The catastrophic power outage in Texas illustrated the dangers of an outdated or vulnerable grid. Natural gas transmission systems failed, wind turbines suffered productivity declines, and at one point around half of the state's power went offline.
The next-generation grid is a plan for an integrated system of reliable and clean power generation, transmission, and distribution. $100 billion of President Biden's $2 trillion infrastructure bill is earmarked for "reenergizing America's power infrastructure." Another $174 billion is allocated toward electric vehicle (EV) production, supply chain and factory updates, and charging stations.
The largest producer of wind and solar energy
Few companies embody the next-generation energy grid better than NextEra. It's the largest utility by market cap, and the largest producer of wind and solar energy. This is a relatively new development. NextEra's roots are in its largest subsidiary, Florida Power & Light (FPL). FPL is the largest utility in Florida. Even after adding renewable capacity in recent years, over 70% of FPL's power came from natural gas in 2020.
FPL remains the company's largest contributor to both revenue and net income. However, NextEra Energy Resources (NEER), the company's renewable arm, continues to gain capacity. It finished 2020 with a total generation capacity of roughly 23.9 gigawatts (GW), of which 67% came from wind and 13% from solar. Comparatively, FPL finished 2020 with a capacity of 28.4 GW. Unlike FPL's concentrated base in Florida, NEER generates power from across the U.S. and Canada.
NEER's advantage over other renewable providers is that the vast majority of net generating capacity is tethered to long-term contracts. This portion grew from 66% in 2015 to 92% in 2020.
NextEra reaffirmed its plans to add between 23 GW and 30 GW of renewable capacity between 2021 and 2024, meaning its renewable capacity could eclipse fossil fuels as early as this year. The rollout has been expensive, affecting NextEra's bottom line and compounding its debt.
The company believes it will be able to grow adjusted earnings per share (EPS) by 6% to 8% in the coming years, as well as raise the dividend steadily by 10% through at least 2022. NextEra's valuation has gotten expensive, but the company is on a spending spree that is laying the groundwork for decades of earnings growth.
The largest EV charging network
ChargePoint provides residential, fleet, and commercial EV charging services through a network of over 132,000 public and private stations (159,000 through roaming integrations) in Europe and North America. It holds a 71% market share of North America's Level 2 charging network. As opposed to Level 1 charging through a standard 120-volt wall outlet, you've likely seen the 240-volt Level 2 stations at various business districts, parks, and shopping centers.
On March 1, ChargePoint completed its business combination with Switchback Energy, a special purpose acquisition company. A few weeks later, ChargePoint reported its Fiscal Year (FY) 2021 results for the 12 months ended Jan. 31. Its revenue was affected by the COVID-19 pandemic, as shutdowns in the U.S. and Europe affected the need to charge in public places. However, ChargePoint was able to grow its subscription revenue by 40%.
Aside from its market-leading position, one of ChargePoint's most attractive qualities is its "capital light" business model. The company doesn't own its charging stations or make money by selling electricity. Rather, it sells its hardware to public and private customers, as well as high-margin software as a service (SaaS) subscriptions that are often bundled with the charging station.
This model should allow ChargePoint to expand rapidly as the U.S. builds out its EV charging network. President Biden's infrastructure bill calls for a national network of 500,000 EV chargers by 2030. According to the U.S. Department of Energy, just 47,312 Level 2 EV charging stations are registered in the U.S.
ChargePoint is guiding for between $195 million and $205 million in FY 2022 sales, the midpoint of which would be a 37% increase over FY 2021. With a market cap of $8 billion, ChargePoint has a forward price-to-sales (P/S) ratio of roughly 40, which isn't cheap by any means.
However, ChargePoint's capital-light business model and strong cash position make it well suited to continue being a leading player in EV charging networks. Its cash position grew by $480 million as a result of its merger with Switchback, giving it a net cash position of over $600 million. Strong cash reserves with little debt provide ChargePoint the freedom to expand its network and fine-tune its subscription model.
The new grid has been years in the making
The Biden infrastructure plan gives companies across industries reasons to increase their renewable exposure. NextEra and ChargePoint are in a different position. Both companies have spent years increasing their capabilities and growing their networks during a time when renewable expansion at scale was a risky bet. It wasn't long ago that renewable power generation costs were higher. And in the case of ChargePoint, much of its 13-year history has been riddled with uncertainty, as many doubted a nationwide EV charging network would ever take off.
Valuation is a bit of a concern for both companies (namely ChargePoint). However, both market-leading renewable stocks could experience impressive growth over the coming years if public and private funding remain generous.