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3 Stocks Building the Next-Generation Energy Grid

By Matthew DiLallo - Jun 12, 2021 at 10:07AM

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These companies are making the electric grid more reliable.

The electric grid is one of the most important pieces of infrastructure in the country. It currently connects more than 9,200 power-generating units over 600,000 miles of transmission lines. These lines are essential in getting electricity transported to our homes and businesses. Because of the importance of electricity to our daily lives, grid failures can have catastrophic consequences. That's why companies are investing heavily in upgrading this critical infrastructure.

Three companies working hard to build the next-generation grid are Brookfield Renewable (BEP -0.37%) (BEPC -0.19%)NextEra Energy (NEE 1.60%), and Xcel Energy (XEL 1.25%). Here's why those investments could pay big dividends for their investors over the coming years.

A person wearing a hardhat and holding a laptop near a power line.

Image source: Getty Images.

Providing support to both ends of the grid

Brookfield Renewable doesn't operate the power transmission lines that make up the electrical grid. Instead, it focuses on investing in two other types of assets that will enhance the grid's reliability. First, it's a leader in owning, operating, and developing distributed generation (DG) projects. These are off-grid power-producing assets like rooftop solar and battery storage. Thus, it enables end-users to generate power closer to the source, reducing the load on the power grid.

Brookfield also operates large-scale energy storage assets like pumped storage. These facilities provide critical grid-stabilizing services by supplying power when other facilities are offline. For example, it delivers backup capacity to address the intermittency of greener electricity grids handling energy produced by wind- and solar-generating facilities. 

The company's investments to expand those two business lines will help give Brookfield Renewable the power to grow its earnings at a double-digit annual rate in the coming years. That should support its plan to increase its dividend by around 5% to 9% per year. 

Building a leading grid operator

NextEra Energy is one of the largest utilities in the country. It operates two electric utilities in Florida, an electricity-generating business that happens to be the world's largest wind and solar power producer, and a leading transmission business. NextEra Energy Transmission integrates renewable energy and strengthens the electricity grid. 

It built this leading business via acquisition and development projects. For example, earlier this year, it acquired GridLiance for $660 million, adding 700 miles of high-voltage transmission lines across six states. Meanwhile, in 2019 it bought the Trans Bay Cable, a 53-mile underwater transmission system that supplies more than 40% of the power used in San Francisco. It also won approval last year to build a new transmission line in Western New York to ease grid congestion and maximize the delivery of renewable energy in the region. Overall, NextEra is becoming a leader in building the next-generation grid designed to handle increased loads from renewable energy. 

Those investments will help power NextEra's growth plan to expand its earnings per share at a 6% to 8% annual rate through 2023. That could support dividend growth of around 10% through next year.

Electrician working on a power substation.

Image source: Getty Images.

Rapidly expanding its grid

Xcel Energy operates one of the fastest-growing investor-owned transmission systems. It has more than 20,000 miles of transmission lines across 10 states. 

The utility is investing heavily to expand its transmission business to help support increased renewable energy deployment. Overall, the company is investing $24.3 billion through 2025 to expand its operations, with 25% of that spending earmarked for electric transmission projects. One notable project is the proposed Colorado Pathway Transmission expansion. Xcel could invest up to $1.7 billion to build 560 miles of transmission lines that could support roughly 5.5 gigawatts of new renewable power generation.

Those transmission-related investments will help power Xcel's plan to grow its earnings per share at a 5% to 7% annual rate over the coming years. That should support similar yearly increases in its 2.6%-yielding dividend.

Building the future of energy

The global economy is switching power sources from fossil fuels to renewable energy. That will require a significant investment to upgrade the power grid. While many companies stand to benefit from this megatrend, Brookfield Renewable, NextEra Energy, and Xcel Energy are great options for investors. That's because their investments should pay immediate benefits to shareholders via steadily rising dividends.

Matthew DiLallo owns shares of Brookfield Renewable, Brookfield Renewable Partners, and NextEra Energy. The Motley Fool recommends NextEra Energy. The Motley Fool has a disclosure policy.

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Stocks Mentioned

NextEra Energy, Inc. Stock Quote
NextEra Energy, Inc.
$88.92 (1.60%) $1.40
Xcel Energy Inc. Stock Quote
Xcel Energy Inc.
$74.82 (1.25%) $0.92
Brookfield Renewable Partners L.P. Stock Quote
Brookfield Renewable Partners L.P.
$40.18 (-0.37%) $0.15
Brookfield Renewable Corporation Inc. Stock Quote
Brookfield Renewable Corporation Inc.
$41.88 (-0.19%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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