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Dive Brief:

• Dominion Energy said Wednesday it will no longer invest in unregulated solar projects to generate investment tax credits and has taken a $1.5 billion impairment charge on its portfolio of those projects. Duke Energy said Thursday it was taking a $1.3 billion impairment charge, also related to renewables.
• Dominion Chief Financial Officer Steven Ridge said during the company’s Q4 earnings call that it had developed its solar portfolio with the goal of gaining expertise to use on the regulated side of the business, and has fulfilled that goal.
• Michael Doyle, a senior equity analyst for utilities at Edward Jones, said in an interview that he anticipates Dominion will look to sell its unregulated solar portfolio to generate cash for the regulated’ side of the company.

Dive Insight:

Dominion didn’t announce a sale of its unregulated solar projects, but Ridge said the company concluded the capital it was investing in those projects to generate investment tax credits, or ITCs, could be better used elsewhere.

“There were two primary purposes for the development of the portfolio,” he said. “The first was to develop expertise in developing solar so we could employ that expertise credibly across our regulated footprint, which is what we’re doing right now. So, in effect, that task has been completed. The second was to generate investment tax credits.”

Dominion is not providing 2023 earnings guidance or refreshing its long-term capital investment plans as it executes a “top-to-bottom” review of its businesses, Ridge said during the earnings call.

In an email, spokesman Ryan Frazier said Dominion is not completely exiting merchant or contracted solar.

Duke, which is looking to sell its entire commercial renewable energy business for around $4 billion, reported a $1.3 billion impairment charge for losses in recoverable value in the fourth quarter.

”The thing to recognize with an impairment charge, is this an accounting adjustment that's driven by the earnings profile of renewables where a lot of the profit that's in the early part of the life then depreciates over a longer period of time,” CEO Lynn Good said during the company’s Q4 earnings call. “So when you make a decision to exit before the end of the useful life, you've set yourself up for an impairment.”

Shar Pourreza, senior managing director at Guggenheim Partners, told Duke executives on the call that he noticed since the previous quarter, the company dropped “robust” to characterize interest in its commercial renewable business.

“We weren't intending to signal anything with the word ‘robust,’” Good said. “We feel good about the process. There's strong interest in the portfolio, and we're moving forward.”

Doyle said he believes Dominion is expected to sell its solar portfolio, “given the strategic review and the fact that they’ve already sold a lot of their non-utility assets.”

Although Dominion and Duke have taken impairment charges on commercial renewables, the renewable energy tax credits included in the Inflation Reduction Act may in fact make it an “opportune time” to sell these portfolios, he said.

Doyle said Dominion’s retreat from unregulated assets reflects a larger trend in utilities, because the market “tends to assign” a higher price earnings multiple to companies that derive a larger percentage of their earnings from regulated operations. In addition, the sale of this solar portfolio would provide the company with useful cash.

“They either want to sell businesses to fund their future capital expenditures, or sell stakes in businesses, rather than having to sell stock directly to the market,” Doyle said.