The U.S. power sector is at an inflection point. After barely growing over the last 20 years, electricity demand in the country is on track to surge over the next two decades. That should power explosive growth in renewable energy.
Few companies are in a better position to capitalize on the expected surge in U.S. power demand than NextEra Energy (NEE +0.98%) and Brookfield Renewable (BEPC +0.00%)(BEP 0.24%). That makes them no-brainer stocks to buy to cash in on the resurgence in the U.S. power sectors.
Eye-popping numbers
Electricity demand in the U.S. has meandered higher over the past two decades, growing 9% from 2000 to 2020 to 3.8 terawatt hours (TWh). According to a recent forecast from IHS, power demand in the country will increase by an astounding 2.1 TWh, or 55%, by 2040. Several catalysts will power that surge, including the electrification of the transportation sector, onshoring of manufacturing, and increased digitalization, including the rise of power-hungry AI data centers.
The country will need to build a tremendous amount of new electricity-generating capacity in the future, powered primarily by lower carbon sources due to climate change concerns. According to one estimate, the country will need to build 375 gigawatts to 400 gigawatts (GW) of new renewable energy capacity over the next seven years alone. That's three times more capacity than was built over the last seven years.
The U.S. renewable power leader
NYSE: NEE
Key Data Points
NextEra Energy is one of the few companies with the scale and expertise to develop significant renewable energy capacity in the coming years. The company currently operates 38 GW of renewable energy and storage capacity across its electric utility, Florida Power & Light (FPL), and energy resources segments. That's one of the biggest renewable energy-generation portfolios in the world.
The company's energy resources segment currently has 24 GW of projects in its backlog that it expects to complete over the next few years. In addition, it recently signed contracts to build another 10.5 GW of projects for two large corporate customers through 2030. Meanwhile, FPL is working to double its solar panel installation from 15 million (4 GW) in 2022 to 30 million panels by next year.
NextEra Energy plans to more than double its renewables and storage capacity by 2027 to 81 GW. In the long term, the company has over 300 GW of renewables and storage projects in its development pipeline. It also plans to deploy hundreds of millions of solar panels by 2045 at FPL to produce 90 GW of power.
These investments should generate high-powered total returns for investors. NextEra Energy expects to grow its adjusted earnings per share at or near the top end of its 6% to 8% annual target range through 2027 while increasing its dividend (nearly 3% yield) by around 10% annually through 2026. Add it up, and the company could produce double-digit total returns annually in the coming years.
A global clean energy leader
NYSE: BEPC
Key Data Points
Brookfield Renewable is also among the few companies with the scale to be a leader in capitalizing on the expected surge in power demand. The company has 37 GW of operating capacity across the world. While it has a global platform, Brookfield has a heavy presence in the U.S. after acquiring several renewable energy developers in recent years. It agreed to invest up to $2 billion into Scout Clean Energy and Standard Solar in 2022 and bought Duke Energy's commercial renewable energy platform for $1.1 billion in 2023.
The company currently has a staggering 200 GW of projects in various stages of development, including 65 GW in its advanced-stage pipeline. Brookfield expects to commission an average of 10 GW of capacity annually in the coming years. That includes 10.5 GW for Microsoft in the U.S. and Europe in the 2026 to 2030 time frame.
Those projects help support its robust growth profile. It expects development projects alone to add an average of 5% to its funds from operations (FFO)d per share annually over the next several years. Add in higher power prices and accretive acquisitions, and Brookfield believes it can grow its FFO per share by more than 10% annually over the next decade. That should give it the power to increase its dividend (nearly 5% yield) by 5% to 9% per year. Add it up, and Brookfield Renewable could produce annual total returns in the mid-teens from here.
Powerful total return potential
The U.S. will need to develop a tremendous amount of renewable energy capacity over the coming years. NextEra Energy and Brookfield Renewable are among the few companies with the scale, expertise, and financial capacity to be leaders in developing new renewable energy capacity. It should fuel robust growth, which, when added to their dividends, should enable them to generate attractive total returns for investors. That makes them look like no-brainer stocks to buy to capitalize on this massive megatrend.
