Soaring energy prices have consumers and investors scrambling to adjust. Despite the rise, oil production in the U.S. is down 10% from late 2019. While some companies have started to drill again, there is a roughly six- to nine-month lag before supply hits the market according to Clark Williams-Derry, an analyst at the Institute for Energy Economics and Financial Analysis.
So an increase in fossil fuel production is on the horizon. But the recent volatility is likely to push the U.S. even further down the path of renewable energy over the long term. And NextEra Energy (NEE 1.36%) is perfectly positioned for the shift.
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35 billion barrels is just a drop in the bucket
Contrary to popular belief, the 35 billion barrels of oil under U.S. land only ranks 11th in terms of proven reserves by country. It's a little over 2% of the world share. That's far behind Venezuela's and Saudi Arabia's 18% and 17%, respectively.
Although the U.S. remained energy independent in 2021, it has been relying more heavily on sources like wind and solar. Last year, roughly 20% of utility-scale electricity generation in the U.S. came from renewables. That's doubled since 2008. And it's an area where NextEra excels.
Diversification in one business
NextEra Energy is actually two businesses in one. It is the largest vertically integrated electric utility in the country as measured by output. It also generates more electricity from wind and solar than any other company on earth. It isn't all about renewables, though. NextEra has ownership interests in natural gas pipelines, as well as oil and shale formations. It also operates nuclear power plants in Florida, Wisconsin, and New Hampshire.
Management is attempting to expand further. In 2018, it made a deal with Southern Company (SO 0.37%) to purchase Gulf Power. This brought the number of customers it supports in Florida to 11 million. In 2020, it made a pass at Duke Energy (DUK 0.08%) but was rebuffed. That would have been the largest utility deal ever.
A long road to decarbonization
Those moves could be the tip of the iceberg. Management believes decarbonization of the U.S. economy could create a $4 trillion investment opportunity over the next three decades. The power sector alone represents more than 40% of that projection.
It may be difficult to envision the economy at net zero carbon by mid-century. But that's exactly what more than 100 countries have committed to doing.
Politics has colored much of the debate about renewable energy to date. But economics may soon take over. According to a study by the International Renewable Energy Agency, most of the new renewable capacity coming online is cheaper than the cheapest fossil fuel. If that continues, utility companies that have relied more heavily on traditional energy sources may be more receptive the next time NextEra comes knocking on their door.
Unlike fossil fuels -- which have to be dug out of the ground -- renewable energy is readily available. That means the cost to produce it depends almost entirely on the technology itself. If NextEra can continue to scale up, its marginal costs should continue to come down. That would mean more profit for shareholders and lower prices for consumers. That's a combination regulators should be able to live with even if the company pulls off a large acquisition or two.
