NextEra Energy: U.S. Can Hit 50% Renewable Energy by 2030

If you're anxious about America's purported slow response to climate change, then you might want to take a close look at NextEra Energy's (NEE 0.51%) June investor presentation. Aside from updated numbers, not much stands out in the 235-slide presentation, which includes the usual colorful graphs and charts communicating the latest monthly results for the business's most important metrics.

But sharp-eyed investors may have noticed a subtle change to one pie chart in particular: the one that predicts how the United States will generate electricity in 2030. NextEra Energy's latest published projection estimates the mix from renewable energy sources could approach 50%.

That's up from the 25% share for renewables projected in the company's May investor presentation, and significantly more optimistic than virtually every other public estimate. Can the latest forecast be taken seriously? If so, what does it mean for investors?

Image source: Getty Images.

A little nuance goes a long way

On the one hand, a projection is just that -- a projection. It's also important to note that NextEra Energy wasn't the original source of either forecast. The pie chart from May's investor presentation used estimates from IHS and data from 2017, while the slide deck published in June used estimates from the National Renewable Energy Lab (NREL) and data from 2018. 

On the other hand, NextEra Energy did choose to switch data sets. Given the significant differences between the two, that probably wasn't a decision it took lightly. It certainly seems optimistic to expect the United States will generate half of its electricity from renewable sources by 2030.

Then again, if any single company ought to have special insight into the shifts in the nation's regional power generation situation, it would be NextEra Energy: It produces more electricity from the wind and sun than any other company on the planet. Its power generation subsidiary, NextEra Energy Resources (NEER), operates 17,000 megawatts (17 gigawatts) of wind and solar power assets across the country today. It owns more installed wind power capacity than all but seven countries, and is the fifth-largest capital investor in the United States.

Moreover, NEER has plans to build an additional 29,000 megawatts (and counting) of wind and solar power assets in the coming years. So while NextEra Energy didn't originate this optimistic forecast, perhaps its business discussions with customers gave it the confidence to publish a radically more ambitious projection than almost any other company. 

Image source: Getty Images.

How does the latest projection compare to others?

The estimate that the United States could generate 50% of its electricity from renewable power sources in just 11 years moves the goalposts so far up the field it can't really be compared to other projections. Take a look at how it stacks up to outlooks from the U.S. Energy Information Administration (EIA) and Bloomberg New Energy Finance (BNEF), the most frequently cited sources of data.  

Data sources: NextEra Energy, EIA, BNEF.

NextEra Energy appears cognizant of the massive differences in its published estimate and those from more widely cited sources such as EIA and BNEF. That's why it reminded investors just how badly past long-term projections from third parties have missed the mark. Consider how past EIA estimates compared to real-world results:

Data source: NextEra Energy, American Wind Energy Association.

In short, the rise of wind and solar has been consistently underestimated. NextEra Energy thinks that's going on with projections to 2030, too, specifically because third-party analysts aren't taking the latest economic data into consideration.

Internal estimates from NextEra Energy (read: the company actually came up with these numbers) predict average electricity costs from wind and solar of $20 per megawatt-hour and $30 per megawatt-hour, respectively, after 2023. Adding energy storage would tack on another $10 per megawatt-hour to each. With or without storage, the cost of modern renewable energy is expected to remain competitive with natural gas, which is expected to cost an average of $30 to $40 per megawatt-hour after 2023. 

If that economic inflection point is reached as anticipated in 2023, then installations of wind and solar power systems could blow past most long-term projections being made today. And that doesn't even take into account earlier-than-expected retirements of coal-fired power plants, the effect of intelligent state policies, or the potential for a surprisingly effective financial solution from the federal government.

Climate-friendly policies have been shareholder-friendly policies

NextEra Energy has grown from a market cap of $12 billion in 2003 to a market valuation of $100 billion today, thanks in large part to being an early investor in U.S. wind power. The low-cost of electricity produced from wind farms -- which, unlike thermal power plants, have no fuel expenses once built -- frees up capital to invest elsewhere while keeping customers' bills low. And the larger a company's commitment to renewable energy, the more capital it has to deploy to build more renewable energy systems. Size really does matter in this space.

Considering NextEra Energy is by far the world's largest publicly traded utility, and one that's going all-in on renewable energy, investors can have a fair amount of confidence in the company's ability to maintain its shareholder-friendly behaviors for the foreseeable future. Even better, it plans to hew to them in a climate-friendly manner.