NextEra Energy (NEE 4.57%) has been a very wise investment over the years. The utility has benefited from two major growth drivers. It operates the country's leading electric utility in Florida -- Florida Power & Light (FPL), which benefits from abundant sunshine and above-average population growth. In addition, the company's energy-resources segment, which is a leading operator and developer of renewable energy, is benefiting from surging demand and falling costs.
Those growth catalysts are growing stronger. Electricity demand is accelerating, which will benefit FPL and energy resources in the coming years. That growth makes NextEra Energy look like one of the smartest investments you can make today.
The U.S. power sector is hitting an inflection point. Electricity demand has been growing at a relatively modest pace over the past 20 years, increasing about 9% overall. However, the next two decades will be a much different story. Forecasters anticipate that power demand will surge 55% over the next 20 years, a sixfold increase in the growth rate. Demand drivers include things like the onshoring of manufacturing, the electrification of everything, and AI data centers.
This demand surge should accelerate the growth of renewable energy. According to one forecast, the U.S. will need to deploy 375 gigawatts to 450 gigawatts (GW) of new renewables and storage capacity over the next seven years alone. That's three times the capacity the country built over the last seven years.
Renewable energy can't meet the demand surge on its own. Because of that, the country will also need more natural gas and nuclear energy generating capacity to provide the baseload power that renewable energy can't consistently deliver due to intermittency issues.
Few companies are in a better position to capitalize on the coming power surge than NextEra Energy. CEO John Ketchum highlighted the company's competitive position on the fourth-quarter conference call. He stated:
NextEra Energy offers a unique value proposition with two strong businesses that we believe are strategically well-positioned to meet the growing needs of our customers with outstanding prospects for future growth. FPL is the largest electric utility in the U.S., and Energy Resources is the world's leader in renewables and storage. Together, we operate the largest natural gas-fired generation fleet in the country, are one of the largest nuclear operators in the U.S., and are widely viewed as an industry leader in transmission.
The company has a large and growing backlog of renewable energy projects under development. Ketchum noted,
Assuming we achieve the midpoint of our development expectations range, Energy Resources will be operating a roughly 75-gigawatt renewables portfolio by the end of 2027, which would be larger than the installed renewables capacity of all but seven countries.
Meanwhile, the company recently signed a framework agreement with leading natural gas turbine developer GE Vernova (GEV -6.63%) to partner on building new natural gas-power solutions. Ketchum stated on the call:
This agreement has the potential to support multiple gigawatts for data centers, the reshoring of manufacturing, and the electrification of industry, as well as serve investor-owned utilities, municipalities, cooperatives, and commercial and industrial customers.
Over the next four years, the companies plan to identify key locations on the grid that will benefit from new generation capacity. GE Vernova will incorporate its world-class gas-generation technology and financial-services capabilities, while NextEra will provide customers with an integrated solution that includes renewables and storage.
Finally, the company plans to restart its Duane Arnold nuclear plant in Iowa, which could come online as early as the end of 2028. It's also evaluating other nuclear projects, such as developing small modular reactors (SMRs). While it doesn't believe nuclear can be a near-term solution to meeting the country's massive power needs, it could be a longer-term growth opportunity for the company.
NextEra Energy expects to continue growing its earnings and dividend at healthy rates for the foreseeable future. The company has repeatedly said it would be disappointed if it didn't deliver earnings growth at or near the top end of its 6% to 8% annual target range through 2027. Meanwhile, it expects to increase its dividend by at least 10% per year through 2026. Given the expected surge in power demand and NextEra's leadership in the sector, its growth rate could accelerate in the future. That could give it the fuel to produce a powerful total return over the long term, making it look like a very smart investment right now.
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