NRG Energy expecting stable fossil fuel prices in near-term

NRG Energy (NYSE:NRG) expects fossil fuel prices for its power plants to remain relatively stable over the next couple of years, according to data the company released May 5 in connection with its quarterly earnings report.

The company noted that several NRG coal plants could face big capital expenditures due to installation of new sulfur dioxide (SO2) scrubbers. “New scrubbers pose a significant capital hurdle with costs expected to be in the $400/kw to $500/kW range,” NRG said in its earnings materials.

Units that require only “scrubber upgrades” could get off lighter. “Scrubber upgrades relatively small expense at ~$100/kW,” NRG Energy said.

NRG said that the forward prices for Powder River Basin (PRB 8800) coal is expected to be $9.22/ton in 2016; $9.95/ton in 2017 and $10.59/ton in 2018.

The forward price for Northern Appalachian (MG2938) coal is expected to be $32.91/ton in 2016; $35.56 in 2016; and $37.80/ton in 2018.

NRG Energy consumed only 5.5 million tons of (domestic) coal during the first quarter of 2016 compared to 11.5 million tons during 1Q 2015.

The cost of coal on an mmBtu basis was $2.35 during 1Q 2016, compared to $2.41 one year earlier, NRG reported on page 26 of its slide presentation. The first quarter cost of natural gas even cheaper: NRG’s natural gas cost was only $2.18/mmBtu during the quarter compared to $4.33/mmBtu during the first quarter of 2015.

The forward price for Henry Hub natural gas is placed at $2.41/mmBtu in 2016; $3.01/mmBtu in 2017; $3.04/mmBtu in 2018.

Looking at natural gas supply, NRG noted that gas production has stagnated and that gas storage is above the five-year range due to mild weather. Demand is poised to increase considerably through 2020, however, the company reported.

NRG reported Adjusted EBITDA of $812m in its first quarter 2016 financial results. First quarter cash flow from operations totaled $554m. Net income for first quarter 2016 was $47m, or 24 cents per diluted common share compared to net loss of $136m, or 37 cents per diluted common share for first quarter 2015.

“NRG’s strong financial and operational performance continued despite a weak weather and commodity market environment, validating our integrated competitive power platform,” said Mauricio Gutierrez, NRG President and CEO.

“Combining renewable and fossil generation with an industry-leading retail platform, along with our robust partnership with NRG Yield, provides strength and stability while allowing us to maintain upside to a market recovery,” Gutierrez said. “Today, we are also pleased to announce the conclusion of the GreenCo process with the agreement to sell a majority share of EVgo and the restructuring and simplification of the residential solar business.”

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.