NextEra Energy's CEO believes the new US climate law will drive clean energy growth for the next two decades and sees the company well-positioned to counter near-term economic headwinds.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
The Inflation Reduction Act, signed into law in mid-August, contains nearly $370 billion in federal spending geared toward decarbonization. The legislation also contains robust clean energy tax incentives for solar, wind, and battery storage projects.
Production tax credits for wind and solar projects as well as the 30% investment tax credit for battery storage start to phase down after annual US greenhouse gas emissions from electricity production drop by at least 75% from 2022 levels.
"We don't expect that to occur until sometime in the mid-2040s," NextEra Energy Chairman, President, and CEO John Ketchum said Sept. 29 during a virtual presentation at the Wolfe Research Utilities, Midstream & Clean Energy Conference. "So, that certainly gives us a very strong balance in terms of the growth possibilities for the company long term."
NextEra in June unveiled an enhanced emissions reduction program known as "Real Zero" that aims to eliminate all Scope 1 and Scope 2 operational emissions by 2045 without requiring carbon offsets and by executing "the largest renewables buildout by an electric utility in the country."
The IRA and the backdrop of high natural gas and power prices have created "an obvious economic advantage to renewables," Ketchum said.
"Although there [are] concerns of a recession and we're in a high-inflation, high-interest rate environment, I love where we sit," Ketchum said. "We are one of the few folks that are selling a deflationary countercyclical product."
NextEra also sees strong potential to continue repowering renewables assets at NextEra Energy Resources, the company's competitive generation-and-transmission company.
"We have an enormous operating portfolio today and a significant backlog," Ketchum said.
The company has repowered about 6 GW of wind projects over the past six years and has a 40-GW opportunity set of solar and wind assets that could be repowered, according to the CEO's presentation to analysts and investors. NextEra also has the ability to colocate energy storage with all of its existing renewable assets, with management pointing to 37 GW of opportunities there.
"We already have been making advancements within the development organization in preparation for what's coming because we thought, with or without IRA, renewables were going to be in the money," Ketchum said, adding NextEra has a 100-GW head start on the rest of the industry in terms of project siting and development potential. "We are scaling up big time across the board, but the good thing is we already have the pieces in place."
Supply chain impact
The head of NextEra also sees the IRA and the company's unique skillset helping to alleviate supply-chain concerns.
The landmark climate and energy law contains more than $60 billion for onshore clean energy manufacturing in the US, including tax credits for facilities that produce wind turbines, solar panels, and electric vehicles.
"There are significant manufacturing incentives that really, I think, will help us to re-domesticate the supply chain here in three to four years to the US," Ketchum said, adding NextEra is "well-positioned" to capitalize on these incentives given its scale and ability to partner with manufacturers to utilize large land positions around its fossil plants.
"And all of a sudden we're manufacturing wind turbines, solar panels, and batteries at scale at a significant discount," Ketchum said. "We are already off to the races and have some sites identified."
In addition, US President Joe Biden temporarily lifted in June the threat of tariffs linked to an administrative trade probe of factories in Southeast Asia.
"Things are getting better on [the] supply chain," Ketchum said. "What you're going to see is a supply chain correction," with manufacturers moving away from China and into Southeast Asia or the US, the executive said.
Small modular reactor skepticism
While NextEra will continue to grow its clean energy portfolio and sees additional investment potential in green hydrogen, the company is taking a cautious approach to advanced nuclear projects such as small modular reactors.
"SMRs, if you can ever figure them out, are great because they have a small footprint. But I'm very skeptical with regard to SMRs," Ketchum said, highlighting the permitting difficulty in siting a project and trying to meet the standards of the US Nuclear Regulatory Commission for safety and security.
"They are going to be very expensive and then you're going to be taking a bet on the technology," Ketchum said. "Right now, I look at SMRs as an opportunity to lose money in smaller batches."