NextEra Energy(NYSE: NEE) has an exceptional dividend track record. The leading utility has increased its payout each year for more than a quarter century. It has grown the dividend by nearly 10% annually since 2007.
It should have plenty of fuel to continue growing its payout in the future. A potentially massive catalyst is the emerging green hydrogen sector. It represents a multitrillion-dollar market opportunity. NextEra recently revealed its first major potential project as it works toward capitalizing on this massive opportunity.
Producing hydrogen to clean up the agricultural sector
NextEra Energy is joining forces with CF Industries(NYSE: CF) to develop a green hydrogen project to support the fertilizer maker's operations in Oklahoma. The companies have proposed building a jointly owned 100-megawatt (MW) electrolysis plant at CF Industries' Verdigris Complex in Oklahoma. NextEra Energy would power the plant by developing a 450 MW renewable-energy facility. The renewable-powered electrolyzer would split water into oxygen and hydrogen.
CF Industries would buy 100% of the zero-carbon green hydrogen produced from that facility. It would use the emissions-free hydrogen to make 100,000 tons of zero-carbon green ammonia annually. The project would help remove up to 130,000 metric tons of annual carbon dioxide emissions from the agricultural supply chain.
NextEra Energy is "establishing what we expect will be a long-term relationship with the world's largest ammonium producer" in CF Industries, according to comments by CEO John Ketchum on the first-quarter conference call.
Well positioned to capitalize on the green hydrogen opportunity
NextEra Energy sees a bright future for green hydrogen. The company's CEO stated on its Q1 call:
We are excited about the role [green hydrogen] is expected to play as a solution to help our customers cost effectively lower emissions. As the world leader in renewables and a leader in battery storage, we believe we are the logical partner for green hydrogen with significant interconnection and land inventory positions and deep market expertise to help our potential partners optimize some of the best green hydrogen sites around the country. As a result, 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.
NextEra Energy is still in the early stages of capitalizing on this massive opportunity. It's working on completing construction on a green hydrogen pilot project at its Okeechobee Clean Energy Center later this year. It's investing $65 million to build a 20-MW electrolyzer to produce green hydrogen from solar. It plans to use that emission-free fuel to replace some of the natural gas used to power that plant.
Meanwhile, the proposed joint venture with CF Industries is the first of many larger-scale green hydrogen projects it's pursuing. Ketchum stated on the call, "Our team continues to engage with multiple potential partners and customers on hydrogen projects, representing over $20 billion of capital investments and requiring more than 15 gigawatts of new renewables to support."
That's a sizable opportunity for the company with dual drivers. It can invest capital into building and operating electrolyzers like its potential joint venture with CF Industries. It can also invest in building additional renewable-energy capacity to power electrolyzers, including those owned solely by third parties. These investments will help grow its earnings and cash flow, giving it more fuel to increase the dividend over the longer term.
Hydrogen-powered growth ahead
NextEra Energy believes green hydrogen could be a significant long-term growth driver. The company is in the early stages of capitalizing on opportunities to invest in building facilities to make the emissions-free fuel and the renewable energy needed to support its production. Those dual drivers could give the company a lot of power to continue growing its dividend in the years to come.
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Matthew DiLallo has positions in NextEra Energy. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool has a disclosure policy.
