NRG Energy, which recently shed a substantial portion of its competitive generation portfolio and has shifted efforts to stimulate growth of its retail business, unveiled a simplified renewables procurement process that does not require a power purchase agreement (PPA).
The company on October 18 launched “Renewable Select,” a plan that it says transforms the “lengthy and complex traditional energy procurement process into a cost competitive, easy to execute transaction.” The business model, it said, is rooted in a changing industry characterized by soaring industrial consumer demand for renewable energy—which has reached grid parity—to meet revenue and sustainability goals.
Renewable Select is essentially a “one-stop” service for the commercial and industrial (C&I) segment. Companies want to embrace solar but have hesitated owing to logistics, including investigating, building, sourcing, managing, and financing a solar-based approach, it noted.
The offering is what NRG calls a “fully retail solar product”: While NRG develops agreements with local solar producers, it offers businesses three pricing structures modeled on traditional energy plans. These include fixed price, percent fixed + index, and block + index. “All three provide simple contract terms,” it said. Businesses benefit from knowing the physical location of the generating facility, they receive the “naming rights” to the facility, and they receive renewable energy credits to offset their carbon footprint.
Other benefits it pointed to are that renewables can be procured “in the amount desired, no large commitments required.” That simplifies approvals on a corporate level. Simplification is also offered by a single consolidated bill.
NRG said has already signed some lucrative contracts under the initiative. In June, the company inked a 10-year agreement with food service distribution company Sysco Corp., a deal that entailed construction of three solar garden sites in the Houston and Dallas areas to support about 10% of Sysco’s power usage. The sites are expected to be operational by the first quarter of 2019.
Market Forces Propelled NRG Toward Retail Focus
The company has rolled out the offering gradually as it accelerates its transition from a pure independent power producer model to a more simplified customer-driven integrated power model that favors its retail businesses in an effort to remain competitive in power markets increasingly characterized by disruptions.
NRG, which was incorporated in 1992, took its first step toward an integrated portfolio with the 2009 purchase of Reliant Energy, a company spun off from Houston Lighting and Power. Reliant served 1.6 million customers in Texas at the time.
Between 2012 and 2015, caught up in a wave of consolidation within the IPP sector, NRG doubled its fleet to 53 GW, buying GenOn Energy in December 2012 for $1.7 billion and acquiring the assets of bankrupt merchant generator Edison Mission for $2.64 billion in 2014.
In May 2017, however, NRG moved to relinquish GenOn to bondholders, saying the company had racked up a high debt burden relative to cash flow, and that it had been financially crippled by falling wholesale power prices and capacity prices, which were spurred primarily by the glut of cheap gas depressing power prices. This February, as part of a transformation plan announced in July 2017 to cast off $13 billion in debt and generate more free cash flow, NRG also moved to divest the bulk of its renewable assets under NRG Yield and sell about 3.6 GW tied to its South Central Generating business.
GenOn appears to have exited bankruptcy. In a filing with the U.S. Securities and Exchange Commission (SEC) signed by GenOn CEO Mark McFarland on October 9, the company reported that 151 senior notes were due between 2017 and 2020. The company’s latest annual forecast summary, dated April 2018, shows it anticipates steep revenue declines from its generating fleet, from $361 million in 2018 to $253 million in 2022.
NRG on August 31 also closed on the sale of its interest in NRG Yield—now known as Clearway Energy—and the NRG Renewables Platform to infrastructure investment firm Global Infrastructure Partners.
A Brighter Future
In an investor presentation on October 8, NRG highlighted its progress toward a “customer-focused vertically-integrated power company,” noting its strategy going forward was to enhance shareholder value through “growing its retail business while maintaining commercial operations expertise and physical assets to reduce risk and create more predictable cash flows.”
The company noted its generating fleet has shrunk dramatically from 53 GW in 2015—when it owned 100 power plants, including those relinquished to GenOn—to 24 GW, from around 40 plants. Its retail customer base has grown from 2.8 million to more than 3 million over the same period. Today, NRG focuses the bulk of its operation in Texas, where it has 2.3 million retail customers (a 30% residential market share) and 11.5 GW on the Electric Reliability Council of Texas (ERCOT) grid. It also has 9.6 GW in the East, where it serves 900,000 retail customers (making up 2% of the residential competitive market), and 2.6 GW in the West.
NRG’s recent emphasis on retail stems from a number of sectoral trends, which it says is “driving the need for transformation.” Trends it deems negative for its generation business include sustained low gas prices, the renewables build-out, disruptive technologies like batteries, and consumer demand for energy control. However, the surge for consumer demand is a boon for for its retail business, it noted.
The strategy is expected to boost retail earnings substantially by 60% in 2018 compared to 2015. By 2022, the strategy could generate nearly $8 billion of excess cash, it said. Growth drivers will include organic growth in of its retail business, an emphasis on distributed generation, and market recovery owing to lower reserve margins in ERCOT and market reforms in PJM.
—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine).