The way America produces electricity is rapidly changing. While the past several decades of electricity generation were defined by coal, and fossil fuels still represent the majority of U.S. electricity generation, the trend toward renewable energy is slow but clear. Use of renewable forms of energy including wind and solar have pioneered a domestic energy revolution. Consider that electricity generation from coal was lower in 2014 than in 2004. Last year, renewable energy sources accounted for about 10 percent of total U.S. energy consumption and about 13 percent of electricity generation.

When it comes to renewables and their place in the U.S. energy mix, the trend is clearly up. Many utilities have taken notice of this and are repositioning their businesses to succeed in the new energy environment. One of them is Duke Energy (NYSE: DUK), a utility giant that serves approximately 7.4 million electric customers across six U.S. states. While some of Duke’s peers in the U.S. utility sector have resisted investing in renewable energy sources, Duke has broken from the pack and has taken a leadership position because of its strategic efforts. Its renewables initiative is likely to pay off over the long-term.

Duke makes a push into renewables

Duke Energy’s generation assets are still mostly comprised of coal-fired plants, but it is steadily increasing its investment in renewables. Company-wide capital and investment expenditures rose 52 percent last year, to $8.4 billion. Among its key investments, Duke Energy spent $4 billion on wind and solar projects since 2007, and plans to invest an estimated $3 billion more over the next five years. Combined, Duke owns 2,500 megawatts of wind and solar assets. Duke has also invested in biopower—a renewable energy made from organic material, which can provide high-capacity electricity while being carbon-neutral. Duke Energy Renewables built eight large solar projects in North Carolina last year, and its regulated utility in North Carolina committed $500 million to build four utility-scale solar projects in that state. Overall, Duke has 22 wind farms and 38 commercial solar farms with a capacity of 2,400 MW across 11 states.

Duke’s capital spending jumped last year, and it has continued to plow full speed into renewables this year. It recently launched the "EV Charging Infrastructure Support Project" which will invest $1.5 million in North Carolina to increase public electric vehicle charging by 30 percent in that state. More importantly, on May 12 the company brought its major 17-acre Florida solar facility online. The solar power plant, which is about the size of 13 football fields and produces nearly 4 megawatts of carbon-free energy, is the first step in a longer-term initiative to install 35 megawatts of solar by 2018 and up to 500 megawatts of solar energy in Florida by 2024. Duke’s commercial renewables business added 400 megawatts of wind and 200 megawatts of solar power last year. 

There are real implications of all this for investors. Shareholders have become accustomed to steady profits and reliable returns from utility stocks like Duke. These investors rely on Duke and other large utility stocks for rock-solid dividends that roll in like clockwork each and every quarter—Duke has paid uninterrupted dividends for 90 years. But these shareholder returns are never guaranteed; a company must adapt to an evolving environment to ensure it generates enough profit to continue rewarding shareholders. As coal rapidly gets displaced by other forms of energy, it is a must for utilities to respond accordingly with aggressive investment in new sources. Duke has taken a lead position on this, and as a result, its shareholders will likely be better off because of it.

Analysts expect Duke to increase its earnings per share by 1.3 percent this year, and growth is expected to accelerate to 2.8 percent next year. Its accelerating growth will be due in no small part to a newfound commitment to renewable energy sources.

Companies to watch

Duke Energy is not the only major U.S. utility making significant investments in renewable energy. American Electric Power (NYSE: AEP): holds an impressive portfolio of renewable energy assets. It has had an active wind development program since the mid-1990s. Its six regulated utility operating companies have agreements to purchase nearly 2,000 megawatts from wind power facilities across seven states. In addition, American Electric Power has significant hydroelectric and solar assets. The company has 17 hydro-electric facilities in Virginia, West Virginia, Ohio, Indiana, and Michigan, which together generate more than 800 megawatts of electricity. In all, its total wind and solar portfolio has total capacity of 3,145 megawatts.

Dominion Resources (NYSE: D): Dominion is very active in the renewables space, with two major wind projects in the pipeline. These are the NedPower Mt. Storm Wind Farm in Virginia, which produces 264 megawatts of electricity, and the Fowler Ridge Wind Farm in India, which produces 301 megawatts. Also, last year Dominion acquired an 80-megawatt solar facility in Virginia, which is expected to be operational by the end of this year. Dominion has also announced plans to build a 400 megawatt solar plant in Virginia, to begin operations within the next five years.

Exelon Corp (NYSE: EXC): As one of the nation’s largest utilities that heavily relies on nuclear energy, Exelon serves approximately 8 million people through its PECO, ComEd, and Constellation businesses. And yet, Exelon is investing in renewable energy technology. Last year, it advanced renewable projects in Los Angeles (biogas) and Georgia (biomass), which are on schedule. In addition, Exelon is developing 350 megawatts of wind projects in Oklahoma and Michigan with customers under contract.

Bob Ciura is an independent equity analyst. Since 2012, his work has focused on fundamental investment analysis of publicly-traded companies in the energy, technology, and consumer goods industries. Bob has a Bachelor's degree in Finance and an MBA in Finance.