NextEra Energy Inc.'s portfolio of interconnected renewable generation, and a more developed pipeline of additional clean energy on the way, is an enormous advantage for capturing the upside from datacenter demand, Chairman, President and CEO John Ketchum said June 11.
"Investors are asking the wrong question," Ketchum said during NextEra's investor conference presentation. "We focused so much on [power purchase agreements], right? How many PPAs did you sign [in] the quarter? The real question is how many [renewable generation] sites do you have?"
"When our customers are looking for somebody that can actually deliver, it's few and far between," Ketchum continued. "People don't have the sites. They were not in the queue with [Midcontinent ISO] and [Southwest Power Pool] and [California ISO], take your pick, and it takes a long time to get through it."
The US had more than 2.2 TW of interconnection queue capacity seeking to connect to the grid as of April 2024, with renewables accounting for over 94%, according to Regulatory Research Associates, part of S&P Global Commodity Insights. In March, the Federal Energy Regulatory Commission largely affirmed a final rule to address that backlog, with reforms establishing a new penalty regime for missed interconnection study deadlines and tougher financial requirements for developers.
To facilitate skyrocketing electricity demand, NextEra plans to spend $97 billion to $107 billion from 2024 through 2027, with a major increase in the final year when commercial operation begins for a significant chunk of the 36.5 to 46.5 GW of new renewables and storage the company will have developed since 2023, according to Ketchum.
Subsidiary NextEra Energy Resources LLC is also partnering with Entergy Corp. to develop up to 4.5 GW of new solar generation and energy storage projects. The five-year joint development agreement will stretch across operations in Arkansas, Louisiana, Mississippi and Texas, and Entergy will own the assets.
"When I think about rate-regulated utilities ... this power demand has come really quickly for them," Ketchum noted. "A lot of them don't have sites so they don't have inventory, and they have not been in growth mode, right?"
"They don't have established supply chain capabilities, all the engineering and construction, the data and analytics that goes along with selecting the best sites, and so they're looking for a partner," he continued. "We have a ton of sites in Arkansas and Louisiana."
In addition to building new generation, NextEra will consider using production tax credits to repower up to 2 GW of solar capacity through 2027.
"We expect our solar repowers will have many of the same benefits as wind repowers, the ability to leverage existing infrastructure, reduce development costs, reduce development challenges, and maybe most importantly today, the ability to be executed quickly," Matthew Roskot, NextEra Energy Resources vice president for business management, said.
Market reaction
NextEra shares fell 7% on June 11 to close at $72.74, which industry analysts attributed to higher investor expectations set by the renewables giant's recent market outperformance.
"The stock had also become quite crowded with 'tourists,' i.e., generalists and tech investors seeking exposure to the high-profile datacenter megatrend," analysts at Scotiabank told clients June 12. "Many non-dedicated utility investors were likely disappointed that management reiterated EPS/DPS guidance rather than increasing it."
Analysts at Guggenheim agreed that "optically higher capex, higher equity needs and same old top end of 6-8% EPS growth guidance doesn't match the bullish expectations from investors."
Mizuho downgraded NextEra from buy to neutral because "the growth is largely priced in to the stock at these levels, with limited incremental catalysts to take the stock higher."