By Katherine Blunt and Sarah McFarlane | Photographs by Robert Ormerod for The Wall Street Journal
A decade ago, NextEra, Iberdrola and Enel were sleepy regional
utilities with little name recognition.
Now they are fast-growing giants with market values rivaling the
likes of oil majors Exxon Mobil Corp. and BP PLC, thanks to their
early all-in bets on wind and solar farms.
And still, many people have never heard of them.
Their early lead in the global transition away from oil has put
these companies on track to become the major energy companies of
the coming decades -- the "green energy majors." But they now face
the threat of increased competition as some of the oil titans that
have traditionally dominated the energy industry diversify into
wind and solar power.
If the green majors are nervous about a coming clash, they
aren't showing it. NextEra Energy Inc. Chief Executive James Robo
dismissed the idea that oil majors in the U.S. and Europe posed a
competitive threat at an investor conference this fall, saying that
the companies' green projects were among the worst he had seen.
"I don't worry about the oil majors at all," he told the
audience. "If I have 100 things I worry about at night, it's not
even on the top 100." Mr. Robo declined to be interviewed.
For now, NextEra, Enel SpA and Iberdrola SA are Wall Street
darlings, after Spain's Iberdrola and Italy's Enel became global
builders of green energy projects, while NextEra became America's
largest generator of wind and solar power.
Each of the companies has seen its share price soar in recent
months as investors bet on their ability to lead the transition to
a lower-carbon future with massive investments in renewable energy,
battery storage and improvements to the electric grid.
That transition is expected to accelerate in the U.S. under
President-elect Joe Biden, who has promised to focus on climate
change, and within the European Union and China, where ambitious
carbon-reduction efforts are under way.
Enel and Iberdrola have outlined plans to substantially expand
their portfolios of renewable-energy projects over the next decade
with about $170 billion in collective investments. NextEra, which
hasn't disclosed a long-term spending plan, expects to have
invested $60 billion in renewable energy projects between 2019 and
Still, analysts caution that increased competition within the
renewables industry could reduce profit margins for the most
"Oil companies entering the renewables market will need to
accept lower returns on projects initially to gain market share,
and this is going to result in a reduction in margins across the
board," said Fernando Garcia of RBC Capital Markets.
Already, Denmark's Ørsted A/S, a company formerly known as DONG
Energy that focused on oil and gas, has transitioned into a leading
player in offshore wind projects. BP is planning a big shift too:
It says it will increase its clean-energy investments in coming
years as it dramatically scales back oil and gas production.
However, the coronavirus pandemic has decimated demand for
fossil fuels this year, briefly turning U.S. crude prices negative
and forcing the oil industry to lay off thousands of workers and
slash spending. That has sapped the oil giants of much of their
financial strength, making it harder for them to quickly transition
into renewables projects, which require large upfront investment in
order to reap steady returns over a longer period.
While big oil companies once reported double-digit returns on
invested capital -- in the heady days prior to 2014, when crude oil
prices last topped $100 a barrel, some topped 20% annually,
according to FactSet -- the big renewables players have been
winning the race of late with slow and steady single-digit
"There is no better example than 2020 to show how extremely
different the risk profiles are," said Bernstein analyst Meike
Iberdrola, Enel and NextEra have taken different paths to morph
from humdrum utilities into green growth companies.
Originally an Italian utility, Enel was actually later than some
others to home in on wind and solar. Two years after forming its
renewable development arm, Enel Green Power, the company sold about
a third of it in 2010 to pay down corporate debt. Enel then focused
on trying to build nuclear plants in Italy before citizens there
rejected that plan.
But Enel's current chief executive, Francesco Starace, then the
head of that green unit, said he recognized that wind and solar
power had the potential to become competitive in the broader energy
market as costs fell. The unit focused on developing projects in
regions without large subsidies or incentives to show investors
that they could stand on their own.
"At the time, this sounded like blasphemy or idiocy," Mr.
Starace said in an interview. "But we did it stubbornly, and kept
doing it, and eventually this prediction of ours became true."
Mr. Starace became Enel's CEO in 2014, and promptly repurchased
the portion of Enel Green Power that had earlier been sold. He also
reoriented Enel to pursue projects that could be completed within
three years to account for the pace of technological change. That
pretty much eliminated nuclear and coal plants, as well as large
hydroelectric projects, leaving wind and solar farms in the
Enel is now the world's largest renewable energy producer
outside China, with an EUR84 billion market value, equal to about
$102 billion, and projects in 32 countries. The company has a large
presence in the U.S. and has developed wind and solar farms in
remote areas in countries including Zambia and Chile. The company
plans to spend about EUR70 billion, equivalent to $85 billion, to
nearly triple its generation capacity in the coming decade, which
it expects will give it around 4% of the global market.
Iberdrola, initially a domestic Spanish utility, was an early
pioneer of renewables. It started in 2001, when the company
unveiled a plan to expand internationally and invest in clean
energy sources to help meet growing global demand for power.
It tapped Ignacio Galán to spearhead the strategy as CEO at a
time when wind and solar power were still hugely expensive relative
to other electricity sources. The company had historically focused
on building hydroelectric and nuclear plants, as well as some coal-
and gas-fired ones.
Iberdrola has expanded into renewables in part by aggressively
buying up smaller players with attractive growth prospects. In
October, it agreed to pay $4.3 billion for New Mexico-based
electricity company PNM Resources Inc. -- its eighth deal this
year. It plans to invest heavily in the U.S., where the company is
third in renewables generation capacity behind NextEra and
Berkshire Hathaway Energy, a unit of Warren Buffett's Berkshire
Mr. Galán said in an interview that Iberdrola at first faced
skepticism about its decision to focus on renewables, but now the
tide has turned: The company's value has multiplied by six on his
watch to around EUR71 billion, or $86 billion, far exceeding his
initial ambition to double its size.
"All we have been fighting for for 20 years, every person
recognizes that was the right decision," he said.
Iberdrola is now the world's second largest renewable energy
generator outside of China, with projects in 30 countries,
including an offshore wind farm in the Baltic Sea and a wind and
solar farm in Australia. It plans to spend EUR75 billion,
equivalent to $91 billion, over the next five years to double its
renewable power capacity.
Florida-based NextEra grew into America's largest renewable
energy producer by keeping debt levels low, capitalizing on federal
tax subsidies available to help finance wind and solar projects
around the country and reinvesting its profits to expand
Over time, it developed the size and scale needed to
consistently underbid other companies in auctions to develop
projects. It operates two Florida utilities and sells renewable
energy output to others. It also operates electric transmission
lines in the U.S. and Canada, as well as natural gas pipelines.
Despite its rapid growth, NextEra has largely flown under the
radar. Some lawmakers in Washington and elsewhere didn't know much
about it until recently. The company several years ago launched a
targeted effort to introduce itself so that its representatives
wouldn't have to start meetings with tedious explanations,
according to a person familiar with the company's strategy.
NextEra declined to comment. The company's executives still
rarely speak to the press.
Investors, however, have been eyeing NextEra for years. Its
share price has roughly tripled over the past five years to reach a
market value of $146 billion, and for the first time it briefly
topped Exxon's value this year in a watershed moment for renewables
producers. Its project backlog totals 15,000 megawatts -- an amount
just larger than its current portfolio, built over two decades.
BP Capital Fund Advisors, a Dallas-based investment adviser that
has historically focused on oil and gas, bought shares in NextEra
in March as part of an effort to diversify with investments in
renewables. The firm was founded by the late T. Boone Pickens, the
oil industry magnate who took an interest in wind and solar power
late in his career. He died last year.
"NextEra stands alone in terms of what it offers in exposure to
the renewable theme," said portfolio manager Ben Cook. "If you're
investing in energy now...that has to be part of the equation."
Write to Katherine Blunt at Katherine.Blunt@wsj.com and Sarah
McFarlane at email@example.com
(END) Dow Jones Newswires
December 11, 2020 11:14 ET (16:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.