The energy industry is in the midst of a transition toward cleaner power sources. That shift has accelerated quite noticeably during the last couple of years. Among the companies spearheading this effort is utility NextEra Energy (NEE 0.06%). It has invested billions of dollars in building a world-leading renewable energy-generating portfolio, which has paid big dividends for its investors.
However, the company believes that its best days are still ahead. That was one of the key takeaways from its recent fourth-quarter conference call.
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At the forefront of a multitrillion-dollar opportunity
NextEra's CEO James Robo discussed what his company sees ahead for the energy industry on the quarterly conference call. He stated that:
NextEra Energy remains well-positioned to capitalize on the disruptive forces reshaping our industry, which have expanded and accelerated over the past two years, even beyond what we had anticipated. The combination of low-cost renewables with low-cost storage in the form of batteries today and hydrogen in the longer term has substantially increased the total addressable market for NextEra Energy. We now believe that a substantial and economic decarbonization of the electricity, transportation, and industrial sectors is possible, which represents the potential investment opportunity of trillions of dollars in the coming decades.
As Robo points out, the energy sector has evolved rapidly over the past few years. One of the biggest developments is the emergence of green hydrogen, which uses renewable energy to electrolyze water to produce emissions-free hydrogen.
It has the potential of becoming a commercially viable fuel that could displace hydrocarbons like natural gas in the electrical, transportation, and industrial sectors. Because of that, it's a massive market opportunity for NextEra, which has recently started dipping its toe in that water.
However, it's one of several megatrends the company expects will upend the energy market in the coming years. Robo stated that:
In the electricity sector, we expect that older and more inefficient generation will continue to be retired and replaced with cleaner and more affordable alternatives. In the transportation sector, we believe it will be increasingly economic to replace fossil fuel vehicles with vehicles powered by fuel cells and batteries charged with renewable energy. And in the industrial sector, grey hydrogen and other high-carbon feedstocks can be replaced with green hydrogen. We believe these trends have already been put into motion driven by economics.
That last point he made is worth highlighting. It's economics, not government subsidies, that are putting many of these trends in motion. For example, the cost of solar panels and batteries have fallen so dramatically in recent years that it's making them the more affordable option for power generation while potentially turning green hydrogen from a dream into a reality.
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A win-win-win future
NextEra's early leadership in the energy transition positions it to continue winning as those megatrends unfold. Robo stated:
Importantly, we believe that no company is better equipped to take advantage of these substantial and long-term trends than NextEra Energy. In fact, NextEra Energy is already a proof that you can be clean, low cost, and financially successful all at the same time. We are at the vanguard of building a sustainable energy era that is both clean and affordable, and we are driving hard to continue to be at the forefront of the disruption that is occurring within the energy sector and broader parts of the U.S. economy. We expect that the execution of our strategy will drive meaningful CO2 emissions reductions across the country and will help advance NextEra Energy toward its goal of reducing its CO2 emissions rate by 67% by 2025 from a 2005 baseline, while simultaneously lowering generation costs for customers and maintaining best-in-class reliability. We expect the disruptive nature of renewables to be terrific for customers, terrific for the environment, and terrific for shareholders by helping to drive tremendous growth for this company over the next decade and beyond.
The company's investments in the energy transition have already paid big dividends for shareholders over the years. For example, NextEra has grown its adjusted earnings per share by an 8% rate over the past decade, which is light years ahead of its top 10 power peers, which have delivered less than 3% compound annual earnings-per-share growth during that period. That's given it the power to produce a 700% total return during the last decade, outpacing its utility peers (191% total return) and the S&P 500 (267% total return).
Meanwhile, the utility believes its renewable-powered expansion plan will continue to enrich its investors over the next several years. It expects its earnings per share to grow at a 6% to 8% annual rate through 2023, which should power around 10% yearly dividend increases through at least 2022.
At the forefront of the energy market's evolution
NextEra Energy has been a leader in investing in renewable energy over the years. Because of that, it's in an excellent position to benefit as the market's shift accelerates in the coming years.
The company is enhancing its opportunity by leading the charge in investing in emerging technologies like battery storage and green hydrogen, and it has even more growth ahead. That makes it an ideal stock for investors to buy and hold for the long haul as the energy market transition shifts into a higher gear in the decades ahead.
