NextEra Energy (NYSE:NEE) is the global leader in producing power from the wind and sun. However, one of the problems with its vast renewable energy portfolio is intermittency. When the sun doesn't shine and the wind isn't blowing, the company's investments aren't generating power or cash flow. Because of that, there's some variability in its financial results.
However, it's looking to change that in a big way by pouring billions of dollars into building more battery storage capacity to complement its renewable energy assets. The company has a sizable pipeline of projects under construction and in development that will significantly bolster the country's ability to store power. That will enable the wind and solar energy facilities they support to generate the near-firm electricity required to meet baseload demand.
Keeping California fully charged
NextEra Energy recently highlighted its efforts to prevent California from going dark in the future. The company noted that it has contracts in place to invest nearly $800 million to build 700 megawatts (MW) of battery storage projects in the state by the end of 2022. To put the backlog size into perspective, the entire country currently only has 1.35 gigawatts (GW) of battery storage capacity. Thus, these projects alone will boost the country's capacity by more than 50%.
NextEra plans to co-locate these battery storage assets at six of its existing solar projects in the state. That will enable the company to provide California with "more low-cost, emission-free solar energy during more hours of the day, as well as improved reliability across the regional electric grid," according to John Ketchum, CEO of NextEra's energy resources segment.
Meanwhile, NextEra has a pipeline of nearly 2 GW of shovel-ready or near shovel-ready battery storage projects in the state that it could build in the 2023 to 2024 time frame. It can move forward with those projects once it has long-term power purchase agreements with utilities and other end-users to support their development, as well as all the needed approvals. If the company built all these battery storage projects, it would triple the country's battery storage capacity.
Battery storage's time to shine
When combined with projects in other states, NextEra Energy expects to invest more than $1 billion into battery storage next year alone. The main factor driving that spending is a significant decline in battery storage costs, making it a more viable option.
A decade ago, it cost between $71 to $81 per megawatt-hour (MWh) for a four-hour battery storage adder to cover 25% of a solar or wind facility's capacity. However, thanks to increasing manufacturing capacity and other efficiency gains, it's now down to $8 to $14 per MWh. That number should keep declining over the next few years as the industry builds more manufacturing capacity and benefits from its increased scale. Current projections have it down to around $4 to $9 per MWh by 2022.
Combine the increasingly lower costs of battery storage with similar declines in wind and solar costs, and the industry is on track to achieve a real breakthrough over the next five years. According to a forecast by NextEra Energy, by around the end of 2024, the cost of near-firm onshore wind (i.e., including a four-hour energy storage adder) should be between $20 to $30 per MWh, while solar will be around $30 to $40 per MWh.
For perspective, the cost of a new efficient natural gas power plant would be roughly $30 to $40 per MWh, while existing coal and nuclear plants should run in the $35 to $50 per MWh range. Thus, near-firm renewables will be as cheap, if not cheaper, than all other forms of conventional power, and that's even after assuming government subsidies and incentives expire.
The solution that renewable energy has been waiting for
As a renewable energy leader, NextEra Energy knows the promise and pitfalls of these sources all too well. It's looking to reduce the latter and boost the former by investing heavily in building out more battery storage capacity, primarily in California.
These investments will help accelerate this technology's adoption, which should make it cheaper and more viable for future projects. That has renewable energy on track to reach a real game-changer of being able to supply the grid with near-firm, emissions-free, low-cost power within the next few years. It's a breakthrough that investors won't want to miss.