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PSEG (PEG) to Divest 25% Equity Stake in Ocean Wind 1 Project

Public Service Enterprise Group Incorporated PEG, or PSEG, recently announced that it is divesting its 25% equity stake in the Ocean Wind 1 offshore wind energy project to Ørsted. This will make Ørsted the 100% proprietor of the project, with PSEG supporting the onshore infrastructure construction of the same.

The transaction between the two companies is anticipated to close in the first half of 2023.

Rationale Behind the Divestment

To promote clean energy, PSEG acquired a 25% equity interest in Ørsted’s Ocean Wind project in April 2021. Since then, PSEG and Ørsted have teamed up for the development of the project, which is scheduled to be commissioned in 2025.

However, for the best interest of the project and New Jersey’s offshore wind goals, PSEG decided to divest its interest in the project to continue to support offshore wind project developments in New Jersey.

PSEG’s Clean Energy Goals

PSEG targets to become a carbon-free energy infrastructure company. It intends to achieve net-zero carbon emissions by 2030, which include direct greenhouse gas (GHG) emissions (Scope 1) and indirect GHG emissions from operations (Scope 2) at both PSEG Power and PSE&G.

Moreover, as part of its clean energy goal, PSE&G continues to modernize its gas distribution system as part of its Gas System Modernization Program (“GSMP”) to reduce the release of methane. Through GSMP II, from 2018 through 2023, the company expects an approximate 22% reduction in methane, and assuming the continuation of GSMP, an approximate 60% reduction in methane emissions is projected from 2011 through 2030.

PEG invested $400 million over the past 10 years to promote clean energy in New Jersey. The company plans to file an extension of GSMP in the first quarter of 2023, which will continue and accelerate these methane reductions.

Such strategic investment programs are expected to help PSEG offer more reliable, resilient, cleaner and affordable energy to customers, along with boosting the company’s bottom line over the long term.

Growth Prospects & Peer Moves

Utilities in the United States are gradually transitioning to renewable sources of energy as they strive to adopt eco-friendly ways to deliver more sustainable and reliable energy to their customers.

The latest report from the U.S. Energy Information Administration suggests a rise in the generation of electricity from renewable sources. Per the report, the generation of electricity from utility-scale solar and wind will increase from 16% in 2023 to 18% in 2024.

Thus, utilities’ move to carve out a position in the renewable market and diversify their energy portfolio is prudent. Apart from PSEG, utilities that have been looking to decarbonize their operations and provide clean means of energy are as follows:

American Electric Power Corp AEP makes incremental investments in renewable generation projects across the United States. The company’s plans include growing its renewable generation portfolio to approximately 50% of the total capacity by 2030. Its 2023-2027 capital investment forecast includes $8.6 billion in the regulated renewable plan.

The company has a long-term earnings growth rate of 6.1%. AEP shares have risen 3.5% in the past year.

DTE Energy DTE is investing steadily to enhance its renewable generation assets. Over the next 15 years, DTE Electric plans to withdraw a portion of its coal-fired generation and boost the natural gas-fired generation and renewable mix. Per the recent Integrated Resource Plan, DTE aims to develop more than 15,000 MW of renewables to power homes, businesses and industrial facilities over the next two decades.

DTE Energy boasts a long-term earnings growth rate of 6%. Its shares have increased 6% in the past three months.

Duke Energy DUK has taken an initiative to expand the renewable asset base and aims to reach its target of net-zero carbon emissions from electric generation by 2050. The company already lowered its carbon emissions in 2021 by more than 44% since 2005 and is now expanding its 2050 net-zero goals to include Scope 2 and certain Scope 3 emissions.

The long-term earnings growth rate of Duke Energy is pegged at 5.5%. Shares of DUK have returned 14.8% in the past three months.

Price Movement

In the past three months, shares of PSEG have increased 9.4% compared with the industry’s growth of 8.9%.

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Zacks Rank

PSEG currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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