NextEra Energy delivered a fourth-quarter 2022 earnings beat on Jan. 25 despite being dogged by a campaign finance investigation, enduring storms and a shakeup in its governance.
The company boosted its adjusted earnings per share growth expectations and reported fourth-quarter 2022 net income of more than $1.5 billion, compared to about $1.2 billion a year earlier. Its clean energy business unit, NextEra Energy Resources, reported fourth-quarter net income of $996 million, compared to compared to $851 million in the prior-year quarter.
Its renewables storage backlog now stands at a year-end record of about 19 gigawatts.
Management at the company sees development in its clean energy business unit surging as more renewables and storage projects take shape, driven in part by incentives in the Inflation Reduction Act (IRA) and the accelerating clean energy movement.
Coming off a record quarter for renewables and storage and adding more than 8,000 megawatts (MW) to its backlog, the Juno Beach, Fla.-headquartered company said there is a tremendous demand for renewables with the IRA in place. Before its passage, the company mainly qualified for two federal incentives involving production and solar investment tax credits, according to NextEra Energy CEO John Ketchum. That created planning challenges, not knowing whether incentives would be phased down, expired or renewed.
“Today, the incentives are clear,” Ketchum said on the company’s Jan. 25 earnings call. “They support a broader range of renewable technologies. They are in place for a much longer period of time, and they incentivize a domestic supply chain that will further reduce the costs of renewables that are made in the USA.”
The IRA along with strong market demand and cost advantages of renewables—among other factors—propelled the company to lift development expectations for NextEra Energy Resources, its clean energy business unit and financial growth expectations. Some energy companies are counting on an uptick in use of renewables and low-carbon energy sources to generate power amid a global push to reduce emissions.
However, Morgan Stanley analysts pointed out NextEra Energy’s stock underperformed utilities by about 7% following the earnings release.
“The company beat 4Q consensus and guidance was constructive in our view, but the conclusion of the internal investigation coinciding with [CEO Eric] Silagy’s retirement raised investor concerns and we think explains the majority of the 7% relative selloff,” Morgan Stanley said in a Jan. 26 note.
The stock could remain volatile in the near-term, according to the analysts, as investors ponder management changes, a potential campaign finance investigation and governance considerations.
“But for patient investors, we think the risk-reward skew is appealing,” Morgan Stanley said, having earlier noted “multiple opportunities for significant renewables upside to EPS from the Inflation Reduction Act.”
Despite fourth-quarter 2022 challenges that included inflationary pressures, solar panel access and the aftermath of storms, NextEra Energy invested more than $19 billion in American infrastructure, constructing and placing into service about 5,000 MW of new renewables and storage projects, Ketchum said.
“We now believe that we will place into service approximately 32,740 to 41,000 megawatts of new renewables and storage projects from 2023 through the end of 2026,” Ketchum said, noting that is about 15% higher than previous four-year development expectations. “To put these numbers into context, just executing at the low end of our new development expectations through 2026 would more than double the size of our core renewables and storage operating portfolio, which took us more than 20 years to complete.”
“At Energy Resources, the combination of low-cost renewables, higher natural gas prices and the broader push toward decarbonization across the economy enables our strategy to serve both utilities and commercial and industrial customers with comprehensive clean energy solutions,” he continued. “These comprehensive clean energy solutions are often complex, and in addition to new renewables can include renewable fuels, hydrogen and behind the meter product projects, all of which are expected to ultimately create even greater demand for renewables.”
Going for green hydrogen
Energy Resources sees more opportunities to enhance its existing portfolio, said Rebecca Kujawa, president and CEO of NextEra Energy Resources. The opportunities include repowering, transmission, battery storage and green hydrogen.
The company’s plans include supporting a clean hydrogen facility at its Gulf Clean Energy Center, powered by Florida Power & Light (FPL) solar projects that would help produce 140 tonnes of hydrogen per day. The company has also partnered with liquid hydrogen producer Linde on a 120 tonnes per day green hydrogen project in Arizona.
Executives pointed out the company had signed a term sheet for 800 MW in recent weeks for a project with a commercial operation date scheduled for 2026.
Kujawa described the hydrogen market as “very active” as companies work to put together development opportunities.
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“It’s really coming to reality,” she said.
However, don’t expect green hydrogen to start influencing the renewables demand outlook anytime soon.
“I think ‘26 is probably on the earlier side of what we ultimately will see is a significant ramp up,” she said, “going into the end of the decade where there’s more opportunity to have supply ramp up for electrolyzers as well as other related equipment for some of the green hydrogen related products.”
Wall Street reacts
NextEra Energy reported fourth-quarter 2022 profit of more than $1 billion, compared to $814 million a year earlier.
Despite the profit gain, Wall Street reaction was mixed as shares of the company’s stock was down just over 7% around 2:30 p.m. CT Jan. 25. The renewable power producer battled high natural gas prices and had millions of dollars in expenses related to storm restoration costs.
Speaking to analysts, Ketchum said the company outperformed the S&P 500 index by nearly 10% in 2022 despite challenging financial market conditions.
“Over the past 15 years, we have outperformed nearly all of the other companies in the S&P 500 Utilities Index and more than triple the average total shareholder return of the index,” he added. “We are proud of our long-term track record of creating shareholder value, but we remain intensely focused on execution at both FPL and Energy Resources.”
NextEra’s fourth-quarter revenue of $6.16 billion fell short of Wall Street estimates of $6.55 billion, according to Refinitiv data. Adjusted profit of 51 cents per share, however, beat estimates of 49 cents per share.
The company said Eric Silagy, head of NextEra subsidiary FPL, America's largest electric utility, would retire after more than 11 years at the helm. He will be succeeded by Armando Pimentel.
A political watchdog group filed a complaint last year with the U.S. Federal Election Commission, saying FPL violated Florida election laws. NextEra CEO John Ketchum said an internal review should show FPL would not be liable for violating any laws, but added that this and other issues may have contributed to Silagy’s retirement.
“When you think about all the challenges that he had to overcome with the hurricanes and with high natural gas prices and inflation in the supply chain and the media allegations and all those things... I think it took a toll," he told analysts on the conference call.
Previous executives had generally served for about a decade, Silagy said on the call.
Reuters contributed to this article.
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