The transformation plan of NRG Energy

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Richard Heap
July 21, 2017
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This content is from our archive. Some formatting or links may be broken.
The transformation plan of NRG Energy

If you stand still in business, you go backwards. I’m sure we have all heard that one. But let’s also remember those firms who pursue what they think is a good idea, decide it isn’t, and then turn around to march straight back where they came from.

Last week, we saw a transformation from one well-known energy company that is set to do exactly that: NRG Energy.

After emerging from bankruptcy in 2003, NRG grew to become the second-largest US power producer, mainly generating power from coal and gas. In 2006, it started to expand in renewables as well.

Then, under former chief executive David Crane, appointed in 2012, the firm’s plans became even bolder. Crane led fast growth in sectors including rooftop solar, energy efficiency, electric vehicle charging points, and utility-scale wind and solar schemes. It was enough to bag Crane 67th place in our Top 100 Power People report in 2015. (NB. Get your nominations in for this year's!)

He did not return in the 2016 list. In December 2015, Crane was sacked after unrest from investors about the direction in which he was taking the company, and the small matter of a $6.4bn loss in the fourth quarter of 2015. That loss was mainly the result of struggles at NRG’s coal plants in Texas, not the green-focused direction in which Crane was trying to take the company, but the result was the same: Crane was out.

And now under his successor as chief executive, Mauricio Gutierrez, NRG is seeking to get out of the renewable energy sector in which it spent so many years expanding. It unveiled a major transformation strategy last week.

NRG is looking to simplify its operations in the next 18 months by selling assets to raise between $2.5bn and $4bn. This includes 50%-100% of its yieldco NRG Yield, which owns wind and solar assets totalling 2.9GW as well as 2GW of conventional projects.

NRG is also planning to sell an additional 6GW of conventional assets, and raise $1bn from job cuts, back-office savings and streamlining its project designs.

Gutierrez said this does not mean the end of renewables at NRG: it will still look at investments in energy projects, both conventional and renewables, when this plan concludes at the end of 2019. The catch? NRG wants to make 12%-15% returns. In a competitive wind sector, that means taking on significant development risk.

Not that this is necessarily a problem: NRG bought 1.5GW of large wind and solar projects from SunEdison for $183m in November 2016. We just wonder whether it will have appetite to take such risk in a sector to which its backers seem so hostile.

The transformation plan has also provoked Crane to speak out. He said NRG “never really cared” about renewables, and the firm would not have “a single pillar of green left in them”. We also question the wisdom of un-diversifying into a narrow group of sectors, including the coal industry, but that is NRG’s decision.

So what should happen to NRG Yield? Well, we see no shortage
of investors for its wind and solar assets. There are plenty of institutions who will want to add reliable operating renewable energy assets to their portfolio, as long as the price is right.

The difficulty for us is that NRG Yield isn’t wholly renewables. It also has a significant proportion of coal and gas, which will put off investors that want their green deals to be truly green.

We think it is likely that NRG could split NRG Yield into two – renewables and the rest – to find buyers to which each group of assets appeals most. A clean break might also be the most palatable option for NRG’s anti-renewables investors.

Gutierrez said his plan would “simplify and strengthen” NRG by boosting earnings, reducing its risks, and generating shareholder value. We have already seen its share price rise to its highest level for two years, so the initial reaction has been good, but NRG can expect to face the same headwinds as other fossil fuels firms.

NRG tried to go green but couldn’t convince its backers. Well, it tried, and now its U-turn is there for all to see.

If you stand still in business, you go backwards. I’m sure we have all heard that one. But let’s also remember those firms who pursue what they think is a good idea, decide it isn’t, and then turn around to march straight back where they came from.

Last week, we saw a transformation from one well-known energy company that is set to do exactly that: NRG Energy.

After emerging from bankruptcy in 2003, NRG grew to become the second-largest US power producer, mainly generating power from coal and gas. In 2006, it started to expand in renewables as well.

Then, under former chief executive David Crane, appointed in 2012, the firm’s plans became even bolder. Crane led fast growth in sectors including rooftop solar, energy efficiency, electric vehicle charging points, and utility-scale wind and solar schemes. It was enough to bag Crane 67th place in our Top 100 Power People report in 2015. (NB. Get your nominations in for this year's!)

He did not return in the 2016 list. In December 2015, Crane was sacked after unrest from investors about the direction in which he was taking the company, and the small matter of a $6.4bn loss in the fourth quarter of 2015. That loss was mainly the result of struggles at NRG’s coal plants in Texas, not the green-focused direction in which Crane was trying to take the company, but the result was the same: Crane was out.

And now under his successor as chief executive, Mauricio Gutierrez, NRG is seeking to get out of the renewable energy sector in which it spent so many years expanding. It unveiled a major transformation strategy last week.

NRG is looking to simplify its operations in the next 18 months by selling assets to raise between $2.5bn and $4bn. This includes 50%-100% of its yieldco NRG Yield, which owns wind and solar assets totalling 2.9GW as well as 2GW of conventional projects.

NRG is also planning to sell an additional 6GW of conventional assets, and raise $1bn from job cuts, back-office savings and streamlining its project designs.

Gutierrez said this does not mean the end of renewables at NRG: it will still look at investments in energy projects, both conventional and renewables, when this plan concludes at the end of 2019. The catch? NRG wants to make 12%-15% returns. In a competitive wind sector, that means taking on significant development risk.

Not that this is necessarily a problem: NRG bought 1.5GW of large wind and solar projects from SunEdison for $183m in November 2016. We just wonder whether it will have appetite to take such risk in a sector to which its backers seem so hostile.

The transformation plan has also provoked Crane to speak out. He said NRG “never really cared” about renewables, and the firm would not have “a single pillar of green left in them”. We also question the wisdom of un-diversifying into a narrow group of sectors, including the coal industry, but that is NRG’s decision.

So what should happen to NRG Yield? Well, we see no shortage
of investors for its wind and solar assets. There are plenty of institutions who will want to add reliable operating renewable energy assets to their portfolio, as long as the price is right.

The difficulty for us is that NRG Yield isn’t wholly renewables. It also has a significant proportion of coal and gas, which will put off investors that want their green deals to be truly green.

We think it is likely that NRG could split NRG Yield into two – renewables and the rest – to find buyers to which each group of assets appeals most. A clean break might also be the most palatable option for NRG’s anti-renewables investors.

Gutierrez said his plan would “simplify and strengthen” NRG by boosting earnings, reducing its risks, and generating shareholder value. We have already seen its share price rise to its highest level for two years, so the initial reaction has been good, but NRG can expect to face the same headwinds as other fossil fuels firms.

NRG tried to go green but couldn’t convince its backers. Well, it tried, and now its U-turn is there for all to see.

If you stand still in business, you go backwards. I’m sure we have all heard that one. But let’s also remember those firms who pursue what they think is a good idea, decide it isn’t, and then turn around to march straight back where they came from.

Last week, we saw a transformation from one well-known energy company that is set to do exactly that: NRG Energy.

After emerging from bankruptcy in 2003, NRG grew to become the second-largest US power producer, mainly generating power from coal and gas. In 2006, it started to expand in renewables as well.

Then, under former chief executive David Crane, appointed in 2012, the firm’s plans became even bolder. Crane led fast growth in sectors including rooftop solar, energy efficiency, electric vehicle charging points, and utility-scale wind and solar schemes. It was enough to bag Crane 67th place in our Top 100 Power People report in 2015. (NB. Get your nominations in for this year's!)

He did not return in the 2016 list. In December 2015, Crane was sacked after unrest from investors about the direction in which he was taking the company, and the small matter of a $6.4bn loss in the fourth quarter of 2015. That loss was mainly the result of struggles at NRG’s coal plants in Texas, not the green-focused direction in which Crane was trying to take the company, but the result was the same: Crane was out.

And now under his successor as chief executive, Mauricio Gutierrez, NRG is seeking to get out of the renewable energy sector in which it spent so many years expanding. It unveiled a major transformation strategy last week.

NRG is looking to simplify its operations in the next 18 months by selling assets to raise between $2.5bn and $4bn. This includes 50%-100% of its yieldco NRG Yield, which owns wind and solar assets totalling 2.9GW as well as 2GW of conventional projects.

NRG is also planning to sell an additional 6GW of conventional assets, and raise $1bn from job cuts, back-office savings and streamlining its project designs.

Gutierrez said this does not mean the end of renewables at NRG: it will still look at investments in energy projects, both conventional and renewables, when this plan concludes at the end of 2019. The catch? NRG wants to make 12%-15% returns. In a competitive wind sector, that means taking on significant development risk.

Not that this is necessarily a problem: NRG bought 1.5GW of large wind and solar projects from SunEdison for $183m in November 2016. We just wonder whether it will have appetite to take such risk in a sector to which its backers seem so hostile.

The transformation plan has also provoked Crane to speak out. He said NRG “never really cared” about renewables, and the firm would not have “a single pillar of green left in them”. We also question the wisdom of un-diversifying into a narrow group of sectors, including the coal industry, but that is NRG’s decision.

So what should happen to NRG Yield? Well, we see no shortage
of investors for its wind and solar assets. There are plenty of institutions who will want to add reliable operating renewable energy assets to their portfolio, as long as the price is right.

The difficulty for us is that NRG Yield isn’t wholly renewables. It also has a significant proportion of coal and gas, which will put off investors that want their green deals to be truly green.

We think it is likely that NRG could split NRG Yield into two – renewables and the rest – to find buyers to which each group of assets appeals most. A clean break might also be the most palatable option for NRG’s anti-renewables investors.

Gutierrez said his plan would “simplify and strengthen” NRG by boosting earnings, reducing its risks, and generating shareholder value. We have already seen its share price rise to its highest level for two years, so the initial reaction has been good, but NRG can expect to face the same headwinds as other fossil fuels firms.

NRG tried to go green but couldn’t convince its backers. Well, it tried, and now its U-turn is there for all to see.

If you stand still in business, you go backwards. I’m sure we have all heard that one. But let’s also remember those firms who pursue what they think is a good idea, decide it isn’t, and then turn around to march straight back where they came from.

Last week, we saw a transformation from one well-known energy company that is set to do exactly that: NRG Energy.

After emerging from bankruptcy in 2003, NRG grew to become the second-largest US power producer, mainly generating power from coal and gas. In 2006, it started to expand in renewables as well.

Then, under former chief executive David Crane, appointed in 2012, the firm’s plans became even bolder. Crane led fast growth in sectors including rooftop solar, energy efficiency, electric vehicle charging points, and utility-scale wind and solar schemes. It was enough to bag Crane 67th place in our Top 100 Power People report in 2015. (NB. Get your nominations in for this year's!)

He did not return in the 2016 list. In December 2015, Crane was sacked after unrest from investors about the direction in which he was taking the company, and the small matter of a $6.4bn loss in the fourth quarter of 2015. That loss was mainly the result of struggles at NRG’s coal plants in Texas, not the green-focused direction in which Crane was trying to take the company, but the result was the same: Crane was out.

And now under his successor as chief executive, Mauricio Gutierrez, NRG is seeking to get out of the renewable energy sector in which it spent so many years expanding. It unveiled a major transformation strategy last week.

NRG is looking to simplify its operations in the next 18 months by selling assets to raise between $2.5bn and $4bn. This includes 50%-100% of its yieldco NRG Yield, which owns wind and solar assets totalling 2.9GW as well as 2GW of conventional projects.

NRG is also planning to sell an additional 6GW of conventional assets, and raise $1bn from job cuts, back-office savings and streamlining its project designs.

Gutierrez said this does not mean the end of renewables at NRG: it will still look at investments in energy projects, both conventional and renewables, when this plan concludes at the end of 2019. The catch? NRG wants to make 12%-15% returns. In a competitive wind sector, that means taking on significant development risk.

Not that this is necessarily a problem: NRG bought 1.5GW of large wind and solar projects from SunEdison for $183m in November 2016. We just wonder whether it will have appetite to take such risk in a sector to which its backers seem so hostile.

The transformation plan has also provoked Crane to speak out. He said NRG “never really cared” about renewables, and the firm would not have “a single pillar of green left in them”. We also question the wisdom of un-diversifying into a narrow group of sectors, including the coal industry, but that is NRG’s decision.

So what should happen to NRG Yield? Well, we see no shortage
of investors for its wind and solar assets. There are plenty of institutions who will want to add reliable operating renewable energy assets to their portfolio, as long as the price is right.

The difficulty for us is that NRG Yield isn’t wholly renewables. It also has a significant proportion of coal and gas, which will put off investors that want their green deals to be truly green.

We think it is likely that NRG could split NRG Yield into two – renewables and the rest – to find buyers to which each group of assets appeals most. A clean break might also be the most palatable option for NRG’s anti-renewables investors.

Gutierrez said his plan would “simplify and strengthen” NRG by boosting earnings, reducing its risks, and generating shareholder value. We have already seen its share price rise to its highest level for two years, so the initial reaction has been good, but NRG can expect to face the same headwinds as other fossil fuels firms.

NRG tried to go green but couldn’t convince its backers. Well, it tried, and now its U-turn is there for all to see.

If you stand still in business, you go backwards. I’m sure we have all heard that one. But let’s also remember those firms who pursue what they think is a good idea, decide it isn’t, and then turn around to march straight back where they came from.

Last week, we saw a transformation from one well-known energy company that is set to do exactly that: NRG Energy.

After emerging from bankruptcy in 2003, NRG grew to become the second-largest US power producer, mainly generating power from coal and gas. In 2006, it started to expand in renewables as well.

Then, under former chief executive David Crane, appointed in 2012, the firm’s plans became even bolder. Crane led fast growth in sectors including rooftop solar, energy efficiency, electric vehicle charging points, and utility-scale wind and solar schemes. It was enough to bag Crane 67th place in our Top 100 Power People report in 2015. (NB. Get your nominations in for this year's!)

He did not return in the 2016 list. In December 2015, Crane was sacked after unrest from investors about the direction in which he was taking the company, and the small matter of a $6.4bn loss in the fourth quarter of 2015. That loss was mainly the result of struggles at NRG’s coal plants in Texas, not the green-focused direction in which Crane was trying to take the company, but the result was the same: Crane was out.

And now under his successor as chief executive, Mauricio Gutierrez, NRG is seeking to get out of the renewable energy sector in which it spent so many years expanding. It unveiled a major transformation strategy last week.

NRG is looking to simplify its operations in the next 18 months by selling assets to raise between $2.5bn and $4bn. This includes 50%-100% of its yieldco NRG Yield, which owns wind and solar assets totalling 2.9GW as well as 2GW of conventional projects.

NRG is also planning to sell an additional 6GW of conventional assets, and raise $1bn from job cuts, back-office savings and streamlining its project designs.

Gutierrez said this does not mean the end of renewables at NRG: it will still look at investments in energy projects, both conventional and renewables, when this plan concludes at the end of 2019. The catch? NRG wants to make 12%-15% returns. In a competitive wind sector, that means taking on significant development risk.

Not that this is necessarily a problem: NRG bought 1.5GW of large wind and solar projects from SunEdison for $183m in November 2016. We just wonder whether it will have appetite to take such risk in a sector to which its backers seem so hostile.

The transformation plan has also provoked Crane to speak out. He said NRG “never really cared” about renewables, and the firm would not have “a single pillar of green left in them”. We also question the wisdom of un-diversifying into a narrow group of sectors, including the coal industry, but that is NRG’s decision.

So what should happen to NRG Yield? Well, we see no shortage
of investors for its wind and solar assets. There are plenty of institutions who will want to add reliable operating renewable energy assets to their portfolio, as long as the price is right.

The difficulty for us is that NRG Yield isn’t wholly renewables. It also has a significant proportion of coal and gas, which will put off investors that want their green deals to be truly green.

We think it is likely that NRG could split NRG Yield into two – renewables and the rest – to find buyers to which each group of assets appeals most. A clean break might also be the most palatable option for NRG’s anti-renewables investors.

Gutierrez said his plan would “simplify and strengthen” NRG by boosting earnings, reducing its risks, and generating shareholder value. We have already seen its share price rise to its highest level for two years, so the initial reaction has been good, but NRG can expect to face the same headwinds as other fossil fuels firms.

NRG tried to go green but couldn’t convince its backers. Well, it tried, and now its U-turn is there for all to see.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.