NextEra Energy (NYSE:NEE) is one of the fastest-growing utilities in the country. The company is investing heavily in expanding the country's clean energy infrastructure, including building more natural gas pipelines and power plants and developing renewable energy sources like wind, solar energy, and battery storage.
These investments are paying big dividends for investors. NextEra has grown its earnings and dividend at above-average rates, which is powering market-crushing total returns.
The company already has an extensive backlog of renewable energy projects to continue creating above-average growth for the next few years. However, that's not stopping it from seeking new growth drivers. That was one of the central themes on its third-quarter conference call, where it highlighted two areas where it sees attractive long-term growth potential.
Unlocking the powerful potential of green hydrogen
Green hydrogen has made a lot of headlines over the past year as a potential game-changing emissions-free fuel source. Companies are starting to invest in projects that use renewable energy to operate an electrolyzer to convert water into hydrogen and oxygen. NextEra is one of those companies. It's working on a green hydrogen pilot project in Florida. NextEra Energy CFO Rebecca Kujawa noted on the call that "this innovative technology could one day unlock 100% carbon-free electricity that's available 24 hours a day." It would convert renewable energy into green hydrogen, making it easier to store, ship on pipelines, and use when needed.
The CFO also noted that the company is involved with another green hydrogen project. One of the wind projects it recently added to its backlog is a 500-megawatt facility contracted primarily to a hydrogen fuel cell company. Kujawa noted that "the project's customer intends to construct a nearby hydrogen electrolyzer facility that will use the wind energy production to supply up to 100% of the facility's load requirements. The hydrogen manufactured by the facility would enable commercial and industrial end-users to replace their current grey hydrogen and fossil fuel purchases with emissions-free green hydrogen, further accelerating the decarbonization of the industrial and transportation sectors."
Green hydrogen represents a significant opportunity for NextEra. It could construct, own, and operate electrolyzer facilities as it's doing in Florida and build renewable energy capacity to support third-party projects. In addition, it could potentially provide midstream services to the hydrogen industry like storage and transportation on pipelines.
Getting into the water business
NextEra also sees a bright future in water. On the call, Kujawa discussed two water-related investments the company made. She noted that the company acquired a portfolio of rate-regulated water and wastewater utility assets in eight counties near Houston, Texas. She said, "The proposed acquisition expands our regulated utility business in an attractive market with significant expected customer growth and furthers our strategy to build a world-class water utility in the coming years."
In addition, the company is also building "an innovative water reuse and reclamation project that would help our customer achieve significant savings on its water supply needs and make its operations more efficient and sustainable, while at the same time delivering attractive returns to Energy Resources." It's only making a small $45 million investment in these water assets. However, Kujawa commented, "We are optimistic about the strong growth anticipated in this new market and the potential for clean water solutions to generate additional contracted renewables opportunities going forward."
The company could eventually install renewable energy to help power its water assets, enabling it to provide cleaner water. In addition, there's some potential strategic linkage between water and green hydrogen since water is a key input for that technology.
Leading the way to a cleaner future
NextEra Energy has led the energy transition to cleaner alternatives like natural gas and renewable energy. It wants to continue leading the way in sustainability by investing in green hydrogen and water. It believes that those two businesses can complement and enhance the growth of its powerful renewable energy platform.