Is Hydro Draining Your Portfolio’s Profits? – NextEra Energy, Inc. (NEE), Exelon Corporation (EXC), Duke Energy Corp (DUK)

NextEra Energy, Inc. (NYSE:NEE) announced this week that it officially sold off the last of its hydro assets. Once lauded as the clear and clean future of electricity generation, it has had its future recently called into question by economists and environmentalists alike. Let’s take a look at where hydro stands, who’s behind it, and whether hydro-heavy utilities know something NextEra Energy, Inc. (NYSE:NEE) doesn’t.

All dried up
After announcing its intention to sell last December, NextEra Energy, Inc. (NYSE:NEE) emptied its electricity generation bucket of its remaining hydro assets this week. The utility handed off 19 facilities and eight storage reservoirs to Brookfield Renewable Energy Partners LP (TSE:BEP.UN), a Canada-based pure-play renewable power platform.

NextEra Energy, Inc. (NYSE:NEE) CEO President and CEO Armando Pimentel called the assets an “attractive portfolio in many respects” but cited generation optimization and concentration of resources as primary reasons for his company’s decision.

NextEra Energy, Inc. (NYSE:NEE) has an eye toward “greater growth potential,” and hydro’s heyday seems to be behind it. The majority of all facilities were built in the 1970s, and generation has remained fairly steady over the past 40 years. In contrast, other renewables, primarily wind and solar, have nearly quadrupled capacity since 1990.

Source: eia.gov.

But there’s no discounting the continued importance of hydropower. It currently comprises 8.2% of total U.S. generation, and a whopping 63% of renewable power.

Source: eia.gov.

The future of renewables

Looking ahead, hydro is the slow and steady tortoise of renewable energy. From now through 2040, increases in non-hydro renewables are expected to account for 32% of total growth, while hydropower output should continue at current levels.

Source: eia.gov.

Despite hydropower’s lackluster growth potential, there’s good reason that capacity hasn’t decreased. Most of the “best” sites in the U.S. have been filled, and hydropower offers a “clean” and “steady” source of electricity, with its major capital expenditure days behind it.