NextEra Energy Inc (NYSE: NEE) is one of the strongest utility stocks I have seen. With a good portion of its business focused upon renewable energy, the political environment has been very supportive and helpful to this company. As a defensive stock, this is one every investor should look at.
Development Results in More Efficient Windmills
NextEra Energy Resources, LLC is the largest generator of wind energy in North America and is one leg of NextEra Energy. Based in California, it focuses upon renewable energy with $1.2 billion invested in wind and solar power in the state. It currently owns and operates nearly 850 MWs of wind in California, or enough wind to power more than 200,000 homes. It just replaced (Altamont Pass Wind Farm) windmills at the 8.2 megawatt (MW) Vasco Wind Energy Center with Siemens 2.3 MW wind turbines that are twice as efficient as what was there. This process is known as "repowering" replaces older wind turbines with newer ones that either have a greater nameplate capacity or more efficiency which results in a net increase in the power generated. This is just the type of R&D the industry needs to continue to grow and become more efficient.
It's a Good Time to Invest in Wind farms
Wind energy, a piece of renewable energy, tends to have a political side to it like all renewable energies. Right now, the green political environment is favorable to developing renewable energy. Wind energy is the fastest growing source of energy in the world with "wind capacity" growing steadily by almost 10% a year. The US is the country with the largest wind energy capacity. An important factor to consider if one is interested in investing in wind is the subsidy that the industry receives from the government.
Wind energy barely exceeds one percent of energy output and is subsidized to the tune of $23 per megawatt hour. In contrast, this is about 60 times that of the $0.44 per megawatt hour that goes to the mainstay of US electrical power output of coal and 100 times the $0.25 per megawatt hour that goes to natural gas. These last two account for 70 percent of US power supply. The subsidy may not be a bad thing if it leads to better research and development and thus more efficiency in this form of energy.
In order for this industry to survive, this over-sized subsidy may be needed, but it will not last forever because of the political nature of the support. If the industry cannot become more efficient on its own, it will slide by the way side.
Challenges to Wind Energy
One of the greatest arguments against wind farm development is its inconsistency. Since wind is variable and sometimes does not blow at all, wind energy will never be able to meet all energy needs. This can pose a problem to energy companies. Wherever wind development was put in place, natural gas demand went up and the environmental benefits were the opposite of what the advocates expected. The problem that arose was the inefficiency of combining wind energy and conventional coal plants together. It makes sense to substitute wind developed energy for coal burning plants because it would keep the air cleaner-so we thought.
It was discovered that this process of "cycling" coal plants to accommodate wind generation made the plants operate inefficiently driving up emissions. These plants are designed to consistently operate at certain temperatures to interact with emissions control technology to keep it as clean as possible. The different variability caused problems with emissions control interaction resulting in the plants to emit poor emissions until it could get back up to the controlled temperature levels. Using wind to a degree that forces utilities to temporarily reduce their coal generation results in greater pollution than would have occurred if less wind energy was generated and coal generation was not impacted. This is one challenge.
Even though NextEra Energy Inc. is doing so well, its impact as a long term success will also have a lot of political influence. Being so dependent upon subsidies at this point is a real consideration any investor should keep in mind. At some point, political winds can change and those subsidies can change. The company is very strong and should continue to perform very well in the immediate future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
