NextEra Just Secured Up to $1.9 Billion to Restart Iowa's Only Nuclear Plant. Here's The Real Reason Why.

Well, that didn't last long.

In 2020, NextEra Energy (NYSE:NEE) couldn't close the Duane Arnold Energy Center (DAEC) nuclear plant fast enough. Although the plant's license wasn't set to expire until 2034, the company cited unfavorable economics and shut down Iowa's only nuclear plant 14 years early.

But now, NextEra is proudly touting a $1.9 billion loan guarantee from the U.S. Department of Energy (DOE) to restart the shuttered plant and bring "reliable, around-the-clock energy to the regional grid."

According to the DOE, "Returning 615 megawatts of reliable baseload generation will drive down electricity costs, while supporting thousands of American jobs."

But the real reason why NextEra reversed course wasn't mentioned in the public statements. Here's why it's happening and what it means for investors.

Image source: Getty Images.

Energy economics haven't changed, but demand has

In 2018, natural gas and wind power had become so cheap and abundant in Iowa that even the DAEC's relatively inexpensive nuclear power couldn't compete in terms of price.

In fact, it was cheaper for the local utility to pay a $110 million fee to break its existing five-year contract with NextEra and get electricity from cheaper sources.

The DAEC – located just northwest of Cedar Rapids, Iowa's second-most-populous city – was producing nearly 10% of the state's electricity. But without a supply contract, NextEra decided to shut it down in October 2020. But then a derecho – a "land hurricane" with 140 mph winds – damaged the plant's cooling towers and forced an emergency shutdown in August 2020. The plant never reopened.

U.S. natural gas prices are just as low today as they were in 2018, and wind power is more abundant than ever in Iowa, generating about 63% of the state's electricity. So what changed?

Demand.

The ongoing AI build-out has been one factor in an unprecedented spike in U.S. electricity demand. Natural gas and wind power are still cheaper to produce than nuclear power. But in the current environment, utilities are being forced to buy electricity at higher prices to meet rising demand.

And demand is about to surge in the Cedar Rapids area for one big reason.

Image source: The Motley Fool.

Google needs power for new AI data centers

Given the amount of backlash being faced by AI data center projects lately, it's no surprise that neither NextEra's press release nor the Department of Energy's accompanying statement mentioned the primary reason NextEra wants to restart the DAEC. It's to provide Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) with power for Google's AI data centers.

In 2025, Google announced a $7 billion investment to increase its data center footprint in Iowa, including the construction of a $576 million data center southwest of Cedar Rapids.

According to recent reports, however, the company is also considering developing up to six additional AI data centers on unincorporated land near the DAEC. It has funded a water usage study to help determine capacity.

So, while the DAEC will provide 615 megawatts of baseload generation, most of those megawatts will likely go directly to Google, which has signed a 25-year agreement to purchase power from the DAEC.

Two of DAEC's former owners, the Central Iowa Power Cooperative (CIPCO) and the Corn Belt Power Cooperative, will sell their combined 30% interest in the DAEC to NextEra, which will then own 100% of the plant. As part of that agreement, CIPCO will be able to buy power from the DAEC on the same contract terms as Google, but only 50 of the 615 megawatts will be set aside for that purpose.

What it means for investors

Although the recent announcements downplayed the AI data center angle, it's not as though NextEra or Google haven't been transparent about the situation.

Google needs to build AI data centers and needs power for them. And in the current regulatory environment, getting approval to restart an existing nuclear plant is easier than getting approval for a new solar or wind project.

With the federal government's loan helping offset the massive cost of restarting the wind-damaged plant, the same nuclear power that was a victim of "unfavorable economics" a few short years ago is now viable. And, of course, Google's plan to build in unincorporated areas will help minimize the chances of the project being derailed by local opposition.

All in all, this is likely a long-term win for NextEra shareholders. But the company probably won't see any benefits anytime soon: the plant isn't scheduled to be fully operational until early 2029. And as the DAEC's history proves, in the world of energy, a lot can change in only a few short years.

John Bromels has positions in Alphabet and NextEra Energy. The Motley Fool has positions in and recommends Alphabet and NextEra Energy. The Motley Fool has a disclosure policy.