NextEra Energy: Leading the Clean Energy Transition
Written By: Michael Hayes, Janice Jean, John Jonas, Laura McComb
NextEra Energy stands at the forefront of the clean energy revolution in the United States, exemplifying a commitment to sustainable energy production and distribution. With a focus on innovation and environmental stewardship, the company has earned a reputation as a leader in the transition towards a low-carbon future.
Founded on the principles of renewable energy, NextEra Energy operates through its subsidiaries, notably Florida Power & Light Company (FPL) and NextEra Energy Resources. FPL serves millions of customers in Florida, delivering reliable and affordable electricity, while NextEra Energy Resources ranks among the largest renewable energy producers globally. Through wind, solar, and nuclear assets spread across the nation, the company harnesses the power of nature to generate clean electricity at scale.
However, amidst its laudable mission, NextEra Energy is not immune to the physical and transitionary risks posed by climate change. As the planet experiences increasingly severe weather patterns and rising temperatures, the company faces both acute, chronic and transitionary challenges.
Acute Risks:
One of the most significant acute risks for NextEra Energy is the threat of major storms, particularly hurricanes. Operating in coastal regions, the company’s infrastructure is vulnerable to damage from these extreme weather events. Power generation facilities, transmission lines, and other critical infrastructure can suffer significant harm, leading to widespread power outages and substantial repair costs.
Chronic Risks:
On the chronic front, NextEra Energy contends with the consequences of rising temperatures and sea levels. Extreme heat not only increases electricity demand but also affects the efficiency of power generation equipment and efficiency of battery storage. This can result in decreased output, decreased performance, and heightened maintenance expenses. Additionally, daytime flooding, a consequence of sea-level rise and intensified storms, poses risks to infrastructure integrity and operational continuity.
Transition Risk
NextEra Energy is well positioned for a transition to a low carbon economy. There is a significant financial opportunity to produce clean energy as we globally decarbonize. The growing demand for companies to participate in power purchase agreements and for utilities to green the grid will create a strong tailwind for the financial success of their business. Their location in Florida makes it very unlikely there will be policy and legal risk that drives them to address any negative environmental impacts. While for many companies this would be positive for their risk outlook, NextEra’s direct tie to decarbonization means they would benefit from any Florida policy that drives decarbonization. More concerning for NextEra is the anti-ESG movement in the state. This movement could reduce demand and could lead to legal roadblocks for expanding renewables or for customers participating in power purchase agreements.
As a renewable energy company, it is incredibly unlikely they will have reputation or market risk related to climate change as their business is aligned with decarbonization. The market will increasingly demand renewables if decarbonization becomes mandatory or has stronger incentives. A moderate concern for NextEra is technological risk related to climate-change. Energy infrastructure is slow to adapt, and technological obsolescence or a higher-tech competitor could become a concern. On the other hand, there is significant R&D occurring globally to improve battery storage and renewable technologies. This could positively disrupt the industry and strengthen the roles of renewables in the energy market. It will be important for NextEra to keep pace with these technologies to stay competitive.
Sustainability Targets and Performance
NextEra has outlined three strategic initiatives to measure and report carbon performance:
- Eliminating carbon emissions from NextEra Energy’s operations.
- Establishing a new industry standard to help their customers in the power sector reach their goals.
- Becoming the preferred partner for customers across industries who share our vision to become carbon emissions-free.
Through these three goals, NextEra has taken a multifaceted approach to setting metrics and improving their carbon performance. NextEra has a carbon reduction rate with a new improved metric every five years with 70% by 2025, 82% by 2030, 87% by 2035, and 94% by 2040. NextEra also has targets for its decarbonization rate with 36% by 2025, 52% by 2030… 100% by 2045. The 100% 2045 target means zero direct scope 1 emissions and zero indirect scope 2 emissions. Scope 3 emissions are measured by the 15 categories outlined by the GHG Protocol.
To achieve these goals, NextEra plans to invest in transmission, battery storage, green hydrogen, nuclear, and renewable natural gas. NextEra’s carbon emission plan, “real zero” includes working with supply chain partners to increase scope 3 emission transparency. NextEra’s Zero Carbon Blueprint is NextEra’s guide on how to achieve these carbon emission goals and the impact these goals will have economically.
NextEra energy views climate change as a potential multiplier for their existing assets and future opportunities. As part of NextEra’s risk assessment and projections, they include climate change risks, specifically the impact of more frequent storms on their energy grid. NextEra has metrics to measure the progress in creating stronger and more resilient energy grids to prevent and prepare for these potential disruptions.
Recommendations
It is difficult to provide additional recommendations when across the board NextEra is increasing access to renewable energy while remaining profitable. Even their website boasts “NextEra Energy is ranked No. 1 in the electric and gas utilities industry on Fortune’s 2022 list of “World’s Most Admired Companies,” recognized on Fortune’s 2021 list of companies that “Change the World” and received the S&P Global Platts 2020 Energy Transition Award for leadership in environmental, social and governance.”
However, there are minor recommendations that NextEra can consider. For example, to hedge risks against more frequent and powerful storms NextEra can bury transmission lines rather than have them over land. Additionally, there is growing concern of the integrity of the US electrical grid that will need to be become more secure to combat the possible impacts of global climate change (i.e., storms, heat waves, efficiency, and connectivity concerns). Nevertheless, we stand by NextEra’s current plans moving forward with a focus on transitioning to renewables and away from natural gas. If possible, greater research and development in nuclear could be of long-term benefit to NextEra as well. Lastly, we recommend continued commitment into energy storage and investment into transmission project. Currently, NextEra plans to invest $1.9 billion in competitive transmission projects through 2027.
While it may be outside of the scope of business operations for NextEra, one possible recommendation is to improve governmental relations and lobbying for continued funding for clean energy projects. The Inflation Reduction Act has incentivized key growth drivers for NextEra and other organizations investing in greener infrastructure. While these projects have mainly impacted republican led states in NextEra’s case – the possibility of removal or decreased funding to development would increase NextEra’s risk and margins. For example, they plan to fund a 245 MW wind facility through tax equity financing or transferable tax credits – reforms created to incentivized investment in renewables. There will also be increased energy demand in both the short and long term due to increased need for data centers. Specifically, NextEra forecasts rapid growth in electricity demand from centers supporting generative AI.
Sources:
https://www.nexteraenergy.com/content/dam/nee/us/en/pdf/2023_NEE_Sustainability_Report_Final.pdf
https://www.nexteraenergy.com/content/dam/nee/us/en/pdf/NextEraEnergyZeroCarbonBlueprint.pdf
