NRG Skirts Utilities Taking Solar Panels to U.S. Rooftop

NRG Energy Inc. (NRG), the biggest power provider to U.S. utilities, has become a renegade in the $370 billion energy-distribution industry by providing electricity directly to consumers.

Bypassing its utility clients, NRG is installing solar panels on rooftops of homes and businesses and in the future will offer natural gas-fired generators to customers to kick in when the sun goes down, Chief Executive Officer David Crane said in an interview.

NRG is the first operator of traditional, large-scale power plants to branch into running mini-generation systems that run a single building. The endeavor strikes at the core business of utilities that have earned money from making and delivering electricity ever since Thomas Edison flipped the switch on the first investor-owned power plant in Manhattan in 1882.

Consumers are realizing “they don’t need the power industry at all,” Crane, 54, said in an interview at this year’s MIT Energy Conference in Cambridge, Massachusetts. “That is ultimately where big parts of the country go.”

NRG, which acquired GenOn Energy Inc. for $2.2 billion in December and Texas Genco for $5.8 billion in 2006, has stakes in 94 power plants, with all except about 1.5 percent of the generating capacity driven by fossil fuels.

Photographer: Peter Foley/Bloomberg

NRG Energy Inc. Chief Executive Officer David Crane said, consumers are realizing “they don’t need the power industry at all.” Close

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Photographer: Peter Foley/Bloomberg

NRG Energy Inc. Chief Executive Officer David Crane said, consumers are realizing “they don’t need the power industry at all.”

With $8.4 billion in 2012 sales, the Princeton, New Jersey-based company has become strong by suppling power to the businesses that it’s now competing against with its NRG Residential Solar Solutions unit. The shares rose 0.6 percent to $25.94 at 9:34 a.m. in New York.

‘Potential Threat’

“It is obviously a potential threat to us over the long term,” said Jim Rogers, chairman and chief executive officer of Duke Energy Corp. (DUK), the largest U.S. utility owner.

Duke’s earnings before interest, tax, depreciation and amortization grew 25 percent last year to $6.43 billion, compared with NRG’s 15 percent decline to $1.59 billion.

Other energy companies are challenging traditional utilities by providing rooftop solar panels to power individual buildings. That includes SolarCity Corp. (SCTY), which raised $92 million in its December initial public offering. The San Mateo, California-based company had installed 287 megawatts of commercial and residential solar projects, as of the end of last year.

It’s one of at least a dozen U.S. companies that provide rooftop panels at no upfront cost to customers, who typically make fixed monthly payments for the output under decades-long contracts, known as solar leases or power-purchase agreements.

These companies typically offer customers lower prices for power from rooftop panels than they pay utilities, reducing monthly bills. The model is contributing to the growing wedge between utilities and consumers.

Solar Leasing

Other companies offering solar leases and power-purchase agreements include Sunrun Inc., Sungevity Inc., which offers its services at home-improvement stores owned by its minority owner Lowe’s Cos., and Vivint Inc., which was purchased in September by Blackstone Group LP for about $2 billion.

That model is something NRG is “looking at in a very serious way,” Crane said. The rooftop solar model is also missing an important component, because panels can’t provide constant power. “We think the product offering could be better across the industry,” he said.

The other part of the package is the growing underground network of pipes that delivers gas to about half the homes in the country. Crane wants to provide customers with fuel cells and microturbines, which produce electricity from gas.

“The individual homeowner should be able to tie a machine to their natural gas line and tie that with solar on the roof and suddenly they can say to the transmission-distribution company, ‘Disconnect that line.’ ” Crane said.

Disrupting Utilities

Utilities are aware that generating power at customer sites will disrupt their business.

“There’s been a huge effort to build solar on the rooftop, both residential and commercial,” Duke’s Rogers said, as well as systems that generate power at industrial sites. “All of this is leading to a disintermediation of us from our customers.”

Duke is also considering a move into rooftop solar, a business that presents an “opportunity in the short term,” Rogers said.

In the long term, however, he recognizes that his business could become far less important.

“If the cost of solar panels keeps coming down, installation costs come down and if they combine solar with battery technology and a power management system, then we have someone just using us for backup,” he said.

Other independent power producers may be evaluating the merits of distributed generation, building many small systems at customer sites instead of a few large ones.

Distributed Generation

NextEra Energy Inc. (NEE), the largest U.S. producer of renewable energy, now has a vice president of distributed generation, Andrew Beebe, who stepped down as chief commercial officer for the struggling Chinese solar-panel maker Suntech Power Holdings Co. in September. Suntech defaulted on a $541 million bond March 15.

NextEra expects to have about 900 megawatts of utility-scale solar plants in operation by the end of this year. Steve Stengel, a NextEra spokesman, wouldn’t discuss the company’s distributed-generation plans or say when it hired Beebe, who was unavailable for an interview.

The shift to distributed generation will have more of an impact on utilities than on customers, Crane said.

“The vast majority of people don’t want to be bothered every day by what’s going on with their energy consumption,” Crane said at the March 1 event. “We’d like to present one bill and you can figure out what you saved that month.”

To contact the reporters on this story: Christopher Martin in New York at cmartin11@bloomberg.net; Naureen S. Malik in New York at nmalik28@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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