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Coal's Future Still Dark

Three undervalued utilities are positioned to benefit from the shift to natural gas and renewables.

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Cheap natural gas, sluggish power demand, growing renewable energy, and emissions regulations will all continue to crowd out coal as U.S. utilities use more natural gas and renewables for electricity generation through 2025. This year, we have seen more U.S. utilities incorporate renewables and natural gas-fired generation into their long-term resource planning as coal fleets dwindle. The economics of offshore wind energy continue to improve, and two major projects, one off the coast of Massachusetts and another off Rhode Island, were recently selected by state officials to move forward. Connecticut and New Jersey recently approved legislation providing financial support for nuclear plants. However, more than offsetting these positives are three money-losing merchant nuclear plants that recently announced retirement dates early next decade.

We continue to believe that integrated utilities with supportive state regulatory frameworks should benefit as they retire coal plants and replace these generating assets with natural gas and renewables.  Dominion Energy (D),  Duke Energy (DUK), and  Southern Co. (SO) are investing billions in narrow- and wide-moat projects that should result in strong earnings and dividend growth.

Charles Fishman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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