Electricity demand in the U.S. has meandered along for the past couple of decades. It has only increased by about 9% as energy efficiency gains helped offset demand growth.
However, the outlook for the next 20 years is much more bullish. Forecasters expect power demand to surge 55%, about 6 times faster than it has grown over the past two decades. Demand catalysts include artificial intelligence (AI) data centers, the onshoring of manufacturing, the electrification of everything, and growing commercial, residential, and industrial electricity usage.
Few energy companies are in a better position to capitalize on the coming power boom than NextEra Energy (NEE 0.36%). It’s the undisputed leader in the utility sector. Because of that, it’s in an excellent position to grow its business and shareholder value in the coming years, making it a must-own energy stock to cash in on this megatrend.
The power player
NextEra Energy’s CEO, John Ketchum, discussed the massive scale of the company’s business on its recent fourth-quarter conference call. He highlighted:
FPL (Florida Power & Light) is the largest electric utility in the U.S., and Energy Resources is the world’s leader in renewables and storage. Together, we operate the largest natural gas-fired generation fleet in the country, are one of the largest nuclear operators in the U.S., and are widely viewed as an industry leader in transmission. We are one of the top five infrastructure investors in the United States, and we have invested more than $150 billion in our nation’s energy infrastructure over the last decade, building everything from nuclear uprates, natural gas pipelines, and natural gas-fired generation to battery storage and renewables.
The heavy investment in growing its clean energy infrastructure has paid big dividends for the company’s shareholders. Ketchum noted on the call: “Since 2021, we have delivered compound annual growth in adjusted EPS of over 10%, which is the highest among all top 10 power companies. In fact, if you look over the last five, 10, 15, and 20 years, you will see the same absolute and relative performance.”
The utility hasn’t just squeaked by its rivals in the power sector; it has pulverized their performance. It has grown its adjusted earnings per share (EPS) by more than double the rate of its peers over the past 20 years (8.9% versus 3.8%). That has given it the power to grow its dividend at a 10% compound annual rate during that period. This growth has helped it produce superior total returns (15.7% annualized compared to 9.8% for the average utility and 10.2% for the S&P 500).
The scale and flexibility to follow the growth
NextEra Energy expects to grow even bigger in the coming years. Ketchum stated on the call, “Over the next four years alone, we plan to invest roughly $120 billion across the country, which would allow us to grow our combined fleet to roughly 121 gigawatts.” Of that amount, the company anticipates that its energy resources segment alone will operate about 75 GWs of renewable energy capacity by the end of 2027 based on the midpoint of its current development ranges. Ketchum put that into perspective, noting that it “would be larger than the installed renewables capacity of all but seven countries.”
The company has plenty more renewable-powered growth beyond that time frame. For example, it has signed two framework agreements with large companies to potentially develop up to 10.5 GW of renewable energy capacity through 2030. It also has a 4.5 GW joint development agreement with fellow utility Entergy.
However, renewables are just one growth driver. The company recently signed a framework agreement with GE Vernova to partner on building new natural gas-power generation solutions. GE Vernova is the leader in building gas turbines, while NextEra Energy is a leader in developing gas-fired power generation capacity. The company aims to offer customers solutions that pair gas with renewables to help them meet their growing need for low-cost energy.
NextEra Energy is also evaluating the recommissioning of its Duane Arnold nuclear power plant in Iowa. It could potentially restart that plant by the end of 2028. In addition, the company is evaluating the potential for developing small modular reactors. While that’s a much longer-term opportunity and potentially more limited in scope due to the costs, its experience in the sector positions it to potentially capitalize on new nuclear power opportunities as they emerge.
Leading the charge
NextEra Energy is the leader in owning, operating, and developing clean energy infrastructure. Because of that, it’s in an excellent position to capitalize on the expected surge in power demand over the coming decades. The company can continue investing in expanding its asset base, which should allow it to grow its earnings at above-average rates. That positions it to continue generating robust total returns for its shareholders, making it a must-own energy stock for the long haul.
Matt DiLallo has positions in NextEra Energy. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
