With
their scale, financial wherewithal and 130-gigawatt (GW) pipeline of
new large-load customers, the planned combination of electric utility
and wholesale power giants NextEra Energy and Dominion has the potential
to substantially accelerate the buildout of new natural gas-fired power
plants and gas transmission infrastructure and, with that, the need for
incremental gas production to support it all. There’s a caveat, though,
namely that NextEra’s Florida Power & Light (FPL) so far is
sticking to its plan to phase out all of its gas-fired generation within
the next 20 years. In today’s RBN blog, we discuss how we view the
likely impact of the NextEra/Dominion merger, focusing primarily on the
near- and midterm.
Many of you have already heard or
read about the deal, so we’ll keep our summary to a short paragraph.
NextEra Energy, corporate parent of regulated utility FPL and wholesale
power developer NextEra Energy Resources, on May 18 announced an
agreement to merge with Dominion in an all-stock deal valued at more
than $66 billion. NextEra shareholders will hold a 74.5% stake in the
combined company and shareholders of Dominion, which has 3.6 million
electric customers of its own in Virginia, North Carolina and South
Carolina (plus a half-million gas customers in South Carolina), will
hold a 25.5% stake. The massive deal is expected to close in 12 to 18
months; the duration is tied in part to the fact that it needs to be
reviewed and approved by four state public service commissions. (Oh, and
while a single entity will be formed, NextEra and Dominion will retain
their names and operate out of dual headquarters in Florida and
Virginia, respectively.)
In announcing the agreement,
John Ketchum, NextEra’s chairman, president and CEO, said “To really
put our size and scale into perspective, consider this: The combined
company's enterprise value would make us the third-largest company in
the energy sector in America, behind ExxonMobil and just barely behind
Chevron, and bigger than the next two largest power companies combined.”
To
get a handle on the merger’s significance to data centers, power
development and U.S. gas consumption — the primary focus of our analysis
today — let’s briefly describe the three biggest elements of the two
parent companies:
- NextEra Energy’s
(NEE) FPL subsidiary is the largest electric utility in the U.S., with
more than 6 million customers, the vast majority of them on the Florida
peninsula and a much smaller number in the state’s panhandle. FPL also
is the nation’s #1 end-use consumer of natural gas; the utility’s
37-GW-plus generation fleet includes more than 20 GW of combined-cycle
plants and 3 GW of combustion turbines (CTs) that likely consume an
average of 1.5 to 2 Bcf/d in the warmer, more humid months of the year
when air conditioning demand is highest. FPL’s pipeline supply contracts
add up to some 2.2 Bcf/d, equal to the demand of an LNG export
terminal. Its pipeline contracts represent about half of all the gas
consumed in Florida.
- NEE’s NextEra Energy Resources
(NEER) unit is the U.S.’s largest developer, owner and operator of
independent power facilities, almost all of which sell their output to
utilities and others under long-term power purchase agreements. NEER’s
current generation portfolio tops 36 GW, with wind farms accounting for
about 60% of the total, followed by solar (28%), nuclear (6%), natural
gas (4%, or about 1.5 GW), and biomass and other renewables (2%). The
subsidiary also has more than 5 GW of battery storage capacity.
- Dominion,
finally, owns three regulated utilities: Dominion Energy Virginia,
Dominion Energy North Carolina and Dominion Energy South Carolina. The
North Carolina utility serves the northeastern corner of the state and
operates in conjunction with its much larger Virginia counterpart. Their
installed capacity totals more than 23 GW, including 8.4 GW of
utility-owned gas-fired plants. Dominion Energy South Carolina, in turn,
has about 6 GW of existing capacity, nearly half of it fueled by gas.
There
are three more things we should note here — all of which will play into
what we’ll be discussing in a moment. One is that Dominion Energy
Virginia serves the largest concentration of energy-intensive data
centers on the planet (see Sweet Virginia).
Another is that FPL and the Dominion utilities have locked up a
substantial share of the existing and planned pipeline capacity serving
the lower half of the East Coast. Yet another is that NextEra in the
past couple of years has entered into several agreements — with
gas-plant provider GE Vernova, utility giants Entergy and Xcel Energy,
and mega-tech companies Google and Meta, among others — aimed at quickly
advancing the development of power projects to support massive data
center plans across the U.S.
Before we get into some
details, Figure 1 below puts the size and ambitions of NextEra and
Dominion into perspective. The short green bar to the right illustrates
the capacity of Dominion’s (stock symbol D) existing generation fleet
(about 30 GW), while the blue bar shows NextEra’s (stock symbol NEE) 80
GW and the black bar shows the pro forma company’s combined 110 GW. The
tall green bar to the far left shows what the companies see as the
potential size of NextEra/Dominion’s fleet in 2032, by which time they
expect to add another 115 to 150 GW of capacity, most of it from solar,
battery storage and gas-fired projects (and maybe some nuclear).
NextEra’s Ketchum, who will serve as the merged company’s CEO, noted
that the expected addition of about 130 GW of capacity over the next six
years is “more than three times the total installed capacity of the
entire state of New York.”
