US utility's plans to manage DG transition

The investor day staged yesterday (Thursday) by NRG Energy – the U.S.’ second largest power generator – offered a fresh insight into the attempts of traditional utilities to cope with the headwinds generated by the rise of renewables, and particularly distributed generation (DG).

Although the West Windsor and Houston-headquartered power giant’s 49.4 GW wholesale generation portfolio comprises 51% natural gas, 34% coal, 12% oil and 3% nuclear, perusing the investor day graphs published on NRG’s website reveals a world of solar potential, electric vehicles, ‘millennials’ and energy ‘prosumers’.

The utility’s anxiety to showcase its "transition from energy supplier to energy partner" is explained by a statistic from the presentation made by the company’s NRG Home business that predicts millennials – people reaching young adulthood around the year 2000 – will eclipse the spending power of the baby boomer generation in 2018 by having $3.4 trillion at their disposal.

According to NRG’s figures, 126 GW of wholesale power generation assets will have retired in the decade up to 2020 with oil topping the list this year – with around 25 GW of assets being wound down – slightly ahead of natural gas, and with just under 20 GW of coal assets expected to be closed.

Those changes are due to a significant extent to tighter clean air legislation pushed through the U.S. Environmental Protection Agency under the aegis of President Barack Obama.

With DG having topped centralized power generation in the U.S. for the first time in 2013 – according to NRG’s figures – the feat was repeated, just, last year with around 18 GW of DG versus 17.5 GW of centralized generation.

DG will widen gap on centralized generation

NRG predicts that 500 MW or so gap will be replicated this year, centralized generation will enjoy an Indian summer – with around 25 GW versus 22.5 GW DG – next year and then DG will roar away with more than double the capacity of new installations of centrally generated power in 2017 in a pattern that will continue through 2023.

The utility intends to take advantage by becoming ‘customer obsessed’, focusing on ‘people not meters’ and expanding its offering in smart home technology, electric vehicles and B2B non-grid solutions.

Renewable supporters hoping for a radical move, such as that made by German utility E.ON recently, with its decision to spin off all its conventional power plants into a separate entity may be disappointed, though.

Coal will not be disregarded

In showcasing its off-grid B2B network, NRG has amassed it chiefly through bolt-on acquisitions and investments, such as the $35 million it spent increasing its stake in fuel cell generator FCE2 in July and the utility’s NRG Carbon 360 business is keen to stress it will not be washing its hands of its huge fossil fuel generation portfolio, stating: "the abundant U.S. coal resource cannot be disregarded."

Rather, NRG will continue to chase the dream of carbon capture and sequestration (CCS) to obtain a "phenomenal first-mover advantage" in monetizing the 39 million metric tonnes of CO2 created by its operations in the Gulf Coast region, as well as using enhanced oil recovery to maximize returns from its oil wells.

But with an emphasis on the long-term gains available for the utility from solar leasing as well as cross-selling opportunities across its clean energy initiatives, as NRG aims to be the "chosen partner of energy prosumers", there are positives emerging from the investor day.

In terms of NRG’s eVgo electric vehicle business, the company unveiled plans to expand its charging network into 22 new cities in the next two years and was keen to point out – in a clear indication of where it sees its biggest rival in that sector – that its chargers support all major U.S., European and Japanese auto brands, unlike the exclusive Tesla charging points.

The verdict of shareholders has initially been neutral, with the quoted stock price in NRG of $27.14 last Friday (January 9) having slipped slightly to $26.57 at the time of going to press.