NextEra Energy (NEE 0.19%) is a global leader in renewable energy. It's the world's largest electricity producer from the wind and sun and has one of the industry's biggest renewable energy development backlogs. It knows the headwinds and tailwinds facing the industry better than most. 

One issue that has recently emerged is that the Commerce Department has initiated a review of solar panel suppliers from four Southeast Asian countries. The utility discussed how this situation would affect its renewable energy development plans on its first-quarter conference call

People holding a laptop looking at wind turbines.

Image source: Getty Images.

Assessing the solar situation

NextEra Energy's CFO, Kirk Crews, provided investors with an overview of the issue on the call. He stated that: "Earlier this month, the U.S. Department of Commerce initiated a review of antidumping and countervailing duty circumvention claim on solar cells and panels supplied from four Southeast Asian countries, which in recent years sourced over 80% of all solar panel imports into the United States." He noted the company's disappointment with this investigation, considering that the Commerce Department had already settled the issue in 2012. Further, later rulings in 2014, 2020, and 2021 provided consistent guidance with that decision. The solar energy industry has invested billions of dollars in developing new solar energy generating facilities in light of these rulings.

Crews concluded that:

If the Commerce Department were to find circumvention in the current investigation, we believe it would be unwinding a decade of consistent trade practice across the past three administrations, including the current administration just last year. We believe such a decision would create significant price uncertainty as additional tariffs on panels from the four Southeast Asian countries would likely remain unknown until close to 2025 as final tariff amounts are not determined for about two years after the year of importation.

For these and other reasons, the company is optimistic about a favorable outcome. Further, the company remains in an excellent position to manage the supply chain issues, given its scale. However, Crews warned that: "given that a number of suppliers are not expected to ship panels to the U.S. until the Commerce Department makes a preliminary determination as late as August, we continue to expect some of our solar and storage projects may be adversely impacted by this delay." As a result, the company may shift 2.1 to 2.8 gigawatts (GWs) of its expected 2022 solar and storage project build into 2023.

Diversification is paying dividends

Despite that delay, Crews remains comfortable with the company's long-term growth outlook. NextEra believes it can build the roughly 23 to 30 GW of new renewable energy capacity by 2024 to support its target of growing its adjusted earnings per share at a 6% to 8% annual rate.

One factor driving its optimism is its diversification. Crews noted, "we run a diversified business at Energy Resources that includes multiple renewable energy technologies and provides a natural hedge against temporary disruptions like the one our industry is currently experiencing." Because of that, and "in light of the uncertainty in the solar supply chain, we believe renewable demand will likely temporarily shift in part from solar to wind, and we believe Energy Resources has terrific competitive advantages in wind development."

The company is already starting to see an acceleration in wind energy development. Of the 1.77 GWs of new renewable projects added to the backlog during the first quarter, 1.2 GW were new wind energy developments. That was the second-largest quarter of wind project origination in the company's history.

The pivot to wind could benefit NextEra Energy in the near term. CEO John Ketchum stated on the call that:

So even to the extent we might see some shifting solar from '22 to '23 or '23 to '24, wind is coming online even faster. And remember, the development cycle for wind and the origination activity for wind is much shorter. We can originate a wind project and have it built in 10 months.

Ketchum pointed out that NextEra has significant competitive advantages with wind, including competitive power pricing. Along with its strong supplier contracts on the solar side, increased wind development should help mute the near-term impact of delayed solar projects. Ketchum concluded that "it's great to have a diversified business to be able to fall back on, and that's why we feel good about our financial expectations."

NextEra has the wind at its back

The Commerce Department threw the solar energy sector a curveball by initiating an investigation into an issue it has already addressed. While that will likely have a near-term impact on NextEra Energy's solar developments, it expects wind to pick up the slack. Because of that, NextEra remains an attractive long-term investment, especially since the current solar headwinds have helped push the stock down 20% below its recent high.