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InvestWhatWorks (47.20)

Bet on NextEra Energy - New EPA Rules.

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August 17, 2011 – Comments (2) | RELATED TICKERS: NEE , DUK , OTTR

The Environmental Protection Agency (EPA) might institute new rules that will possibly force the closure of many coal-burning power plants in the United States over the coming years. If the US government is engaged in a crusade against coal, it might be best to invest with a company like NextEra Energy that has very low exposure to coal.

In 2010, NextEra Energy's power generation was made up of 54.2% natural gas, 26.4% nuclear, 11.9% wind and only 3.6% coal. And that coal percentage will only continue to decrease as NextEra continues to close very old and inefficient coal power plants in order to replace them with new, more efficient and much cleaner-burning natural gas power plants.

In August of 2010, NextEra demolished their 45-year old coal power plant in Cape Canaveral, Florida. Last month (July 2011), NextEra did the same to their nearly 50-year old coal power plant in Riviera Beach, Florida. In their place, NextEra is currently building brand new natural gas power plants. The new natural gas plant will use 33% less fuel in order to generate the same amount of power as the old coal plants.

The Cape Canaveral Next Generation Clean Energy Center is scheduled to be up and running in 2013. The Riviera Beach Next Generation Clean Energy Center will be ready for business 2014.

As well as building new plants, they are also modernizing their older plants to make them more efficient and to increase power generating capacity (without increasing emissions).

In addition, NextEra Energy is continuing to expand their presence in wind energy and solar energy. It was recently revealed (in August of 2011) that NextEra is partnering with General Electric to acquire the Desert Sunlight Solar Farm, a 550-megawatt project located near Palm Springs, California.

If the US government and the EPA does force the closure of some coal power plants, NextEra is in a great position with their very lower exposure to coal. If the EPA relaxes their rules, NextEra Energy, with its growth potential and over 4% dividend (at the time of this post), is still a great stock to own.

2 Comments – Post Your Own

#1) On August 18, 2011 at 12:27 AM, JakilaTheHun (99.94) wrote:

+1.

Good info on NEE; one of my favorite utilities.  In general, I feel like utilities are a good place to hide from a lot of the market volatility right now, if one is looking for some modicum of safety, while collecting a fatter yield than they'd get from a treasury bond.

Any opinions on NEE vs. Southern Company (SO), Duke Energy (DUK), Excelon (EXC), or Dominion (D)?   NEE seems to have one of the lower dividend yields in the sector, but maybe it's justified for the reasons you mentioned. 

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#2) On August 18, 2011 at 2:34 AM, InvestWhatWorks (47.20) wrote:

If NextEra follows their very consistent pattern, we should see a dividend payment increase in declared in February of next year.

You can always count on NextEra to be very predictable in that respect; increasing their dividend amount at the beginning of each year.

I do have an opinion on one those you mentioned, Duke Energy:

According to Duke Energy, Duke generates about 70% or so of its electricity from coal. Duke has power plants internationally, so not all of those coal plants are located in the United States. Though that's still a fairly large exposure to the black rock. Duke also went a built some brand new coal power plants just a few years ago.

So going back to my US Government anti-coal crusade thesis, Duke Energy has much greater expousure to coal than I'm personally comfortable with. If the US government, bureaucratic agencies and politicians hate something, it is probably best to get out of the way (good example: banks right now)

It's for that reason why I like NextEra Energy, even though it has a slightly lower dividend yield. Extremely little and diminishing exposure to coal. Very high and increasingly exposure to natural gas (as well as an increasing presence in wind and solar). I like that combination.

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