As oil companies struggle to adapt to a changing energy mix, the renewables-focused utility has made its way to the pinnacle of America’s energy industry.
COVID-19, supply gluts and price wars have all dealt blows to the U.S. oil industry. With prices in the doldrums, oil companies are working to balance the perennial problem of low returns by improving efficiency through multibillion-dollar acquisitions. Meanwhile, NextEra has become the world’s top generator of wind and solar electricity – and in the process, America’s most valuable energy company. A market capitalization of more than $147 billion puts the Florida-based utility ahead of supermajor ExxonMobil, which has seen its market cap drop by 60% since 2018.
NextEra has been in operation since 1925, and utility companies are not typically seen as trailblazers. But NextEra was early to place its bets on the growth of renewables, and has shrewdly accelerated investment. On October 21, when it released its quarterly results, NextEra said it now has about 15 gigawatts of renewable projects in its pipeline, which is more than its entire existing renewables portfolio. The company also increased its net profit by 13% year on year, to $1.3 billion.
NextEra’s main businesses include Florida Power & Light (FPL), an electric utility, and NextEra Energy Resources, which focuses on energy projects such as wind farms, solar and nuclear, as well as some gas pipelines and transmission lines. On the surface, these businesses may not seem especially groundbreaking. But as Michael Weinstein of Credit Suisse asserts, NextEra set winning strategies early and pursued them well. FPL was among the first to replace coal-fired power plants with gas, and is now transitioning gas plants to solar.
Large-scale renewables are NextEra’s real forte. In this area, it has flourished under CEO Jim Robo – although when Robo was appointed President and COO in 2006, NextEra was already the country’s top producer of wind power. It had the foresight to take advantage of tax credits for building wind farms in the Midwest. It also correctly predicted growth in renewables as well as lower costs. Investors have prospered, as NextEra has outperformed other utilities, oil companies, and the stock market as a whole. Over the past three years, total shareholder returns have risen by 112%.
NextEra is now boldly pursuing acquisitions, having completed its purchase of Gulf Power last year. It has started courting Duke Energy, a regulated utility in North Carolina, though as of this writing the company has declined its initial offer. Should NextEra sway Duke into a merger, it would create the biggest electric utility in the U.S., serving 15 million customers. There is certainly no lack of confidence on NextEra’s end. As Robo has said, “There is not a utility in the country that we couldn’t run more efficiently and better for customers.”
NextEra is also continuing to invest in generation and grids, and this month raised its planned capital spending to $60 billion between 2019 and 2022, according to The Economist. It exceeded all but nine American firms in second-quarter capital expenditure. Projects include big solar farms, though Weinstein says that NextEra has already bought or leased many of America’s most attractive sites for wind and solar energy. NextEra is also getting out in front of rising demand for batteries, which is inevitable as the grid becomes more reliant on intermittent renewables.