Duke Powers Up with Farm Animals

Achieving good returns in the renewable energy sector requires fast thinking.  Some renewable energy innovations foster business models that frustrate investors looking for the typical private equity or venture entrance followed by a buyout or public offering exit.  Take for example waste-to-energy (WTE) technology.  Farm animal manure has long been recognized as a large but under exploited feedstock for electricity generation using biogas fed turbines.  Individual farms have had some success with small, closed-loop systems that power localized, farm functions.  However, commercial power generation using farm animal manure has remained elusive.  As a consequence, investment in waste-to-energy has been mostly in early stage, privately-held technology developers.  Few WTE business models have achieved sufficient scale to deliver consistent earnings.

North Carolina Hog Farms

Duke Energy (DUK:  NYSE) and two project partners may have cracked the WTE code.   The electric utility is using renewable natural gas made from manure salvaged from North Carolina hog farms.  Methane gas from a series of hog farms is converted to pipeline-quality natural gas and transported to Duke Energy via the Piedmont Natural Gas system.  Early estimates suggested that the project could yield about 11,000 megawatt hours of electricity. 

Biogas developer OptimaBio LLC and engineering firm Cavanaugh & Associates get credit for networking the pig farms together.   Small-scale and privately-held, neither represents a particularly interesting investment option.    However, Duke Energy with its publicly traded stock is a more liquid and flexible investment vehicle.

Of course, there is far more to Duke Energy that a few watts of renewable energy generated from pig pooh!  There is also chicken manure in Duke’s energy portfolio.   In December 2019, Duke announced an agreement with Carolina Poultry Power operated by the Power Resource Group.  The plant uses turkey waste to generate approximately 2 megawatts of power as well as steam power.  The plant is connected to the electric grid through the Pitt and Greene Electric Membership Corporation.

North Carolina Industrial Chicken Shed

Duke Energy might not be so keen on waste-to-energy, were it not for North Carolina’s political resolve to make use of its agricultural resources.  North Carolina is a farming state, ranking second in the country for poultry and egg production and third for pork.  It makes sense to capitalize on this unused resource to get away the state’s historic primary energy sources  -  coal-fired power from Kentucky and local natural gas fired power plants.  In 2007, the state’s legislature passed the Renewable Energy and Energy Efficiency Portfolio Standard.  It requires investor-owned utilities like Duke Energy to supply 12.5% of 2020 retail electricity sales from renewable energy sources by 2021.

Chickens and pigs have helped build owned and purchased renewable power to 4 gigawatts or about 9% of Duke’s Energy portfolio.  True enough Duke will continue to rely on gas and coal in the near-term.   Coal still provides as much as one-third of the company’s energy portfolio.  However, the impetus has been set to replace coal with renewable energy sources.  With proven business models in place, it is likely Duke can accelerate its ‘farm animal’ renewable portfolio.

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.