NextEra Energy

At NextEra Energy, Inc. we do more than talk about sustainability

Wednesday 10 October 2012, by hu junya, Logan, wayne

A. The main facts about the activities of the company.

NextEra Energy is the third-largest power generator in the United States with the majority of facilities located in Florida and operated through its utility subsidiary Florida Power & Light. The company distinguishes itself through a heavy reliance on clean and renewable sources of energy for its power generation, with an input mix that is 56% natural gas, 22% nuclear, 13% wind, 6% coal plus a small portfolio of hydro, solar and oil projects. NextEra is the largest operator of wind power in the USA, owning 18% of all wind turbines in the country.

In 1998 the NextEra Energy Resources subsidiary was founded with the direct purpose of building renewable sources of energy throughout the USA and Canada. Since this time NextEra has been the most active builder of renewable energy facilities in North America, having more than quintupled its wind generation capacity over the last decade and constructed the largest solar farms in the region. During this same time the company has been one of the best performing publicly-listed electricity companies in the USA, demonstrating a more than 7% growth in both earnings per share and dividends per share.

B. The Ethical challenges this company is addressing.

The most significant ethical challenge NextEra is addressing is proving the feasibility of operating a large scale electric company with clean and renewable sources of energy. While it is the third-largest power producer in the USA, it has been able to demonstrate unparalleled efficiencies of production with emission rates for SO2, NOX and CO2 ranked 69th, 73rd and 85th, respectively among US energy companies. The company through both research and implementation has proven that producers with the benefits of scale can deliver decreasing rates of emissions and improve the health of the environment in which they operate.

NextEra is also addressing concerns about the future rising cost of energy. One of the greatest fears of renewable technology is the higher cost relative to fossil fuels, and NextEra has so far proven it is capable of keeping consumer costs low. In 2011 FPL had the lowest average electricity bill among all 55 electric utilities in the state of Florida, and it continues to operate an extremely profitable company despite delivering lower costs to its customers.

Besides reducing pollution created from operations, NextEra is also focused on reducing pollution and damage created by the construction of its facilities. The company has a strong focus on sustainability and operating its facilities in harmony with the local environment through water conservation, air quality control and minimizing impacts to local wildlife. Examples of this agenda in action are its Paradise solar field in New Jersey and Turkey Point facility in Florida which double as wetlands protection areas and its system of power plants which return 98% of utilized water back to their original source.

C. What makes you believe this company is really ethical and why you trust it?

NextEra has invested more than $38 billion over the last decade to modernize and revamp its electricity infrastructure, proving it can operate a profitable, clean and low cost utility. It continues to build upon its position as the #1 provider of renewable energy in North America with active projects across the region. Besides power generation the company supports a holistic approach to sustainability, minimizing the environmental impact of its assets through investments in electric/biofuel vehicles and LEED-certified buildings as well as launching consumer-education campaigns to teach its customers how to conserve water and use their electricity more efficiently.

On the topic of climate change NextEra has been a leading voice among companies who acknowledge the danger pollution has had on the environment. At the 2008 Florida Summit on Climate Change, then-CEO Lew Hay remarked “We need real leadership on climate change – leadership that looks at the challenge of ‘decarbonizing’ the $14 trillion U.S. economy and says, ‘We can do this.’” Unlike similarly-scaled power companies such as AEP, Duke and Tennessee Valley Authority which still rely heavily on coal for electricity generation, NextEra has taken the early lead in the move towards significantly reducing its carbon footprint and finding ways to improve the social responsibility of power generators.

The company continues to invest heavily in new projects as well. It already operates the largest solar farm in North America, a 310 MW facility in California’s Mojave Desert, and is currently building additional 250 MW and 750 MW facilities in the American Southwest. The company’s decision early on to adapt renewable technology on a large scale has now given it a level of expertise which makes it a leader in receiving government funding for additional builds and a preferred partner for companies such as Google and Facebook who have recently invested in ways to reduce their own carbon footprint.

As proof of the impact its efforts have had on the larger industry, NextEra has been ranked first among energy companies on the annual “World’s Most Admired Companies” list by Fortune magazine six years in a row as voted on by industry analysts and executives in peer firms. The company’s ability to embrace new technologies, cooperate with government and partner with other companies has endeared it to the greater business community.

D.The possible challenges facing the company in the future and how you think this company may improve.

The most important challenge the company faces is its status as a publicly traded company. The vast majority of the company’s stock is held by investment managers such as BlackRock, State Street and Vanguard who seek return on investment for their holdings and do not necessarily care about the social direction of the company unless it improves its bottom line in some way. While NextEra has proven in the past that it can both increase profit and reduce emissions, it has come under criticism multiple times for trying to increase electricity rates beyond those allowed by regulators.

NextEra has countered by claiming that despite rate increases, their extensive capital investments in new technology will decrease customer costs over the long run. A necessary task for the company is to back up these claims with results, both to maintain its customers and allay investor fears that the ongoing levels of high capital investment will yield earnings growth greater than could be accomplished with traditional systems.

The company must also continue to reduce its reliance on and cleanup of its fossil fuel facilities. NextEra’s home state of Florida is the sixth-worst in the USA in terms of power plant pollution, and a large contributor to that ranking are two coal plants partially owned by NextEra. Replacing these two facilities with a cleaner power source would be a strong signal of NextEra’s commitment to the environment despite the cost of replacing these two plants. With 56% of power derived from natural gas, NextEra must also deal with environmental concerns about how the gas is sourced from the Earth. Concerns about fracking have been especially prevalent in North America and there is still a lack of consensus about the long term impacts such processes have on the area in which the gas is pulled. The large natural gas portfolio is also a main reason why the company has been the lowest-cost electricity provider in its market, since natural gas prices have remained near record lows for the last couple of years. Should prices increase, NextEra would no longer be the able to position itself as a price leader, and as a result needs look to alternative means to control costs should it want to maintain this advantage.

Increasing renewable energy sources requires overcoming barriers within NextEra’s region. Excluding large hydroelectric projects renewable energy still only accounts for 5% of electricity generation in the USA due to a variety of factors. Solar technology has proven especially difficult for the company in the past as most constituencies like the idea of solar panels but rarely can agree where to install them or how to pay the large upfront installation costs. NextEra recently tried to build a large solar farm in California using “wet cooling” solar thermal panels but was forced by the government to switch to “dry cooling” panels because of the large amount of water needed in the wet cooling technology. It ran into further trouble with construction of its Genesis solar project when after discovering archaeological artifacts on the site faced criticism from two local Native American tribes for continuing construction. These two incidents are examples of NextEra’s ongoing conflict between profit and ethics as it tries to build renewable energy facilities but also take steps which keep its cost base as low as possible.

As the leading builder of renewable energy platforms, NextEra faces the challenge of ongoing government support for many of its alternative energy initiatives. As it outlines in its financial statements, it relies heavily on government subsidies, tax incentives and other support to build and operate its wind and solar facilities profitably, and should this support be removed it would significantly reduce the potential of future builds. Until the cost or efficiency of these two technologies is improved NextEra will continue to deal with the challenge of relying on support from a government which increasingly has had to make difficult decisions about where to allocate its budget.

Bibliography

NextEra Energy 2011 Annual Report
NextEra Energy 2011 Sustainability Report
Staff. “FPL Group to be called NextEra Energy” South Florida Sun-Sentinel. March 19, 2010.
NRDC. "2012 Benchmarking Air Emissions Report." July 2012.
Brinkmann, Paul. “NextEra Energy Comes Clean In National Emissions Ranking.” South Florida Business Journal. August 10, 2012.
K Kaufmann. “Cultural Showdown at the Genesis Solar Project.” The Desert Sun. February 24, 2012.
K Kaufmann. “Obama Puts Two More Riverside East Projects on Fast Track.” The Desert Sun. August 7, 2012.
"NextEra Energy". World’s Most Admired Companies. Fortune Magazine. Retrieved 07 October 2012.

Location: Juno Beach (United States)

Sector: Electricity, gas, steam and air conditioning supply

Official website: http://www.nexteraenergy.com

Key figures:

(Financial figures in $mm)
Revenue: 15,285
EBITDA: 5,667
Net Income: 2,143
Market Capitalization: 29,725

Electricity Capacity: 41,272 MW
Number of Employees: 14,500
Countries of Operation: USA, Canada
S&P Credit Rating: A-

Nbr. visits: 259