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Duke Energy CEO on rise in commodity prices: 'We're working hard to mitigate price increases to the extent we can'

Duke Energy CEO Lynn Good joins Yahoo Finance's Akiko Fujita to discuss the latest in raw material shortage and the challenges for corporations to move to 100% renewable energy.

Video Transcript

AKIKO FUJITA: Lynn Good leads one of America's largest energy holding companies-- Duke Energy. Under her leadership, Duke Energy says it's on track to cut CO2 emissions in half in the next decade and be net zero by 2050. Good is among Fortune's Most Powerful Women in Business. She's also Forbes World's 100 Most Powerful Women.

Well, Lynn Good, it is great to have you on today. Really appreciate the time. I want to begin with something that I think is on the minds of a lot of people who are watching, and that is the global energy crunch we're seeing play out. We've got a shortage of coal halting production over in China, natural gas prices soaring over in Europe. And then here in the US, the White House has raised some concerns about soaring oil prices. As we look ahead to the colder months, how do you see the supply-demand and that dynamic playing out.

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LYNN GOOD: Akiko, thank you. And it's a pleasure to be here with you and enjoying the conversation. There's no question there has been an impact on commodities. And I think what you're seeing is the increase in demand as the world economy kind of recovers from COVID. At the same time, we're facing a period where the production of these commodities has remained flat, in some cases maybe even declining. We have low storage of natural gas.

And then from the US, of course, a lot of exports to other countries. So there's no question we're seeing rising prices. And we're working hard to mitigate those price increases to the extent that we can, and also to communicate actively with our customers, our regulators, our policymakers about what we're seeing. And so we see this with us as an issue into 2022, and really look forward to perhaps a rebalancing of some of these supply-demand dynamics as '22 rolls into 2023.

AKIKO FUJITA: What kind of price increases are customers looking at? And there's concern about potential sticker shock come winter.

LYNN GOOD: Sure. And Akiko, it depends. As we look at the way we manage our portfolio, we do have an opportunity to enter into hedging contracts. And those hedging contracts right now are quite valuable because they were priced at previous prices. But over time, prices will increase.

And it kind of depends on where you're situated, what your mix of fuels are, how much exposure you might have to natural gas and coal. One of the strong attributes we have here in the Southeast is a strong amount of nuclear energy in our mix, which has not experienced the same type of volatility. And so that represents a bit of a hedge as well.

AKIKO FUJITA: And I want to get much more into your push into nuclear as well. But how do you think that the supply crunch that we're seeing play out right now complicates this transition to greener energy renewables? There's been a lot of questions about whether, in fact, we're kind of in the position we are because the investments were shifted away from fossil fuels to renewables. How do you look at that dynamic against this backdrop?

LYNN GOOD: It's a really good question, Akiko, because I believe as we pursue this clean energy transition, which is a foundational strategic plan for Duke Energy, we have to achieve environmental progress, carbon reduction, but we have to keep an eye on affordability. And we have to keep an eye on reliability. And as we see commodity prices increasing, it does impact our customers and create a little bit of a squeeze on how much additional price you're going to put into that bill for transition.

But at this point, we do not see it having any material impact on our plans because we believe we have plans that introduce some flexibility. We also believe as we retire some of our units and add renewables, we'll have some natural decreases in price that could be used to offset some of those dynamics as well. But what I would leave you with is there's always an equation of environmental progress with affordability and reliability that we have to keep in balance. And that is job one at Duke, and remains job one as we think about our plans over the next many decades.

AKIKO FUJITA: Let's talk about the long-term transition Duke is undergoing right now. You've got a goal of slashing 2005 emissions in half by 2030. You're looking to get to net zero by 2050. How do you get there?

LYNN GOOD: We have very definitive plans, Akiko. And I think about Duke, that climate strategy and carbon reduction strategy is so deeply ingrained in our business plans, our capital spending, our regulatory plans. And we have a clear line of sight on what it's going to take to at least 50% reduction by 2030.

It's retirement of coal. It's adding renewables, more renewables, energy storage. It is maintaining our nuclear fleet. We have filed for a second license renewal extension of our license to operate our nuclear fleet. We'll also make investments in energy efficiency and demand response as customer solutions become an increasing part of the equation. So clear line of sight through 2030 and probably into the early 2030s.

When we get later into the 2030s, we begin looking for new technologies, things that have dispatchable capability that can follow the need for electricity as our customers wake up in the morning on a winter day or have a hot afternoon in the summer. And so in this decade, we're also advocating for research and development around new clean technologies and lending our operating expertise by piloting and advising on a host of technologies that we think will be important to get to net zero.

AKIKO FUJITA: You mentioned the need to invest in technology moving forward. What's holding us back right now from going 100% in on renewables?

LYNN GOOD: I would point to the need for technologies that are a bit more expansive in their operating characteristics, Akiko. Then when I think renewable, I think solar and wind. So what I'm looking for is technologies that would complement those, longer duration storage so that when I need to serve my customers at 7:00 AM on a winter morning when it's dark I have something other than a fossil fuel to turn on, to switch on to meet that need.

So that R&D investment in those technologies around hydrogen and carbon capture, I think, are really important. And I'm so pleased to see the recognition by the Biden administration of investment in those technologies in the infrastructure bill. You see investment in clean tech R&D as an important element of that bill. And we support that because we see a need for those technologies after we get to the 70%, 80% carbon reduction that we can achieve with existing technologies. Having those new technologies available in the 2030s will make net zero more achievable.

AKIKO FUJITA: You mentioned the Biden administration's climate agenda. One of the key pillars of that is this clean electricity performance program, which essentially incentivizes utility companies to shift to clean energy. There's questions about whether that program is now in doubt because of what's happening over in DC. I wonder what you make of the approach the administration has set out to try and make this transition? They have said consistently that they believe incentivizing change instead of penalizing those who aren't necessarily making the change is the way to go.

LYNN GOOD: I believe the administration has been very thoughtful and quite comprehensive, Akiko, as they've talked about the aspirations around carbon. And we share the goal of reaching net zero. We also share the goal of advancing federal policy and state policy that advances these goals in a way that makes it possible to achieve them, maintaining affordability and reliability for our customers. And as I look at that infrastructure bill I just spoke about, there's very clear investment in the technologies that we believe we'll need in the future, a transformative investment that could help our industry achieve these goals, and certainly the goal shared with the Biden administration.

And then I would also talk about tax policy. There's a lot of discussion going on today about extension of incentives around renewable investment, and storage, and transmission, and nuclear, all of which are carbon-free or enabling carbon-free technologies and in a way that also could be quite transformative. So I think the engagement around these topics is ongoing. Duke is at the table, as well, talking with policymakers on what will advance this clean energy transition that we are all working so hard to accomplish.

AKIKO FUJITA: You've talked a lot about the importance of nuclear. And you know, there's obviously a lot of concerns that come with nuclear in terms of the cost overruns as well as the safety. If, in fact, we are to meet this target of net zero by 2050, can we do it without nuclear?

LYNN GOOD: Akiko, I don't believe we can do it without nuclear. And Duke comes to this conversation about nuclear energy with a long history. We operate the largest regulated fleet of nuclear plants in the US. And just to give you a couple of statistics about a company the size of Duke, about 40% of all of the energy we produce comes from nuclear. And a little bit over 80% of the carbon-free generation and energy that we produce comes from nuclear.

And so you think about my goal of getting to at least 50% carbon reduction and to net zero, I want to keep that nuclear fleet operating as long as I possibly can because I don't have an alternative of a carbon-free resource that runs 95% of the time, which is what nuclear represents today. So we are committed to safe operation, of course, it's always job one. We're committed to extending the licenses of these plants. And then we are working actively in an advisory capacity and lending our operating expertise to the development of small modular technologies and advanced technologies that may create the opportunity to introduce more nuclear in the 2030s and 2040s, again, as we get closer to that goal of net zero.

AKIKO FUJITA: What's the mix you ultimately want percentage-wise for nuclear in your overall energy mix? And how much of that can you reach with the existing reactors that are in place?

LYNN GOOD: It's a good question, Akiko, because we run a variety of scenarios. In fact, as we model the future, we're modeling hour by hour dispatch of our system. We're modeling a range of prices on new technologies. We're modeling how much electrification occurs, and therefore how much additional requirements for electricity there will be. And so the one thing I know for sure is that the largest contributor to the energy mix of Duke in the 2040s will be renewables and storage, that combination we see as being 40%, maybe 50% of what we operate.

And then we would supplement the rest of that with other technologies, some of which I don't even know what they are today because we're waiting for those developments to occur. So more to come on that. And I think the way we think about this decade is let's stay engaged. Let's invest in new technologies. We will end our operating expertise on the development of hydrogen, and advanced chemistries for batteries, et cetera, so that we'll have a clearer picture of the investments in the 2030s and 2040s.

AKIKO FUJITA: I wonder if we could bring the conversation to the underlying issue right now that's pushing or accelerating this transition to green energy, and that, of course, is climate change. We saw the IPCC report several months ago pointing out to the fact that it has been unequivocally caused by human action. What's been the direct impact to you from some of these extreme weather events?

LYNN GOOD: We sit in the Southeast, Akiko, and so I would point most specifically to hurricane risk, flooding, as we've seen more flooding over the last five to six years. Knock on wood, this year we have not been heavily impacted by hurricanes, but certainly it's something we prepare for. We invest around resiliency and reliability to make sure that we're ready for what's happening. So for us, the response to climate changes goes beyond just reduction of carbon, but it goes to resiliency, and reliability, and adapting to what is happening or may happen in the years to come around the climate and the communities that we serve.

AKIKO FUJITA: Lynn Good, it's great to have you on today. Really appreciate the time.

LYNN GOOD: Akiko, thanks so much. It's been my pleasure.