At NextEra’s 2024 Investor Conference, CEO John Ketchum laid out the challenges facing new-build natural gas plants in the United States, and stated his company’s preference for renewables and energy storage to meet future electricity demand. 

In this post we review these challenges and the natural gas assets in NextEra’s portfolio.

NextEra Energy CEO John Ketchum:

Look, gas will have its place as a bridge fuel, but it’s not ideal as a new-build solution for many customers given its cost and the time required to deploy; all of which favor new renewables and storage on a relative basis.

The problems facing new-build natural gas generation:

1. Transmission queues

This is an issue typically cited as a hurdle for new renewable generation projects. Ketchum makes the point that new gas generation also faces significant wait times. According to Ketchum, 9 out of every 10 MW in the transmission queue today are renewables.

2. Gas Turbines are expensive

The CAPEX required for new gas peaking plants and new gas combined-cycle plants is expected to rise significantly in the coming years. NextEra shared the following slide in the associated presentation:

Read the full Nextera Energy Investor Conference slide deck here.

3. Long lead times

According to NextEra, it takes “3-4 years to even get your hands on a gas turbine.”

4. Regulatory uncertainty in light of new EPA rules

Ketchum argues that even if the new EPA rules are ultimately overturned in the face of legal challenges, new natural gas plants still face years of regulatory uncertainty.

Utilities and invest-owned utility trade groups have sued the EPA over its rule limiting greenhouse gas emissions from coal-fired and new gas-fired power plants.

5. It’s really hard to build new gas infrastructure in the U.S.

This is something Nextera has first-hand experience with given the long process to build the Mountain Valley Pipeline.

In 2022, NextEra took an $800 million impairment charge after a U.S. Court of Appeals ruling further delayed the pipeline from West Virginia to Virginia. The pipeline was ultimately built, but was years behind schedule and billions of dollars over budget.

NextEra Energy continues to operate natural gas assets at both its Florida Power & Light (FPL) utility and its NextEra Energy Partners subsidiary, listed under the ticker NEP.

Let’s delve deeper into FPL’s natural gas usage and explore their future plans:

1. Natural Gas Usage:
   • FPL heavily relies on natural gas for electricity generation. In 2023, natural gas accounted for 73% of the utility’s generating capacity mix.
   • Over the past two decades, FPL’s power generation has consistently leaned toward natural gas.
2. Future Plans:
   • In 2022, FPL released a plan to to eliminate carbon emissions from its electricity generation by 2045.
   • According to the company, the plan “would lead to massive increases in the use of solar panels and battery-storage technology. Also, it would mean shifting to what is known as “green hydrogen” at power plants and continuing to use nuclear power.”
   •  FPL envisions a combination of solar, battery storage and green hydrogen accounting for 83% of generation by 2045.

While FPL’s solar generation has been increasing, the reality is the utility remains deeply reliant on natural gas, and will for years to come.

NextEra’s YieldCo subsidiary, NextEra Energy Partners, is closer to severing its natural gas ties. The company has been strategically divesting its natural gas pipeline assets and expects to complete the process by 2025. This is part of NEP’s plans to become “the leading 100% renewables pure-play investment opportunity.”

In 2023, NEP sold its Texas natural gas pipeline portfolio to Kinder Morgan for $1.815 billion.

The company plans to sell its remaining pipeline assets, the Meade pipelines in Pennsylvania, by 2025.

NextEra Energy Partners CEO John Ketchum:

To lead this transition, we are launching a process to sell our natural gas pipeline assets and we are suspending incentive distribution rights fees to NextEra Energy through 2026. These actions would both increase our renewable energy investments and eliminate the equity issuance that would otherwise be required to complete all three convertible equity portfolio financing buyouts planned for 2023, 2024 and 2025.