NextEra says project development unaffected by pandemic in Q1, bullish on renewables

Despite coronavirus pandemic-related challenges facing the US power industry, NextEra Energy executives said Wednesday renewable energy opportunities have never been greater and the investor-owned utility is not facing any project development delays.

"Our strategic vision at [subsidiary NextEra] Energy Resources remains the same and we believe the market opportunity for low-cost renewables has never been greater," Jim Robo, chairman and CEO of NextEra Energy, said during the company's first-quarter 2020 earnings conference call.

Reflecting strong customer demand for renewables, the NextEra Energy Resources team added 1,600 MW to its backlog since the company's last earnings call, including 600 MW of wind power capacity for 2022 and beyond, Robo said.

Most of this quarter's backlog additions were negotiated remotely while employees operated under stay-at-home orders due to the coronavirus pandemic, he said.

NextEra Energy Resources' 2020 construction program remains on track despite the pandemic, wind turbine deliveries for 2020 projects remain ahead of schedule and the company is not currently experiencing any significant equipment or labor issues at any of the over 5,000 MW of wind and solar projects expected to be completed this year, according to a statement.

The backlog additions also include roughly 460 MW of battery storage projects, almost all of which will be added to existing solar sites to take advantage of the federal investment tax credit, Robo said.

"We increasingly see storage as an important stand-alone business," Robo said, adding that NextEra's battery storage investments in 2021 are expected to exceed $1 billion.

The rapid growth of energy storage capacity represents the next phase of renewables development that pairs low-cost wind and solar energy with low-cost battery storage systems, Robo said.

NextEra expects that by the middle of the decade, without incentives, wind and solar will be cheaper than the operating costs of most existing coal and nuclear power plants and less efficient oil- and natural gas-fired units, he said.

RENEWABLE FOCUS

Rebecca Kujawa, executive vice president of finance and chief financial officer, said two gas-fired power plants that were to be constructed by Florida Power & Light and Gulf Power by the middle of the decade have been canceled, which reflects the "belief that renewable generation and particularly solar paired with battery storage in Florida is an increasingly cost-effective form of generation."

Since roughly 40% of FPL's load is cooling related NextEra expects that demand driver to remain relatively stable, especially as the warmer months of the year approach, Kujawa said.

Asked whether the company was seeing any hesitation from counterparties when it came to signing power purchase agreements amid the pandemic, Kujawa said several contracts had been signed in recent weeks as the pandemic was emerging.

"If you think about the backdrop of why that might be, renewables are the least-cost form of generation ... far cheaper than alternative forms of generation that are expensive to operate like inefficient coal and nuclear facilities," she said, adding "our customers will save their customers money when you turn those plants off and replace them with renewables."

An analyst asked if recent decreases in fossil fuel prices have made generation powered by those resources more competitive with renewables.

Though oil and some gas prices have decreased due to lower pandemic-related demand, one would hope that someone making a long-term planning decision would consider prices over a long period of time, Kujawa said.

When it comes to costs for NextEra's Florida utilities, solar paired with storage is the least cost solution, she said. Wind may be cheaper in some regions and with incentives it is in the teens to low twenty dollars per megawatt-hour range, Kujawa said.

And John Ketchum, president and CEO of NextEra Energy Resources, said that as oil prices have come down, rig counts in the Permian Basin have also decreased, which means "a lot less associated gas is produced. which has actually helped natural gas prices and we've seen an uptick in gas prices recently."

Ketchum said when originating new renewable projects the unit has not seen competition from gas-fired units, which remain in the $30/MWh to $40/MWh range.

"Remember, gas-fired peakers not only are targets for new renewables but also for battery storage ... there is a significant opportunity in almost every part of the country where batteries are now more economic than gas-fired peakers even at today's natural gas prices," he said.

NextEra Energy reported Q1 net income on a GAAP basis of $421 million, or 86 cents/share, compared with $680 million, or $1.41/share, in Q1 2019.