The U.S. has enormous offshore wind potential. Wind speeds tend to be high and stable, enabling offshore wind turbines to produce steady power. Meanwhile, 80% of the country's population and most of its highest-demand energy centers are near the coasts, making offshore wind ideally located. These factors led the U.S. Department of Energy to estimate that the country could install 86 gigawatts (GW) of offshore wind capacity by 2050. That's enough to power more than 25 million homes each year.
Despite that massive opportunity, NextEra Energy (NEE 1.22%) wants no part of the offshore wind market, even though it's a leader in onshore wind energy. Here's why it doesn't want to wade into the offshore wind sector and what that means for its competitors and growth prospects.
A bad bet
NextEra Energy's CEO, John Ketchum, recently spoke at an industry conference. He didn't mince words when discussing offshore wind, calling it a "bad bet." Ketchum listed several complications with the technology, including:
- Saltwater corrosion and the high costs of maintaining the infrastructure at sea.
- The threat of hurricanes.
- The availability of ships and the complications with installing the infrastructure.
- The installation of subsea transmission cables and the high costs of transmitting the electricity back to land.
Ketchum stated, "We find it hard enough just to take care of a fleet onshore with some of the issues that we deal with as a company, and we're best in class." With offshore wind having even more issues, the company has no desire to wade into that market. Instead, it plans to continue growing its onshore wind and solar operations. The company anticipates increasing the installed capacity of its energy resources segment from 25 GW to around 70 GW by 2026. That's driving its extended earnings growth outlook.
A bad omen for rivals
Ketchum's view on offshore wind suggests rival utilities could encounter troubles as they build and operate their proposed offshore wind projects. That could impact investment returns and earnings growth, potentially causing them to underperform NextEra in the coming years.
Dominion Energy (D 1.71%) is working on a massive 2.6 GW offshore wind farm in Virginia. It intends to install turbines 27 miles off the shores of Virginia Beach in a project that would provide emission-free electricity for more than 650,000 homes and businesses. The company hopes to complete the massive $9.8 billion project by 2026. That's a huge bet for a single project.
Duke Energy (DUK 1.77%) wants to wade into the offshore wind market. The company won the bidding on an offshore lease in North Carolina last year. It has the potential to support up to 1.6 GW of offshore wind energy, enough to power nearly 375,000 homes. The project could be in service by the beginning of the next decade. Duke sees offshore wind as one potential pathway to achieving its long-term carbon neutrality goal, which could have it develop up to 3.2 GW of capacity by 2050.
Focused on growing shareholder value
NextEra Energy has an exceptional track record of growing shareholder value. Since 2007, it has expanded its adjusted earnings per share and dividend at 8.3% and 9.9% compound annual rates, respectively. That's helped power leading total returns of 669% over the last 15 years, outperforming the S&P 500's return of 255% and the S&P 500 Utilities Index's return of 191%.
A big factor powering the company's outperformance is its focus on investing capital into projects that can generate strong returns, like onshore renewables. Given all the headwinds offshore wind technology faces, the company doesn't believe it can generate attractive returns. Because of that, NextEra Energy doesn't plan on dipping its toes in that water. Instead, it will remain on dry land where it knows it can earn healthy returns for shareholders. That strategy could enable it to continue outperforming its utility sector peers.