production and consumption.
As of late June, Southern Co. stock was trading at $52 a share, up almost 20 percent from the year before. The company announced a dividend increase in April, marking the 15th consecutive year its dividend has increased on an annualized basis. For 274 consecutive quarters, or 68 years, the dividend has been equal to or greater than the previous quarter.
Charlie Ingram is a freelance contributor to Business Alabama. He is based in Birmingham.