NextEra Energy, Inc. (NEE) Earnings Call Transcript & Summary

With that, I'd like to just turn to the cautionary risk factors. You guys all know these forward-looking statements. Not all the information's prepared in accordance with GAAP. You guys are used to the customaries there. Move on to the third slide. Most of you are all familiar with the company as well. Two world-class businesses, Florida Power & Light being the largest freight rate utility in the United States, based on megawatt-hour sales, and then also the world. Later in the renewables in NextEra Energy Resources, we operate off the [ kitcom and platform ] on the left-hand side, which gives us tremendous scale as [ they manage ] as we execute against our capital deployment program, which right now is roughly $20 billion a year, given all the significant investments that we see going forward. Let me spend a minute talking about what the future holds for them because the bottom line takeaway that you should have as you leave the room from my remarks is that we have terrific growth visibility, probably the best growth visibility we've ever had as a company. And that's very -- it's long-term growth visibility. Let me talk a little bit about why that is. The first is the Inflation Reduction Act, and I'll go through a couple of things on this slide here in a minute. But one of the things that I want to make sure investors understand is the way that the Inflation Reduction Act was drafted, remember that the production tax credits at 100% for wind, 100% for solar and the 30% investment tax credit for storage, those apply until the country is able to reduce its GHG emissions by 75%. We don't expect that to occur until sometime in the mid-2040. So we internally view this as an expectation that we could have 100% PTC in those 3 areas for more than the next 2 decades. And then obviously, those would roll off as you get in the latter part of the 2040. So that certainly gives us a very strong balance in terms of the growth possibilities for the company long term. And then the second thing that we have in addition to tax incentive certainty, which we've never had that kind of certainty for that long period of time, is the natural gas price dropped back that we are doing business under today. And I think, as most of you know, natural gas prices have risen significantly, 55%, 60%. You've seen the 5-year strip shoot up from $2.80, $2.85, up to $4.80 as high as $5.80 or $6 here over the last 9 months. But even if you take it conservatively, the 5-year strip where it is right now, at right around $4.70, you're really looking at a $2 increase in natural gas prices over the horizon. Well, in a 7 heat rate market, which most of the markets that we do business in are 7 heat rate markets and gas turbines are the marginal units that get dispatched, it's at the price of those markets, that translates into a $14 to $15 move just in power prices alone that have been driven by gas. Then you add on top of that the [ IRA ] incentives, which could have gone away by the end of the decade, well, now at the end of the decade, you're looking at $28 or more in production tax spread for every megawatt-hour that's generated. So when you put those two together, there is an obvious economic advantage to renewables that I'm going to cover in the next slide. But here are some of the things that you should take away from what [ IRA ] means for the business. Again, the bottom line is that over 2 decades of incentives and growth visibility but -- and obviously, what that means for wind and solar growth. But some -- the two things that aren't talked about a lot, and I've got a couple of slides here on, one is repowers. We have an enormous operating portfolio today and a significant backlog. And so I take the simple example, if I put a wind project into serves in 2022, I should be able to repower it the first time in 2032 and then the second time in 2042. That meets that wind project that used to come off of production tax credits after year 10 [Technical Difficulty] [ that's nothing ]. It actually has PTCs for 30 years. That's a much different value proposition than anything we've ever had before. We've got a high success rate in repowering our fleet. Can you go back one slide? And then also the storage opportunity that we have, given the existing portfolio and platform that we have, we have the ability to collate -- co-locate storage in all of our existing assets, and I'm going to talk a little bit about that as well. And then together with [ IRA ], there are significant manufacturing incentives that really, I think, will help us to redomesticate the supply chain here in 3 to 4 years to the U.S. And that creates an enormous competitive advantage for a company like NextEra because given the supply chain relationships that we've already had for the last couple of decades and given the scale at which we're making purchase decisions, we can do things that are a lot different than the smaller developers that we compete with in wind and solar and battery storage. We can actually go to a supplier and say, "Hey, let's stand up a large manufacturing line, and we'll put a large backbone order against it." And all of a sudden, we're manufacturing wind turbines, solar panels and batteries at scale at a significant discount, based on the amount of buying power that we have and the things that we can do with our balance sheet, the great partnership-type structures with OEMs that really allow us to tap into the significant manufacturing incentives that are embedded in this legislation. I mean, it's $0.17 a kW for solar. It's another $0.14 a kW for wind. And then I would expect battery prices to come down roughly $30, $35, just based off of the manufacturing incentives alone. And then there's significant kickers that go along with it for domestic content and for building projects and economic development zones, building projects at brownfield areas. And we already have large land positions around coal plants, around oil-, gas-fired units that we expect to be retired. So I think we're really well positioned to capitalize on that and the head start that we really have around land. Let me talk about economics because really our business, it all comes down to economics. I think the sustainability pieces are given for customers. And we've been at it for a couple of decades, like I said before. And really, at the end of the day, the customer makes an economic decision when they decide where to source their power. When you put [ IRA ] together with the natural gas price environment that we're in, I mean, wind and solar have an enormous price advantage over all other forms of generation. This is being kind of gas, I think we've got gas in here at $4 to $5, you're going to see a lot of volatility. I think it's going to be more from $5 to $10 an MMBtu over the next decades just because of the LNG volatility that you see on export activity to Europe. You don't see coal to gas switching anymore, and it's very hard to build pipelines in this country. So we feel very good about how we compare to not only existing natural gas but new-build natural gas-fired generation as well. We've always had a clear leadership position over nuclear and the other forms of generation that are seen here. One other point I want to make is I sometimes get a question about, well, what about the 70-30 relationship that you have with the rating agencies: 70% regulated, 30% unregulated. When you can see that with the wind and the solar prices actually coming down, we actually flow through a lot of that tax incentive benefit to the customer. So the unregulated EBITDA that we're getting back, right, is lower because the revenue line is lower. So if I used to be getting $30 with incentive, now I'm getting $20. And so I've got more headroom under 70-30 than we had before. And then we obviously have NEP as a vehicle to be able to recycle capital. So feel like we're in a really good shape in terms of the balance sheet and where we stand with the rating agencies as well. And actually, IRA has helped us there. And I think that's something that's really not recognized by the investor community at this point. Here is another slide. This just really summarizes the point I was making on power and gas. You see here, obviously, the gas price on the right has led the significant increase in power prices, which really helps put renewables in the money. I always like to remind folks, although there's concerns of a recession and we're in a high-inflation, high-interest rate environment, I love where we sit. We are one of the few folks that are selling a deflationary countercyclical product. And so if you're looking for a hedge against inflation, our customers will want to buy because we are actually the one way they could take a bite out of the bill. And it doesn't matter if it's an investor in utility, a co-op in muni or a C&I customer, we're deflationary, we're countercyclical. That's a good place to be. And it's not only power prices, but it's rec prices. I think as you see more and more demand or renewable energy solutions to get to net zero by 2045 or 2050, which most C&I companies have a mandate to do, rec prices are going to continue to climb. They're also going to climb because of behind-the-meter solutions like hydrogen. Remember, when the wind is not blowing and the solar -- the sun's not out for solar, you've got to buy power off the grid for the hydrogen. You're going to have to green that up with recs. That's going to put a big demand and premium on recs at rec prices. I love where we stand because we have a huge operating portfolio already that generates recs. And given the land position that we have going forward, I think we're well positioned to situate our projects in places that can capitalize on that. This is another slide we showed at the June Analyst Day. You can see the impacts of IRA has had on really the inflationary pressures that we have seen on solar and wind compared to natural gas. Obviously, that's taken a big bite out of the inflationary pressure for obvious reasons. Then on the right-hand side, you're going to see the headroom we have against the new-build gas-fired generation assets. Solar is now 54% discount to new-build gas, and wind's a 71% discount to new-build gas-fired generation. Our vision is the same. Most -- our vision is to be the largest, most profitable competitive clean energy company in the U.S. Again, we're going to do with both businesses, where we'll continue to deliver on our customer value proposition of low bills, outstanding reliability and outstanding customer service at FPL. NextEra Energy Resources, continue to be the world's leader in renewables, and everything I'm talking about today is just more and more renewable development opportunities for us, going forward. The strategy is four-pronged. The first is to decarbonize ourselves in Florida. We came out with our Real Zero initiative. Our plan is to get to 100% decarbonized in the state. We're going to do that in a bill-neutral way. We hope to take costs out of the bill, given the sizable difference that you have between new renewable installations and where gas-fired generation currently sits. It's one way we can hedge natural gas prices in Florida, where we have a very small solar footprint today. We're only 4% of our generation fleet as solar. We plan to add 90 gigawatts of new solar over time, 50 gigawatts of batteries over time and then convert 16 gigawatts of our natural gas-fired generation fleet to run off of hydrogen. And that, I think, gives us terrific growth visibility in Florida and also really help customers by giving them a lower-cost option for their electric generation. And then obviously, keep doing what we're doing over the last couple of decades in helping lead the decarbonization of the power sector. I think -- we -- do not underestimate the head start that we have rest -- against the rest of the industry with our land position, with our interconnection position. Our ramp position right now, we got a 100-gigawatt head start on the rest of the industry. We basically -- every state in the country, we've got a massive land position. It's informed by 20 years of market knowledge and data and data [ analytics ] capability to pick the best solar resource and wind resource sites. We already have the established OEM relationships. We've got the balance sheet and the buying power to redomesticate that. That's not easy. It's really hard when you're a brand-new utility and you're starting out. You don't have the land locked up. You don't have the interconnect locked up. You don't have the wind resource or solar resource capability. You don't know how to do tax equity. You don't how to monetize credits. You don't have relationships with solar or wind providers. That's a lot to overcome when you haven't been doing it. And so we feel great about our ability to [ take ] the market to that sector. And then new opportunity for us, which has been C&I, which has been a big opportunity in marketing to the C&I sector to really help them lower their electric bill, provide them a hedge against gas with a lower-cost alternative in renewables. But then at the same time, focusing on their Scope 1 emissions, where they might be relying on fossil fuels to run their refinery, their industrial complex, their transportation fleet. We can move them into hydrogen, which now benefits from a $3 a kg production tax credit, which we think puts green hydrogen in the money that will really help drive Scope 1 solutions. But all that green hydrogen results in a lot more renewables getting built, and that's the end goal. And to support all the renewables coming online, we're continuing to build out the nation's leading competitive transmission business and see a lot of opportunities there as well. Repowering, and I mentioned before, the opportunity set is on the right-hand side. You can see it -- as you go through the [ lock ], it's 40 gigawatts of potential opportunity just because we have such a large renewable portfolio. It doesn't mean we'll repower all 40, but we sure will give it the old college try and make sure that we have a high hit rate on those opportunities as we go forward. We will have -- the first -- for the first time, the opportunity to actually repower solar because solar now moves to the production tax credit. We may have to make a couple of fleets with how solar gets accommodated in the 80-20 test with Treasury, something that is already on the list, and it's something we've already been working on. And then on the battery storage side, we have a huge co-location opportunity with them. We have a lot of sites today that just don't have battery stores because we -- you couldn't put a battery at a wind site because it didn't work to qualify the battery for the storage ITC, had to pair it with solar. So now a lot of opportunity with storage at wind and then a lot of our solar sites that don't have batteries today. So a big opportunity with the stand-alone storage ITC of 30%, where it doesn't require it to be paired with solar. We can really go out and optimize the existing portfolio. Don't underestimate the amount of option value in our existing portfolio. Then green hydrogen. Obviously, as I said, we're looking at a number of opportunities around C&I and really helping on the Scope 1 emissions. That's the first piece on industrial applications, move them off of fossil fuel to ammonia production, fertilizer, writing the money today, refineries, specialty chemicals. Transport as well, we've done a lot of work in this area. We feel like we've picked out terminals that could really be in the money for us from a hydrogen standpoint. And to find -- to be successful in hydrogen, you've got to produce it at scale because you want to have almost 100% utilization rate under electrolyzed. Well, you also want to make sure you're putting your electrolyzer in a low-cost part of the country, where you have lower power prices with a lot of renewables. We have to know where those areas are, if we have the data to be able to figure that out. And so I think we've got a real first-mover advantage in terms of being able to pick out the right real estate to put those out. We also want to put them in places that are on major transportation corridors to leverage that long-haul vehicle transportation market in areas where we have immediate industrial demand. We will have to add liquefaction and liquefaction delivery capability. We may partner at first or we may go ahead and RFP that out. I think that's something a skill that we can pick up over time to be very successful with. Long term, on the resources side, it's $4 trillion of opportunity; $2 trillion in the power sector, another $2 trillion that we're chasing in all other sectors, really C&I and the transmission build-out opportunity. And then on Florida Power and Light, it's 160-gigawatt opportunity of new renewables through 2045. We will continue to, with our transmission program, hardening, undergrounding all the things that we talked about. Florida is -- well, is expected to continue to benefit from the strong population growth than we've seen. Everything I've talked about is equally great for NEP. If you look at NEP's portfolio at almost 7 gigawatts of wind and 1,500 megawatts of solar, we really haven't put storage at many of those assets. So a huge storage co-location opportunity at NEP to drive organic growth and then a repowering -- big repowering opportunity at NEP for all the reasons that I just mentioned. So you can see these here on the left-hand side, the real growth opportunities that we have on NEP is all the growth visibility that they'll have from what's coming from Energy Resources now with over 2 decades of tax incentives, also the repowering, the co-location of the storage. Third-party M&A. There's going to be a lot more renewables built, which seems going to be a lot more renewables for sale. And we've proven to have a very competitive cost of capital, when it comes to mergers and acquisitions, particularly in wind where we have a real O&M advantage over the rest of the market. We've seen that in recent success that we've had on O&M acquisitions at NEP. And then with the transferability provisions and tax equity, tax equity structures basically monetize the depreciation [ from ] the fifth year. So now we have an opportunity to maybe go buy out tax equity, create a bunch of CAFD and then go transfer the tax credits that we would have monetized through the tax equity structure. So that's another real financing uplook for NEP that I'm not sure folks probably fully appreciate. And then you can see the enhanced opportunities. I've spoken about each of these as well. So enormous growth opportunities for NEP as we look forward. Couldn't be happier about the way both businesses are situated, and the team is very focused on the future. And with that, Steve, I'll turn it over to you for questions.

Great. John, can you hear me okay?

I can.

Great. You look a lot bigger already, too. So thank you, again, for taking the time. Maybe just to kick off, going back to Hurricane Ian you've been experiencing. Just can you give us -- you've obviously dealt with some pretty bad hurricanes in the past. Just the scale of this versus some of those other ones? And then, just is there anything unique about what happened here in terms of kind of impact on infrastructure versus prior ones? And just how you're -- you have a good history of recovering from these relatively quickly and such, and you put a lot into your system. How do you feel like that's kind of held up to this tough storm?

Yes. No, good questions, Steve. So right now, I mean, today is the first day we're really able to get back into the field. And so still have a lot of water in the Naples and in the Fort Myers area. So I just completed the morning call right before I hopped on with you all. And we're still going through that assessment, currently. I would expect all of the investments that we made have held up well. Where we have some risk, obviously, is where you have a lot of that water intrusion with [Technical Difficulty] foot swells coming online. The generation assets, I think, are in good shape. So it's really more about is the transmission infrastructure -- and really more of the distribution because the transmission has really been hardened and undergrounded in places, but it's really more of that distribution network over there, some of which is ours, some of which isn't ours, how has that held up? And we've made some investments there. That's still part of the program, going forward. But we have the right level of resources to deal with it, and I think we've dealt with it successfully, like you've seen us deal with it in the past. But we'll have a full assessment by the end of the day.

Just in related, I know you've been focused on a program...

Let me say one more thing about that, too. I should have captured, which is that we have a very -- I think everybody knows we have a storm recovery fund. It had about $180 million in it going in. And we've all -- we've never been denied storm recovery by the commission. Just want to point that out. I mean the state knows what we're up against. And don't forget, I mean, every day, the lights are out, I mean that's $3 billion of GDP for the world's 15th largest economy if -- or it were actually a country.

No. That's helpful. I mean I -- going back to the initial question of just Ian versus some of the prior hurricanes, is the challenge here is maybe -- again, I've been busy in this conference for the last 1.5 days. So I'm not as on top of everything as I normally would. But is the challenge mainly just the more flooding maybe than in some of the past ones? Is that...

Yes. I think it's more flooding than maybe what you're going to see from just pure wind. Pure wind damage is really more just restoration. The water intrusion from a surge is different. That can actually result in a rebuild in some areas.

Okay. And I know you've been working on a program to underground a lot more, and it's a pretty long focused program with the utilities. Is that something that could get a lot more attention, going forward, given this event?

Yes, definitely. I mean, I think the underground program is something that we continue to try to accelerate because if -- that is where you have your risk, right, is what I call that last mile, which is the distribution system going from transmission to the home. And you still have a lot of, what I'll call, backyard distribution networks from homes built back in the '50s, '60s and '70s, where it was more attractive to do that. Now we put the pad-mount transformer in the front yard. We underground it. And it's a lot easier to get to. You can do it more quickly. And you just don't have the kind of outages and duration of outage that you would have in other situations.

Great. Maybe switching gears to your new -- the IRA and the opportunities for NextEra there. I appreciate the additional disclosures you gave on that. Could you give us a sense kind of within the organization, what are you doing differently, if at all, in terms of getting ready for what IRA brings? I know you are already prepping for quite a large kind of growth focus in NEER, et cetera. Just, is there things that you're starting to do differently, internally, to kind of -- because IRA happened?

Yes, there are. So the first thing that I would say is we're fortunate because we already have been making advancements within the development organization in preparation for what's coming because we thought with or without IRA, renewables were going to be in the money. And so land in particular, really making a conscientious effort to get the land team out there. We've got, like I said before, 100-gigawatt head start really on the rest of the industry and really ramping up those resources. Even as large as the land team is, doubling the size of the land team that continue to go out and lock up positions. And our land team is very effective because, again, we have 2 decades of experience. We're able to use a lot of data and information other people don't have because we have operating assets in every -- all 49 states. So we can capitalize on that in terms of where we direct the land team to go out and to lock up facilities. And we also, a few years ago, I think, did a really good job around [ 845 ], which the ability to leverage existing interconnections at whole plants or at high heat rate gas plants or oil bar units. The land team already was told to go out and surround those, right, and already grab the land. So now that we have land positions there, those sites may be eligible for the 10% brownfield kicker that's in the -- in IRA, right? If you build renewable facility where you're doing a brownfield around coal or, like I said, any other fossil fuel assets, you get the benefit of that as well. So land is an area. Front-end origination is another, right? We have a large development organization. That development organization is going to get even bigger, right? We are scaling up big time across the board. But the good thing is we already have the pieces in place. So instead of trying to create a brand-new organization with brand-new capabilities in an area we've never really had much experience in, we're just taking the existing platform and adding bodies to it. The platform already exists, the data, the technology, the analytics, the systems, the approach, it's all there. So it's really just a hiring exercise for us.

No. That's helpful. One thing we've heard at the conference, a lot of excitement about IRA across the various sectors. But a lot of the regulated utilities, just like FPL, are very excited about the solar PTC and being able to more easily do renewables themselves and rate base and not as much with third parties. So how are you thinking about the competitive dynamic for utility renewables? Do you see your mix moving more towards C&I than utilities because of that? Or do you think you still can compete effectively? Obviously, your cost, as you show, went way down, too, for -- so are you still -- are people are still going to be surprised that you can compete even more on PPAs than utilities and rate base?

Yes. I think, Steve, the short answer is I expect to be able to compete PPAs with regulated -- with rate-regulated utilities [ communities ] and with co-ops. Here's why: when you take the rate-regulated utility, number one, it's an economic issue. They based -- first of all, they're not allowed to take bonus depreciation. We can, right, because when the 163(j) rules came out back in 2017, utilities basically didn't get the benefit anymore of bonus depreciation. We get that benefit. That's the first piece. Second is we have a lower cost of capital. We haven't any minus balance sheet. Most rate-regulated today are slitting down the scale from a credit standpoint. They have weaker balance sheets than they've had before. We have NEP that we can finance through as well. So we've got, I think, a real cost of capital advantage. When you put those 2 pieces together, economically, it's going to be tough for rate-regulated utilities to compete with our PPA price with their VOT price. And that's going to come at a time that is going to be harder for rate-regulated utilities because some rate-regulated utilities in this country have affordability issues, affordability issues pressure, really by higher natural gas prices. And the customer is going to be really wanting the new renewable offering for the same reasons we're looking at it because it really should help take a bite out of the bill. But it's also going to put commissions in a position where they have to make sure that the customers really getting the benefit of low-cost options. It's going to be a harder sale for rate-regulated utility to say, "Hey, pay $6 or $7 more a megawatt-hour for my VOT than a PPA," just making numbers up, in this environment. So I feel very good about where we are. I think high natural gas prices create a real accelerant to demand because folks are going to be looking for ways to take -- to alleviate some of that build pressure. The other thing I want to come back to on rate-regulated utilities are a lot of them, I think, were probably caught by surprise that IRA actually got passed. A lot of the rate-regulated utilities, they're great customers of ours. They don't have land positions. They don't have interconnect positions. They don't have established relationships with OEMs. They've never bought solar panels, they've never bought inverters. We deal with them on just building substations, Steve, and they don't even had to monitor the supply chain on substations, let alone the morass of things you have to deal with the buying of solar panels and wind turbines and things of that nature. So I think the OEM challenges are going to be tough for them, particularly when you're trying to now say, "Okay, look, I'm in this period where I've got the standout domestic manufacturing because those that can capitalize on the domestic incentives, right, domestic content, all the manufacturing incentives that go with solar, with wind, with batteries, you have to stand up a domestic supply chain." And that will take 3 or 4 years to really be able to do. In the meantime, you have to continue to be able to access traditional markets. And you're going to have -- so you're really going to be forced into a hybrid approach. And if you're a rate-regulated utility who doesn't really have experience in navigating what that world looks like, that's tough. And when you don't have a balance sheet and a buying power capacity to really stand up a viable, long-term OEM solution, where you can put a big backbone order against the solar panel buy or wind turbine buy or a battery buy, that's tough. I mean you're going to be competing against folks that are already at scale like us that have buying power. They're going to leverage the ability to onshore to get a deep discount from those manufacturers combined with the scale we have in O&M and the financing advantage, the bonus depreciation, all those things. So I feel good about where we are. Long answer to a short question.

Great. John, I guess on the overall financial outlook of NextEra, I mean, obviously, IRA just happened. It's going to take a while to exactly figure out what it does, and you're in competitive businesses. So it sounds like you automatically win new business just because these are competitive businesses. But just -- is it -- you gave -- you were obviously very bullish at your Analyst Day on the TAM of these businesses over time. Is maybe the way to think about this is that you're going to reach that TAM a lot quicker than you would have? And then if you keep the same share of whatever it is, it just kind of accelerates that opportunity a little more? Is that a way to look at it? Or is the TAM actually going to going to grow even more? how just high level do you think about what it means from a NextEra standpoint?

Yes. I think, one, I think the TAM could get bigger because when you couple IRA together with the natural gas price environment we are in and all the challenges that then you see there, folks are going to be looking for ways to take cost out to be competitive, whether you're an investor on utility or a C&I customer or co-op or a community. So I think the TAM could grow. It's not only going to be in traditional renewables, but it's also going to be in, I think, renewable fuels, hydrogen, air capture, synthetic natural gas, RNG, methane conversion alternatives. We are looking at all of these things and have been spending a lot of time on them because they're massive renewable enablers. And now with the new tax regime that we have, I think they could become really viable technology-alternative [ similars ]. So that's why I say that the TAM might be even bigger as a result. In terms of how you think about NextEra's growth, I mean, we'll update things. Typically, what we would do is roll forward an additional year in -- on the Q4 call. That's probably what we'll end up doing here. We're looking at all the different opportunities we have around repowers, around new build, around co-located stores, all those things in our assessment. But remember, '22 and '23 are done. '24 still have some room, some time. The impacts will probably be felt more in the '25 and particularly, the '26, '27 and out, really, the long-term growth visibility that you have now, that NextEra has with 2 decades of incentives and the environment that we're dealing with. And remember, our 2025 number was kind of a going-out-of-business sale around solar and wind because we didn't know if tax credits get renewed after that year. But I do think natural gas accelerates some of that demand into those early years as well. So you got to balance those out. But that's part of the -- all the things that we're going through. But certainly, bottom line takeaway for investors is long-term visibility to a very attractive growth profile for the company.

Great. Well, I want to open it up to the audience for questions. I don't know if I'm the one that's got to do that. You got that. Okay. In the ceiling? Great. So if anyone has questions, you can just ask. You don't even need to be called on. So go ahead. I'll give it a minute. Somebody will ask something. Just, John, maybe on -- we had a utility here earlier, who talked about even with IRA benefits in their recent bidding that the cost of solar bids from 2 years ago are up meaningfully for them, even with kind of, I guess, their bids-included IRA. And just is that -- I guess the question really is, is the supply chain kind of overwhelming a lot of the benefits of IRA in the near term? And just how are you specifically managing the supply chain issues? Do you feel like things are stable, getting better, getting worse on supply chain?

Yes. I think things are getting better on supply chain. And certainly, you've seen suppliers try to put risk premiums in for things like WRO and UFLPA with the forced labor provisions in there. But I think what you're going to see is the supply -- a supply chain correction. And here's why. I mean, one, WRO has really been kind of figured out. There's been a lot of work that's been done with customs around WRO and answering their question. I think they've realized that the industry has gone to great lengths to make sure the contracts are right, that we're not using folks that are in forced labor to produce panels, and then a lot of the supply chain is being offshored outside of China now anyways. And then on UFLPA with the [ Reagan ] Act with forced labor, that law just went into effect back here in June. They're really -- customs is really kind of going through the same thing there. What data they have to have in place from each of the suppliers, they kind of look at it each of them differently. From our standpoint, our panels are continuing to move into the country. We have one supplier who's had things held up. For us, that really only impacts a couple of projects. And the good thing is about that supplier who's been held up almost all, I think 93% of the panels that we have bought from that supplier are Hemlock or Wacker. And Hemlock is a Michigan company, Wacker is a German poly supplier. So we would expect those to get cleared here in short order. And so we have a very small exposure to any [ Conway folly ]. It's only about 7%. So easy for us to be able to manage there. And then what you're seeing, I think, is this supply chain division of, okay, it's going to take me 3 to 4 years, maybe to stand up the domestic supply. What do I do for now? Well, what you do for now is you're seeing a lot of the supply chain basically relocate, based on the presidential 2-year safe harbor the Southeast Asia. Probably in 12 to 18 months, it is all going to be manufactured in Southeast Asia or by Hemlock or Wacker. And so you'll be out of China, not buying Chinese poly and get some wafers, 12 to 18 months will be stood up in Southeast Asia as well, while the domestic ingot wafer shops are being permitted and built here in the United States. And so you're already seeing this hybrid solution come together. And as those come online, that's where you're going to see prices start to alleviate. And because of that, you're already seeing polysilicon prices come down. And so it's going to be a short-term issue, in my opinion.

Questions from audience? Go ahead.

Yes. I'm just curious to kind of unpack the 3 to 4 years to stand up to the domestic supply chain that [indiscernible]. Just from a completely outside perspective without any specific of mine, it just sounds like there's really a short amount of time, just given how long [ politic thing ] takes and given that it's into a rapidly rising demand environment. So just interested in the source of your confidence on that and any kind of external evidence points or mileposts we should look for over the next 1, 2 years to kind of validate that that's happening.

Sure. Yes, good question. So the 3 to 4 years, one comes from 20 to 30 years of development experience building nuclear power plants and gas-fired generation facilities, solar, wind and -- we understand the permitting requirements in states. Some states are harder to permit plants than others. It doesn't matter if it's a power plant or a manufacturing facility. Obviously, we'll pick the ones that are more permit-friendly that actually want jobs and want economic development. And we are looking for ways to grow their economy in a recessionary environment. And so those will be the things that we'll be earmarking. And I've been disappointed, actually, it took 3 to 4 years. I think I would challenge the team to do a lot better than that, and they know that. So we're already off to the races and already have some sites identified. And we have some experience in this area, too. We did this back at Jacksonville with [ GCO ] a few years ago. So this isn't going to be a first go-around for us.

Another question?

So think about -- back to that question, when you think about -- this goes back to the point I was making about a small developer or somebody who's just getting into the business, imagine them trying to take that on. It's a different value proposition. They're going to pay a higher price for their equipment. No doubt about it.

Other questions? Dave?

I know you noticed on the slide comparing technology. You've got small modular reactors way at the high end of the curve. But do you see in 5 to 10 years, those costs coming down to a point where you might be interested in making that part of your offering?

Yes. Good question. We -- here's how I look at it is we put a lot of technology bets on the table because you just never know which one is going to prevail. And we want to have a first-mover advantage in any one that does end up being successful. I mean SMRs, if you could ever figure them out, are great because they have a small footprint. But my -- I'm very skeptical with regard to SMRs. And I think it's -- first of all, the permitting will be really difficult. Don't underestimate trying to permit a small nuclear reactor in a community, right, or in a low pocket or -- so I think it's -- the permitting is going to be really, really difficult. Second, the NRC requirements. They're not going to treat a small nuclear reactor any differently from a security standpoint or from withstanding the impacts of storm or reinforcement, all the things that we deal with, with our nuclear power plants to make sure that they're safe, whether it's small or big. I mean, they're going to suffer the same CapEx. It'll be subject to the same CapEx requirements that large nuclear facilities are as well. And so they're going to be, I think, very expensive. And then you're going to be taking a bet on the technologies. Is it really going to work? Is it going to be successful? I still got to deal with the nuclear fuel, reloading, the price volatility around nuclear fuel, which is a story for another day. But those are all issues that will be confronted when you're thinking about an SMR. So right now, I look at SMRs as an opportunity to lose money in smaller batches.

Yes? Go ahead.

Just one on competitive transmission. And I think during the Analyst Day, you had it as a $40 billion opportunity for you all, with half of that being offshore wind. So maybe first, where does the New Jersey transmission -- offshore wind transmission stand? And then second, you've seen some challenges around some ROFRs in some of these markets. How do you think that opportunity evolves? Would you do see some more competitive transmission opportunities in some of these markets?

Yes. Two great questions. So the first one is the $40 billion. That's our existing pipeline. So those are opportunities that the team is pursuing today. You're right, half of those are in offshore, $10 billion of that is New Jersey, $10 billion of that is New York. I'm told New Jersey has made a decision, and we'll find out soon, next week or 2, I think. Well, you will hear an announcement around where New Jersey is on that. And I think we put some good projects forward. But remember, the competitive transmission business is just that. It's competitive. It's never easy to win the [ solicitation ]. So we'll see how we end up doing there, but feel very good about the pipeline, the way it's positioned, the focus that the team has. I think we've got some other ideas that we're pursuing that I'm really excited about, that could really help enable some very large-scale renewable opportunities for us going forward that are part of the pipeline and continue to be on the drawing board. It is a real competitive weapon for us to understand competitive transmission. Don't underestimate what a big deal that is when you're trying to site and build a new renewable project. So that's the first piece. The second piece on state ROFRs. We made no secret that we're against that. It's anticompetitive. We need a lot of transmission to be built. The ISOs are too slow, a lot of the incumbents a bit too slow to the game, to be able to get these things built. And competitive markets work and we think will help us get viable transmission projects online faster and quicker in a way that's low cost for customers. We just had a win with Circuit on a ROFR challenge in Texas a week or 2 ago. And I don't think that went unnoticed by the DoJ or by FERC. And we -- and I think you saw the DoJ comments that were put into the FERC in [ yearbook ] process that were really discouraging the application of some of these anticompetitive provisions like state ROFRs.

What the end game is there?

Pardon me, was there a question?

The question was on the water business and what's your strategy and end game is there.

Yes. So the water business is one where -- look, the water -- it's a toe -- no pun intended. I mean it was truly a toe in the water business for us. What's great about our company is we can add and take a look at a new business we have and make a big investment. We -- so what we did is we added 7 people to the company, and they can leverage all the back office that we already have in environmental and permitting, in tax and accounting and treasury. And so when we pursue new business and take a "toe in the water" approach, it's not a big investment by the company to do that. As I look at the water business, my conclusions that I drawn after watching us for a year is, one, the deals are small. They're small customer acquisition roll-ups. No one deal ever includes a major customer roll-up opportunity. Second, from a corporate M&A standpoint, we would really have to reach scale for me to get more excited about the water business. We could do a scaled transaction in water that makes sense. And obviously, water trade at a high P/E multiple. You have to find one that actually fit within the business that we believe in and that can really help that scale over time. That might be something that we look at. But given all the other organic growth opportunities that we have across the renewables front post-IRA, I would say, I'm probably a little less excited about water than I've been.

Great. John, I think we're at the end of our time. So we really appreciate your time with us in the middle of a very big day. I'll leave you before for any final comments.

Yes. No, all I would say is, I think, two things. One, don't forget that now with IRA, we have something we've never had in this industry before, which is a couple of decades, potentially, of clarity around tax incentives. And that has really -- puts us in a great position to be able to capitalize on long-term growth opportunities around both of our businesses. And then second, in working with the team and a great thing -- one of the many great things that we have is the market knowledge that we possess from being in the retail business, from being -- having a customer base in trading and marketing business. We really understand commodities, we really understand commodity price volatility and -- natural gas prices, I just think you're going to see a lot of volatility in gas prices in the next 5 to 10 years, unless you have a very different geopolitical view as Western Europe searches for other options. Like I said, it's been very hard to build a natural gas pipeline in this country. And when you put those two things together, I mean, that really creates tremendous renewable development opportunity for us, going forward. And I don't think the business has ever been better positioned or situated. We have the best team in the industry. We're ready to go. We are scaling up big time, and we have a big growth opportunity in front of us.

Thank you, John.

Thank you. Take care.

You have a great day.