Republicans Won’t Wreck Renewables, Democrats Won’t Gut Oil and Gas

The realpolitik of energy is “all of the above” or get used to living in darkness.

First a big shout out to our Dividends Community, which has more than tripled in the past week! That includes our Founders Circle, though we still have a few memberships left. Thank you for putting your trust in me!

For anyone else interested in learning how to get the most out of Dividends, please check out the upgrade options found in your weekly Dividends email, as well as in the Substack app.

As I said last week, I’m very much looking forward to engaging with you all more closely through this service’s unique features. Expect to see Dividends Premium REITs in your inbox tomorrow. Thanks for reading!—RC

The US presidential election is in nine days. Early voting is in full swing. And rhetoric is at a fever pitch.

My strong advice to energy investors: Tune out the noise and focus on what will shape your investment returns.

That’s basically two truths. First, to quote my friend and colleague Elliott Gue—author of Substack’s “The Free Market Speculator” and “Smart Bonds”—“Energy is a growth business.”

John Ketchum is CEO of America’s largest utility and renewable energy producer NextEra Energy (NYSE: NEE). Last week during his company’s Q3 guidance call, he noted U.S. data centers will require 460 terawatt hours of new electricity by 2030. Coupled with electrification and population growth, that’s a six-fold boost in annual power demand growth for the next 20 years, versus the past 20.

True, we’ve seen explosive forecasts before, most recently at the peak of the 1990s technology boom. This one, however, is playing out in real time.

The most deep pocketed companies in the world—from Amazon (NSDQ: AMZN) to MicroSoft (NSDQ: MSFT)—are both fueling and funding the expansion by adopting artificial intelligence applications. And the demand explosion is truly global, with developing countries like Vietnam intensifying electrification to power growth.

The second truth it’s an all of the above world for energy.

Every generation source has its challenges and none alone are up to task of meeting all future demand. The fuel mix is changing. But for the foreseeable future, every source has a role to play. And includes coal, which though phasing out in the US and Europe is absolutely essential in much of the world.

NextEra’s Ketchum forecasts new demand for solar, wind and related energy storage capacity of 150 gigawatts from data centers alone. That’s a staggering number. And his company is already seeing it, adding 3 plus GW to order backlog for two consecutive quarters.

About a week earlier, leading US pipeline company Kinder Morgan’s (NYSE: KMI) long-time executive chairman Richard Kinder stated the following:

“With coal conversions at power plants, artificial intelligence operations, cryptocurrency mining, data centers and industrial re-shoring…we now see an opportunity set well in excess of 5 billion cubic feet per day” in power generation for natural gas.

That forecast is rapidly unfolding as well. Natural gas will set new records this year for generating electricity. And it’s likely to do so again next year and beyond, as even California was forced by soaring demand to reverse edicts to shut down plants.

Then there’s nuclear energy. The cost of building new nuclear including SMRs (small modular reactors) is still highly speculative. And even Southern Company (NYSE: SO)—builder of the first new plants in 40 years—isn’t committing to new projects now.

But efforts to extend licenses on operating plants and to restart recently closed facilities are picking up steam. Constellation Energy (NYSE: CEG) will restart Three Mile Island 1 in Pennsylvania under a long-term contract. Holtec International is pushing ahead to restart Palisades in Michigan. And NextEra will restart a plant in Iowa if a suitable sales contract can be reached.

It’s easy to conclude from political “debate” on energy that many politicians are living in an alternate universe. And it’s fair to worry about irrational and damaging decisions, regardless of who wins.

But let me give you a few reasons why that won’t happen. First, even if one political party manages to win both the presidency and Congress, their margin is going to be razor thin. And the only actions likely to win enough support will be easing regulation and tax cuts.

If Republicans run the table, there could be a rougher road for permitting offshore wind projects. Current development, however, is in states that strongly support projects including Republican-led Virginia. That’s why the developer of the 2.6 GW Coastal Virginia Offshore Wind facility Dominion Energy (NYSE: D) was able to sell 50 percent of the plant to private capital firm Stonepeak last week.

It’s also increasingly unlikely the 2022 Inflation Reduction Act will be repealed. Though passed without a single Republican vote, many in the GOP support it now. And that almost certainly includes electric vehicles and solar billionaire Elon Musk, who is shaping up to be a major player in a possible Trump Administration.

Mainly, IRA is a tax credit package that benefits investment in every energy sector. That includes super major oil and gas companies like supporter ExxonMobil (NYSE: XOM). And the fuel source likely to be hurt worst by repeal would be nuclear power.

Losing billions of dollars in tax credits would lead to more shutdowns of operating nuclear plants. Any incentive to open older reactors would evaporate, as would new development.

Ironically, the biggest beneficiaries of a nuclear retreat would be renewable energy developers like NextEra. They deploy capacity to meet new demand at a fraction of the time and cost, with or without tax credits.

Will anything change after the sound and fury of this election season passes over?

I expect development of US LNG export infrastructure to pick up steam.

Candidate Trump has promised to push gasoline prices under $2 by removing regulation. But US oil and gas companies won’t produce the needed quantities to take prices that low, unless they can make up the hit to earnings elsewhere.

Ramping up natural gas exports is possibly only way to do that. Also, boosting US LNG exports cuts global CO2 emissions by replacing coal in power generation overseas. And it would reduce dependence of friends and allies on less stable energy sources.

The Biden Administration had been blocking new LNG permitting. But this summer it approved an LNG export license for New Fortress Energy’s (NYSE: NFE) Altamira facility. And it’s reportedly nearing an agreement with Energy Transfer LP (NYSE: ET) to extend the disputed export license for an LNG export facility in Louisiana.

That’s the kind of realpolitik that always shapes energy policy. Investors will do well to take notice, and tune out the noise from a campaign season that’s been louder than most.