NRG's GreenCo Plan Echoes Clean-Power Shift in Germany

  • NRG to form new unit to hold solar, car-charging operations
  • EON pursuing plan to spin off fossil-fuel generating assets

NRG Energy Inc.’s decision to create a new unit for renewable energy operations should look familiar to anyone who’s been watching the utility industry in Europe.

NRG realized it’s difficult to manage renewable energy and conventional power –- increasingly different businesses -– under the same umbrella. Germany’s largest utility EON SE reached the same conclusion last year.

“There’s a big trend throughout the market: we don’t like conglomerate-type companies,” said Kit Konolige, a senior utility analyst at Bloomberg Intelligence in New York.

NRG said Friday it will create a renewable energy unit called GreenCo, and may sell a majority stake. GreenCo will be fast-growing and cash-consuming, Konolige said, while the so-called “OldCo is mature and not growing very fast, if at all.”

NRG has two very different business lines, “basically, old energy and new energy,” Konolige said. “I think they found their investors saying to them, ‘We’d rather invest in old energy or in new energy, but not both at the same time.’”

German Utilities

German utilities are realizing the same thing, spurred in part by the country’s sharp shift from traditional power to wind and solar.

EON announced in November plans to focus on renewable energy and distribution. It’s consolidating the conventional generation, global energy trading and exploration and production businesses into a new independent company called Uniper.

“We’re convinced that energy companies will have to focus on one of the two energy worlds if they want to be successful,” Chief Executive Officer Johannes Teyssen said at the time.

RWE AG, Germany’s biggest power producer, has been observing the same trends. In January, Chief Financial Officer Bernhard Guenther told Bloomberg that separating into multiple companies “makes it easier for different shareholder groups to pick which type of risk-return tradeoff they want to own.” 

In August, RWE reorganized its operations and CEO Peter Terium said he wanted the power producer to remain a single company, though he declined to rule out a possible breakup in the future.

Utilities and independent power producers in the U.S. and Western Europe are facing similar challenges in managing intermittent renewable-energy assets, the shift to smart grids and changing natural gas economics, Anurag Gupta, a director at KPMG in London, said in an interview.

“Is it better to maintain the status quo or see if there’s more value in spinning off these units?” he said. “It’s a natural evolution of the business model, rather than a complete revolution or a death spiral.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE