NRG Energy CEO Crane sees ‘survival of the fittest’ for coal plants

While the power industry is still figuring out the specifics of the U.S. Environmental Protection Agency’s CO2 reduction policy, “the long-term trend toward a carbon-constrained world” is clear, NRG Energy (NYSE: NRG) CEO David Crane said Aug. 7.

That’s why NRG is investing heavily in a carbon capture project in Texas, Crane said during the company’s quarterly earnings call on Aug. 7. Capturing carbon dioxide and using it for enhanced oil recovery allows NRG to not only prepare for, but profit from, government carbon policy. This U.S. Department of Energy-backed project would capture CO2 from NRG’s coal-fired Parish power plant.

Coal plants are getting to the point where it’s “survival of the fittest,” Crane said.

Overall, NRG’s Crane sees “plentiful value-creating growth opportunities” in the renewable energy sector. This has proven to be a good time to move away from the traditional grid-based power generator model, Crane said.

Crane said he did not remember seeing a time when he remembered NRG being “so whipsawed by the weather.” Major summer heat “has so far failed to materialize,” and this has hurt energy prices. Temperatures in the past quarter were 8% cooler than the 10-year average in much of the territory served by NRG, officials said.

Wall Street has been quick to recognize the value of NRG Energy’s NRG Yield affiliate, which recently issued a “green bond,” NRG Energy officials said.

NRG offers environmental plan for fossil units, other moves

  • NRG announced an environmental compliance plan, which includes a coal-to-gas conversion for one plant, for its newly-acquired Midwest Generation unit. The company is doing this after only four months of ownership, NRG officials said.
  • NRG is reactivating select facilities previously retired or scheduled to retire. This includes conversion of existing coal units to low-sulfur diesel at the Portland facility in Pennsylvania by the summer of 2016; adding natural gas capacity to existing coal units at the Shawville facility in Pennsylvania by the summer of 2016; and adding natural gas generation at the coal-fired Dunkirk Units 2-4 in New York.
  • NRG Energy has also formed a 50/50 joint venture with JX Nippon Oil & Gas Exploration Corporation (JX Nippon), and debt financing with Japan Bank for International Cooperation (JBIC) and Mizuho Bank, Ltd., to build and operate the world’s largest post-combustion carbon capture facility on the Parish coal plant in Texas for use in enhanced oil recovery. This entity will take coal power’s greatest liability, its carbon, and turn it into a valuable product, Crane said.
  • Following successful debt and equity offerings, NRG Yield remains on track to close the acquisition of North America’s largest wind farm, the 947-MW Alta Wind facility located in Tehachapi, Calif., for $870m in the third quarter.
  • On June 30, NRG Energy completed the first “drop-down” of assets to NRG Yield. The assets include: TA High Desert–20 MW solar facility located in Los Angeles County, Calif.; RE Kansas South–20 MW solar facility located in Kings County, Calif.; and the El Segundo Energy Center–550 MW fast-start, gas-fired facility located in Los Angeles County, Calif. The parties are also discussing a second drop-down, officials said.
  • The company has also reorganized its retail, residential solar and related services into a business called NRG Home. The wind, large-scale solar and renewables-driven micro-grid businesses are being merged into NRG Renew.

NRG reported second quarter 2014 Adjusted EBITDA of $671m with Wholesale contributing $389m, Retail contributing $173m and NRG Yield contributing $109m. Year-to-date adjusted cash flow from operations totaled $564m. Net loss for the first six months of 2014 was $153m, or 48 cents per diluted common share compared to net loss of $208m, or 66 cents per diluted common share for the first six months of 2013.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.