NextEra Energy: A Messy Green Goliath with Other People’s Money (full series)
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In January 2023, a Bloomberg News story carried this alarming headline: “Wind Turbines Taller Than the Statue of Liberty Are Falling Over.”
According to the report, there had been a “rash of recent wind turbine malfunctions across the US and Europe, ranging from failures of key components to full collapses” and that some “industry veterans say they’re happening more often.”
“The problems have added hundreds of millions of dollars in costs for the three largest Western turbine makers, GE, Vestas Wind Systems and Siemens Energy’s Siemens Gamesa unit. These problems could result in more expensive insurance policies,” warned Bloomberg. An insurer quoted in the story said he was “seeing these failures happening in a shorter time frame on the newer turbines” and predicted higher insurance costs or outright limits on coverage if the quality continued to decline.
General Electric reported a $2.2 billion loss in 2022 on GE Renewable Energy, the division responsible for building GE’s wind turbines. This added to $795 million in red ink reported for 2021.
In June 2023, Reuters reported that Siemens Energy had announced that “quality problems at its wind turbine unit would take years to fix.” By August, Siemens had upped the estimated cost of fixing these troubles to $1.75 billion.
On June 2, 2023, the market capitalization of Siemens Energy was $21.2 billion. Just three weeks later it was worth only $12.6 billion. By October 6 it had declined to less than $10 billion.
In late September 2023 Nextera Energy Partners, the weather-dependent power subsidiary of NextEra Energy, warned that inflation-fueled higher interest rates were making it difficult to finance projects and announced that it was cutting its expected dividend payouts in half.
Wall Street responded harshly to all this news. From January to October, NextEra Energy Partners lost two-thirds of its market valuation. Absorbing this hit from its subsidiary is how the parent firm, NextEra Energy, got its own market value blown up.
On August 14, 2022, two days before the Inflation Reduction Act was signed into law, the market capitalization of NextEra Energy hit an all-time high of $186 billion. But by October 6, 2023, after all this rough news, NextEra Energy was worth less than $102 billion.
Greenwashing Other People’s Money
But it’s not over yet. With the firehose of subsidies available in the Inflation Reduction Act, NextEra may yet reline its bottom line with a brand new politically correct power plot.
“NextEra now says it sees the potential to invest more than $20 billion in so-called green hydrogen after the passage of the Inflation Reduction Act, which provides significant tax credits for such projects,” reported the Wall Street Journal in May 2023. “There is a limited market for green hydrogen currently, and NextEra is hoping the new law, coupled with an increasing push to cut carbon emissions, will simultaneously create supply and demand.”
According to the Journal, NextEra “played a crucial role” in lobbying the federal government for both the size of the hydrogen credits in the IRA and for “a looser standard that would allow for the production of green hydrogen using power drawn from the electricity grid—some of which is generated using fossil fuels—and buying renewable-energy certificates, or RECs, to offset associated emissions annually.”
A more succinct, albeit less generous term for this “looser standard” is “greenwashing.”
Reliability is the most important value in electricity. Even unlimited, yet unreliable electricity, is of trivial value compared to a limited amount of on-demand, reliable power. Imagine a “free” furnace or air conditioner that also runs on “free” electricity, yet only heats or cools if the sun shines or the wind blows. This appliance would have to be “free” because it would often be functionally worthless.
Lack of reliability, an otherwise fatal liability, isn’t a problem for NextEra’s business model because (1) it has used other people’s money to offset the cost of building their wind and solar energy systems; and (2) it has a customer base that is required to purchase it.
So, under the new hydrogen plan, NextEra is proposing that (1) it will get paid more of other people’s money to replace reliable, on-demand coal or natural gas with hydrogen energy and then (2) NextEra will transubstantiate the “not green” hydrogen into “green” hydrogen at the end of the year by submitting credits representing the unreliable, weather-dependent energy that was generated and sold at other points in time.
How does this result in less coal and natural gas getting used—the lower carbon emissions the IRA is supposed to provide?
That’s what we call an “other people’s problem.”
Other companies have more sincere plans to produce carbon-free hydrogen, and they understandably don’t want to compete against NextEra’s greenwashed energy. According to the Wall Street Journal, these firms have “argued for a strict definition of green hydrogen that would require companies to effectively prove they are using green power by matching their hydrogen facility’s electricity consumption to renewable-power generation on an hourly basis.”
Will NextEra get the hydrogen rules it wants, invest the $20 billion, and hoover up a new load of other people’s money?
Hydrogen is a tricky business. The Wall Street Journal cautioned that green hydrogen had been “a much-hyped energy source whose economics are unproven” and quoted more than one financial analyst to back up the concern.
But remember that NextEra already has experience running weather-reliant wind turbines that aren’t even reliable when the wind blows. The lack of a rational economic policy basis for the hydrogen business shouldn’t present an obstacle.
