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SO’s Generation Shifts from Coal to Natural Gas and Nuclear

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Jan. 21 2016, Updated 1:05 p.m. ET

SO’s fuel mix

Southern Company (SO) has a combined generating capacity of 47,000 megawatts, with coal and natural gas as its key energy sources. Nearly 80% of the total power that SO generates comes from coal and natural gas. Nuclear power accounted for 15% of SO’s fuel mix in 3Q15.

SO’s fuel mix is expected to reshape in the near future, considering the Vogtle nuclear power plant currently under construction and the EPA’s (U.S. Environmental Protection Agency) regulations under the Clean Power Plan.

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Increase in natural gas usage

Compared to the last year’s fuel usage, Southern Company has partly shifted from coal to natural gas for power generation. This shift was mainly driven by a massive correction in natural gas prices. During the nine months ended September 30, 2015, SO saved nearly $900 million in fuel costs and purchased power contracts.

In order to adhere to the EPA’s Clean Power Plan, utilities are switching from coal (KOL) to other low-emitting energy sources for power generation. For the last two quarters, utilities (VPU) have been increasing the natural gas portions of their generation mixes due to the massive price correction of natural gas (UNG).

SO expects its natural gas usage to rise to 52%, while it expects its coal usage to fall to 29% by 2020, compared to 2014 levels.

New capacity addition

The new Units 3 and 4 of the Vogtle nuclear power plant currently under construction will add ~2,400 megawatts of capacity to Southern Company’s generation assets. These are expected to come into operation in 2019 and 2020, respectively.

SO is also aggressively increasing its renewables portfolio by penetrating the solar market. It acquired the 300-megawatt Desert Stateline Solar Facility project from FirstSolar (FSLR) in 2015. In the first nine months of 2015, SO increased its renewable generation portfolio by 1,000 megawatts.

Compared to SO’s current capacity of 47,000 megawatts, Duke Energy has 58,000 megawatts of generation capacity, while Exelon (EXC) has 32,000 megawatts of generation capacity.

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