The U.S. is entering an unprecedented period (and I’m not talking about the upcoming Presidential election). After decades of static power demand, the country is about to stomp on the accelerator. Forecasters expect the country’s electricity demand to grow four times faster over the next 20 years compared to the prior two decades. Several catalysts are driving this acceleration, including onshoring of manufacturing, growing electric vehicle (EV) adoption, and the expansion of data-center capacity.
“NextEra Energy (NYSE: NEE) was built for this moment,” stated CEO John Ketchum on the utility’s second-quarter earnings-conference call. The leader in renewable energy believes no other company is in a better position to capture this generational opportunity, which could power strong growth for its shareholders in the coming years.
Stomping on the gas
NextEra Energy has grown faster than its peers in the utility sector over the years. That’s partly because Florida is one of the few states where power demand has been growing. As the operator of the state’s leading electric utility (FPL), it was a key beneficiary of this catalyst.
The company also benefited from the steady replacement of coal-fired power plants with lower-carbon and lower-cost renewables. These catalysts have helped drive 9% compound annual growth in the company’s adjusted earnings per share over the last 20 years (and 10% annual dividend growth). That rapid growth came even though U.S. power demand only rose 9% during the past two decades.
Forecasters expect the country’s electricity demand to surge 38% by 2040, four times faster than it grew over the previous two decades. That should accelerate the already robust demand growth for renewable energy. “We expect the demand for new renewables to triple over the next seven years versus the prior seven to help meet this increased power demand,” stated Ketchum.
Several factors power that forecast. Renewables are cheaper to build and operate than new natural gas generation. They’re also faster to market since it can take three to four years to build the pipelines and gas turbines needed for new gas-fired plants.
Build for this
Ketchum believes the company was built for this pivotal moment. It has been developing renewable energy projects for over 20 years. Because of that, it has unrivaled scale, expertise, and technology to capitalize on this tremendous opportunity. Adding to its competitive advantages are its decades of data, analytical capabilities, and relationships. On top of all that, it has a massive 300-gigawatt (GW) pipeline of projects in various stages of development, half of which it can easily connect to the current grid. That drives Ketchum’s view that NextEra’s “future outlook has never been brighter.“
The company is already capitalizing on this opportunity. Over the past quarter, it added more than 3 GW of new renewables and storage projects to its commercially secured construction backlog. That was NextEra’s second-best quarter for new project originations ever, besting the first quarter, which previously held that title. It now has 22.6 GW of projects in its backlog.
While demand is coming from several sources, it’s seizing the opportunity to be a key power provider for data-center operators. For example, cloud-computing giant Google agreed to buy 860 megawatts of renewable power from NextEra Energy in the period to help meet its growing data-center electricity demands. NextEra now has deals to supply 7 GW of renewable energy to technology and data-center companies. The company noted that it’s seeing a lot of interest from other utilities and data-center operators for more renewable energy to power these energy-hungry facilities. It expects more of this demand to show up in the 2026 to 2028 time frame, aligning with the anticipated completion of data-center projects currently under development.
Supercharged growth ahead
After being relatively static over the last 20 years, there’s a generational surge upcoming for power demand in the country. Few companies are in a better position to capitalize on this acceleration than NextEra Energy. It should be able to grow briskly, which should help power strong total returns. That upside potential makes it look like a very compelling energy stock to buy for the long haul right now.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matt DiLallo has positions in Alphabet and NextEra Energy. The Motley Fool has positions in and recommends Alphabet and NextEra Energy. The Motley Fool has a disclosure policy.
1 Top Energy Stock Built for This Once-in-a-Generation Opportunity was originally published by The Motley Fool
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