NextEra Energy(NYSE: NEE) is the undisputed leader in the power sector. The company operates the largest electric utility in the country. It is also the world leader in renewables and storage, operates the country's largest natural gas-fired generation fleet, isa leader in producing nuclear energy, and is an industry leader in electricity transmission.
NextEra has invested more than $150 billion into building and maintaining its leading energy infrastructure assets over the past decade. That has helped power industry-leading earnings growth and returns for its investors.
The utility expects to continue investing heavily in the coming years. While it plans to remain a leader in building more renewable energy capacity, it also sees a massive opportunity to construct additional natural gas power plants.
The coming power surge
Electricity demand in the U.S. has been relatively stable over the past 20 years. It has grown by about 9% during that span, with energy efficiency gains helping offset much of the demand growth. Because of that, utilities have primarily focused on replacing higher-cost coal-fired power plants with cheaper, cleaner natural gas and renewable generation assets.
However, the industry is about to experience a nearly unprecedented surge in power demand. Forecasters estimate that power demand will increase 55% by 2040, a more than sixfold increase in the growth rate. Because of that, utilities will need to build a tremendous amount of additional capacity to support this growth while they also continue to replace their aging fleets with cleaner power production capacity.
"Given the current power demand environment, it is more important than ever to unleash all forms of electric generation, starting with renewables," stated NextEra CEO John Ketchum on the fourth-quarter conference call. The company intends to do just that. It expects to grow its energy resources portfolio to about 75 gigawatts of operating renewable energy capacity by the end of 2027.
Ketchum noted this "would be larger than the installed renewables capacity of all but seven countries." However, renewables alone can't meet the coming surge in power demand, due partly to their intermittency issues.
Gas will fill in the gap
Many in the energy industry believe that the country will require a significant amount of new natural gas power generation capacity to support the growth in electricity demand by helping offset renewable energy intermittency issues. Because of that, gas demand could surge in the coming years.
Industry forecasters expect U.S. natural gas demand to grow 19%, or 20 billion cubic feet per day (Bcf/d), by 2030, fueled mainly by increasing export demand (LNG and Mexico). Only about 3 Bcf/d of that projected demand growth is from artificial intelligence (AI) data centers. However, in a potential upside scenario, AI data centers could add more than 10 Bcf/d of incremental demand by 2030.
NextEra Energy is putting itself in the position to capitalize on the potential surge in natural gas power demand."That is why, today, we are pleased to announce a framework agreement with GE Vernova (NYSE: GEV), where we will partner to build natural gas-powered generation solutions," stated CEO John Ketchum on its earnings conference call. "This agreement has the potential to support multiple gigawatts for data centers, the reshoring of manufacturing, and the electrification of industry, as well as serve investor-owned utilities, municipalities, cooperatives, and commercial and industrial customers."
Ketchum further commented:
Nobody has built more gas-fired generation over the last decade than NextEra Energy, and nobody has sold more gas turbines than GE Vernova. This collaboration brings together the nation's leading operator of natural gas-fired generation in NextEra Energy and the world's leader in natural gas and electrification technology in GE Vernova to jointly develop opportunities that we believe will enable significantly more renewables to meet growing power demand by pairing low-cost renewables for energy with gas-fired generation for capacity.
He noted that the companies plan to collaborate over the next four years to identify key locations that would benefit from new natural gas power generation. GE Vernova will incorporate its world-class technology and financial services capability. At the same time, NextEra Energy will work to provide customers with an integrated solution that combines renewables, storage, and gas-fired power production.
This partnership can potentially enhance NextEra's growth toward the end of the decade.It would provide the company with opportunities to build new natural gas capacity while opening the door for new renewable energy and storage investment opportunities.
Leveraging its leadership again
NextEra Energy is a leader in all forms of clean energy. Because of that, it's in a strong position to capitalize on the potential surge in natural gas demand to help fuel AI data centers and other growth drivers. It has the potential to add meaningfully to the company's already robust renewable-powered growth. It's one of the many reasons NextEra Energy will likely remain a top energy stock to own over the coming years.
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