How a Florida Utility Became the Global King of Green Power
Who is the world’s largest operator of wind and solar farms? It’s also America’s most valuable power company. Still stumped? It’s by design.
“That is a marketing problem…that we foster intentionally,” Michael O’Sullivan, NextEra Energy Inc.’s head of renewable development, told University of Notre Dame students in 2015.
The Florida company has grown into a green Goliath, almost entirely under the radar, not through taking on heavy debt to expand or by touting its greenness, but by relentlessly capitalizing on government support for renewable energy, in particular the tax subsidies that help finance wind and solar projects around the country. It then sells the output to utilities, many of which must procure power from green sources to meet state mandates.
NextEra has been careful to build sites only after it has customers lined up, avoiding debt problems that sank rivals such as SunEdison Inc. And it has assiduously avoided the kind of claims of altruistic motives that are common among some green-energy companies.
“They were focused on business fundamentals and not the Hollywood status” that comes with being a champion of green power, said Andrew Hoffman, a University of Michigan business professor who was on a NextEra advisory board until 2012.
NextEra, as America’s most valuable power company, has a market capitalization of $74 billion. In 2001, the company, formerly Florida Power & Light, was the 30th largest U.S. power company, with a $10.2 billion valuation. It said in 2017 federal filings it produced more megawatt-hours of electricity from wind and solar farms than any company in the world; regulatory documents suggest it is, indeed, a bigger wind and solar producer than its largest global competitors, in Europe and China.
The way it captured the lead in the renewables market has allowed NextEra to grow despite the fact that the electricity industry has struggled with flat demand for power. The U.S. government expects power companies to generate $4.8 billion in renewable-energy tax credits this year, and NextEra is poised to be the largest generator of them, selling some to other corporations interested in lowering their tax bills and using the rest to shrink its own.
NextEra has been led for more than 15 years by the same cadre of executives, notably James Robo, a General Electric Co. alumnus who was elevated to chief executive in 2012. Mr. Robo declined to be interviewed. NextEra declined to discuss its business.
The company faces challenges as it strives to continue its rapid growth, including the pending expiration of federal wind tax credits that will begin in 2020. Many industry executives believe companies such as NextEra will shift their focus to building more solar projects, which still benefit from a continuing tax credit.
NextEra executives have told analysts in quarterly calls its renewable development business will continue to thrive despite changes in policy, as the declining price of wind and solar power drives investment.
NextEra has suffered setbacks trying to expand in utilities, including Texas’ rejection last year of its bid to buy a large transmission company and Hawaiian regulators’ 2016 rejection of its bid for the state’s largest utility. It is currently seeking approval to buy a Florida utility for $5.1 billion.
‘Robo math’
How the company grew to dominate green power emerges from interviews with more than two dozen former employees, customers and competitors.
In 1998, Florida Power & Light created a division, FPL Energy, to explore opportunities created by deregulation of some U.S. power markets. Four years later, Mr. Robo, a Harvard M.B.A. who had been an executive in GE’s financial-services division and Mexico operations, joined NextEra. Within a few months, he was assigned to head the new division.
Mr. Robo, 55, is known for preaching financial discipline and drilling into accountants and project developers, said former employees. “We called it Robo math,” said Adam Bernstein, a financial analyst with the company until 2007.
While going through a presentation, Mr. Robo could “stick a screwdriver in you and pry you open,” one former employee recalled, hunting for lax thinking such as overly rosy financial projections. He would do it calmly, the former employee said, while munching through a salad he had brought from home in Tupperware —one manifestation of his frugality.
He avoided hiring the type of workers who join the industry to change the world, former employees said.
When Mr. Robo took over in 2002, the wind industry was small and mostly unprofitable. Wind represented 0.3% of electricity generated, according to federal statistics.
