NextEra Energy Invests $20B in Hydrogen

The NextEra Energy home page on mobile. | Image by madamF, Shutterstock

Hydrogen is the latest alternative energy source in its early innings, but some companies and analysts are betting it will become a vast market.

Florida-based NextEra Energy is making a $20 billion bet on hydrogen following the passage of the Inflation Reduction Act in August 2022, which offers hefty tax breaks for alternative energy projects, including green hydrogen. The dollar value of NextEra’s pledged investment represents its combined net income from the past five years.

While the economics of hydrogen energy are unproven, NextEra grew from a regional utility company to a $154 billion energy giant by capitalizing on tax credits offered by investing in alternative energy sources, including wind and solar, according to The Wall Street Journal.

The company is hoping for similar profitability from its latest venture.

“I’m very excited about how this could shape our business and our industry over the long term,” Rebecca Kujawa, CEO of NextEra Energy Resources, the company’s renewable-energy development segment, told the WSJ. “It’s an enormous growth opportunity.”

Last month, NextEra Energy and CF Industries Holdings, the world’s largest ammonia producer, announced a joint venture to develop a 100-megawatt zero-carbon-intensity (green) hydrogen installation alongside a 450-megawatt renewable energy facility in Oklahoma.

“Green” hydrogen is hydrogen produced by splitting water into hydrogen and oxygen — a process known as electrolysis — using renewable energy sources.

Only about 5% of the hydrogen currently produced is “green.” NextEra is betting that the ongoing push for green renewable energy, combined with federal tax incentives, will drive up the demand for green hydrogen.

NextEra is also rolling out a green hydrogen pilot project in Florida which is expected to go into service this year, NextEra CFO Kirk Crews said during the company’s first-quarter earnings call.

“With the right regulation, we see hydrogen quickly becoming a significant technology for our customers and a new growth driver for energy resources given the number and size of the opportunities we are evaluating,” Crews said.

However, one drawback to hydrogen is that it is not as efficient as other forms of energy. It loses energy during production, storage, and conversion to electricity. According to Earth.org, “the round-trip efficiency, the percentage of electricity put into storage that is later retrieved, is only about 30%.”

In comparison, lithium-ion batteries have a round-trip efficiency of as much as 95%.

Ben Cook, a portfolio manager at Hennessy Funds, is not so optimistic about the unproven fuel source.

“You have to hope that when you build it, they will come,” he said, according to the WSJ. “We are so early in this process.”

Jos Shaver, managing partner and CIO at Electron Capital, said he predicts green hydrogen to develop into a sizable market eventually, but the costs associated with current projects make early investments speculative.

“It’s hard to say whether those first projects will be the most profitable. Sometimes there’s a late-mover advantage,” Shaver told the WSJ.

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