NRG Sees Residential Solar Expansion Amid Commodity Price Decline

NRG Energy Inc. plans to become the second- biggest U.S. rooftop solar company by year-end as falling prices put pressure on its conventional power production division.

NRG sees more solar rooftop installations in Texas, California and the Northeast, Chief Executive Officer David Crane said in a phone interview before the company’s two-day investor meeting. SolarCity Corp. is the biggest U.S residential installer, with a third of the market share as of Sept. 30, according to GTM Research. NRG, based in Princeton, New Jersey, was ranked fifth.

Conventional U.S. power producers face declining demand growth as more consumers opt for technologies that allow them to produce their own electricity. Residential solar installations have increased more than fivefold from 2008 to 2013, according to Bloomberg Intelligence. The lack of demand comes as a glut of natural gas depresses wholesale power prices.

“We expect to convincingly persuade our investors that NRG has an embedded SolarCity within it,” said Crane. “Everyone is beginning to believe that residential solar is this trillion- dollar market that currently has about 1 percent market penetration.”

Crane plans to double adjusted earnings before interest, taxes, depreciation and amortization by about 2022 from this year’s guidance level, according to slides from his speech to investors last night. Rooftop solar is a disruptive technology in an era characterized by chronically low commodity prices, Crane said.

NRG has fallen 28 percent from a June high, after a lack of extreme summer heat kept power prices low. The 55-year-old CEO, who drives a Tesla, has been expanding the company’s retail and green energy businesses since he took over in 2003.

Power Sales

Six years ago, wholesale power generation from its gas- and coal-fired plants contributed 98 percent of the company’s revenue, according to data compiled by Bloomberg. By 2013, after acquiring several retail businesses and creating an alternative energy unit, generation accounted for half of sales. Last year, the company bought Roof Diagnostics Solar and and Pure Energies Group Inc. to expand into the home solar market.

“Electricity is on the cusp of a massive transformation,” he said. “If you want to win today and tomorrow, you have to have a strategy that is at least bifurcated” between conventional power and alternative energy.

NRG first began to discuss its home solar program in any depth on its third-quarter earnings conference call Nov. 5. It promised more details on the unit, which has an ad featuring the voice of Matthew McConaughey, at the annual meeting.

Added Value

“NRG Home Solar could add up to $5 per share to our valuation of NRG, we estimate,” a group of Macquarie Capital (USA) Inc. analysts led by Angie Storozynski wrote on Nov. 7. “We wonder, however, if the business will need to be spun off” or sold to an NRG affiliate to get market recognition of its full value, they wrote.

Crane said in the interview that the company “covets” the 20-year relationship with customers that comes with a residential solar equipment lease. That gives the opportunity to sell additional power to the consumer, as well as offer battery backup or gas-fired generators and home warranties in certain markets.

“We can offer home solar customers so much more than panels on the roof,” he said.

Copyright 2015 Bloomberg

Lead image: Rooftop solar via Shutterstock

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