Coal, Executive Insight, Generation, Natural Gas

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

by Wayne Barber, GenerationHub

While the power industry is still figuring out the specifics of the Environmental Protection Agency‘s carbon dioxide reduction policy, “the long-term trend toward a carbon-constrained world” is clear, said NRG Energy’s CEO on Aug. 7.

That’s why NRG is investing heavily in a carbon capture project in Texas, David Crane said during the company’s quarterly earnings call. Capturing CO2 and using it for enhanced oil recovery allows NRG to prepare for and profit from government carbon policy. This 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, Crane sees “plentiful value-creating growth opportunities” in the renewable energy sector. This has proved to be a good time to move away from the traditional grid-based power generator model, Crane said.

Crane said he does not remember seeing a time when he remembered NRG being “so whipsawed by the weather.” Major summer heat has failed to materialize, and this has hurt energy prices. Temperatures in the past quarter were 8 percent 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 summer 2016; and adding natural gas generation at the coal-fired Dunkirk Units 2-4 in New York.

NRG Energy also has formed a 50-50 joint venture with JX Nippon Oil & Gas Exploration Corp. 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.

After 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 in Tehachapi, California, for $870 million 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, a 20-MW solar facility in Los Angeles County, California; RE Kansas South, a 20-MW solar facility in Kings County, California; and the El Segundo Energy Center, a 550-MW fast-start, gas-fired facility in Los Angeles County. The parties also are discussing a second drop down, officials said.

The company also has reorganized its retail, residential solar and related services into a business called NRG Home. The wind, large-scale solar and renewables-driven microgrid businesses are being merged into NRG Renew.

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

Wayne Barber is chief analyst for GenerationHub, a sister publication of Electric Light & Power magazine. He has covered power generation, energy and natural resources issues at national publications for more than 20 years. Before joining PennWell, he was editor of Generation Markets Week at SNL Financial for nine years. He also has worked as a business journalist at McGraw-Hill and Financial Times Energy. Barber also worked several years as a newspaper reporter.