Nuclear energy is seeing a resurgence in interest due to an expected surge in power demand over the next two decades. Microsoft is helping lead the charge by signing a deal to buy all the future power produced by a nuclear power-generating unit that Constellation Energy plans to restart. The tech titan needs the emissions-free energy to power its data centers and support its cloud computing and artificial intelligence (AI) operations.
Many believe this deal could help jump-start the country's dormant nuclear energy industry. While nuclear power plant operator NextEra Energy(NYSE: NEE) believes this energy source will play a role in helping meet the country's power needs, it sees some practical limitations.
Powering a demand surge
As a leading producer of all forms of power, including nuclear, NextEra Energy is as dialed into the industry as anyone. The company believes the U.S. power industry is entering a "period of unprecedented growth in power demand," according to CEO John Ketchum on the utility's third-quarter conference call. He pointed out that "there are forecasts for an approximate six times increase in power demand growth in the next 20 years versus the prior 20."
Several catalysts are driving that robust outlook, including data centers. Ketchum said their "power demand alone is expected to increase substantially, adding approximately 460 terawatt hours of new electricity demand at a compound annual growth rate of 22% from 2023 to 2030."
Because of that, the country will need to build a tremendous amount of additional power-generating capacity. Data centers, in particular, need baseload capacity because they operate 24/7/365 and require uninterrupted power. Nuclear is ideally suited to meet this need because it's baseload and emissions-free, which is important for tech companies in reaching their climate goals.
Nuclear's role
Because NextEra Energy operates several nuclear power plants, many often ask about its view on the future of this energy source. On the call, Ketchem discussed what he sees ahead for nuclear energy. He stated, "Nuclear will play a role, but there are some practical limitations."
First, he noted, "There are only a few nuclear plants that can be recommissionedin an economic way." That includes its Duane Arnold nuclear plant in Iowa, which it's looking to restart. However, "even with a 100% success rate on those recommissionings, we would still only meet less than 1%" of the expected 900 gigawatts of new power capacity needed by 2040.
He further noted that:
Existing merchant nuclear generation is also limited in its ability to meet that demand, given there are only approximately 20 merchant nuclear plants in this country. That nuclear capacity is also not evenly spread across the U.S. And is not in many places. For example, there are only two merchant nuclear plants west of the Mississippi. Nuclear plants across the country are already serving existing demand. So even if they are contracted by specific customers, new resources need to be built to meet new demand.
Ketchum then turned to the subject of building new nuclear capacity to meet the additional power demand, stating, "And alternatives such as new utility-scale nuclear and SMRs [small modular reactors] are unproven, expensive, and again, not expected to be commercially viable at scale until the latter part of the next decade."
In other words, they're not a near-term option to meet the demand growth coming over the next several years. While they could be an option in the next decade, nuclear energy would need to be price competitive with renewable energy plus storage, which is growing cheaper as it scales.
Given nuclear energy's practical limitations, NextEra Energy doesn't believe it will be a major player in supporting the country's growing power demand. Instead, it's much more optimistic about the future of renewable energy.
Ketchum noted on the call that "Forecasts are projecting a tripling in renewables growth over the next seven years compared to what we've seen over the prior seven." He believes no company is in a better position to capitalize on this demand growth than NextEra, given its scale and experience in the sector.
Playing a supporting role
NextEra Energy expects power demand to surge over the next two decades. It sees nuclear energy playing a limited role in helping meet that need, given the practical factors that will likely hold it back. Because of that, the company is much more bullish on renewable energy. As a leader in that field, NextEra Energy expects to deliver robust growth in the coming years. That makes it a great stock to buy to capitalize on the country's surging power demand.
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Matt DiLallo has positions in NextEra Energy. The Motley Fool has positions in and recommends Constellation Energy, Microsoft, and NextEra Energy. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
