T.O Many investors, Supporting an American oil company seems just a little clever by filling cash in a blender. Faced with the Covid-19 and older concerns about low returns, the industry is scrambling to increase efficiency. On October 19, ConocoPhillips said it would pay 9. 7.9bn to Texton Fracking Company, Concho Resources. The next day, two other fractures, Pioneer Natural Resources and Parsley Energy, announced a 4.5bn deal. Oilmen in the sector pledge to make a profit before growth. How do you do that?
NextAra, its most valuable utility, has risen as the U.S. oil industry explodes. It is already the world’s top generator of wind and solar electricity. When NextAra released its latest quarterly results on October 21, it said it now has about 15 gigawatts of renewable projects in its pipeline, larger than its current renewable portfolio. Net profit rose 13% year-on-year to 1.3bn.
Oil boss has long dismissed utilities as solid but steady, less energy goliath than grandpa. ExxonMobil boss Darren Woods announced in 2018, “We have high expectations for the return on capital we invest. Since then, the market capitalization of its oil major has fallen by 60%. It is now America’s most expensive energy company, and it’s not slowing down.
With overseas outposts from the Amazon to South Africa, the Nexter has no global reach of European utilities. But under the leadership of Jim Robo, he has become the Titan. It has two main industries. Florida Power & Light, a utility that receives a regular rate of return, serves more than 5 million customers in the Sunshine State. Next Era Energy Resources creates and manages energy projects – mostly wind farms, but also solar and nuclear, as well as gas pipelines and transmission lines. No business looks revolutionary in 2020. But NextEra decided the winning strategies as soon as possible and chased them well, Credit Suisse, argues Michael Weinstein, a bank.
Florida Power & Light, for example, was one of the first to replace coal-fired power plants with gas, benefiting from the cheap supply of the American fracking boom. The company has noted the electrician, who has advised the company and facilitated NextAra in a new book on innovation. Utilities are growing healthier – earnings rose 11% in the third quarter and consumer bills remained relatively low.
But it is massively renewable which is the castle of Next Era. It was quick to take advantage of the generous tax credit to build wind farms in the Midwest. When Mr. Robo became its president in 2006, he was already America’s top wind energy producer. And it bets that renewable growth will occur while costs will decrease while coal-fired power will be less. The unsubsidized cost of wind and solar farms (spread over their lifetime) has dropped by about 0 and 90% since 2009-2009, respectively. More than half of American states now order that their share of electricity comes from renewables. The rationale for replacing old coal plants with renewable ones or wind and solar powered ones seems clear.
Investors agree. NextAra has left behind not only other utilities and oil companies but the entire stock market. The index of American energy companies has seen a 47% decline in total shareholder returns over the past three years and a 52% decline in ExxonMobil. Next Era is up 112%, which is higher than Broad S andP 500 Index (see chart) Stability provided by credit rating agencies such as Florida Power and Lite. Next Era Energy Resources has used its expertise to create a competitive bid for the contract, and at a lower cost, explains Stephen Byrd of a bank called Morgan Stanley. Sometimes Next Era sells assets to a company in which it has a stake and uses the cashflow of power projects to pay reliable dividends.
Other utilities have made cuts. Mr Byrd points out that Excel Energy, a Midwest utility that is one of Nextara’s largest customers, is now building its own wind farms. But the size of the NextAra and know how to sharpen it.
It can proceed through editing. In 2019 it completed the purchase of Gulf Power, another Floridian utility. It is rumored to be keeping an eye on the controlled utility Duke in North Carolina. “There is no utility in the country that we cannot run more efficiently and better for customers,” Mr. Robo declared in July.
Next Era will also maintain investment in Generation and Grid – this month it raised planned capital spending b 60bn between 2019 and 2022. Capital spending in the second quarter exceeded all but nine American companies. ExxonMobil alone has spent more in the holiday industry. Projects include large solar farms and underground power lines in Florida to make the grid more resilient to storms.
Newstra has already purchased or leased many of America’s most attractive remaining sites for wind and solar energy, Mr. Weinstein says. As the grid becomes more dependent on intermittent renewals, the demand for batteries will increase. With trademark foresight, NextEra is also investing in it. ■
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This article appeared in the business section of the printed edition under the title “What’s Next”
