NRG spins off its renewable energy business

There was a great deal of optimism coming out of the Solar Power International trade show last week, with an appearance by U.S. Vice President Joe Biden and the recent passage of a mandate for 50% renewables in electricity by 2030 in California.

However, only a day after the show American power company NRG Energy made an announcement that it is scaling back its commitment to renewable energy in the short term. As part of a broad reorganization of the company, NRG will spin off its renewable energy businesses, including its residential solar business, EV charging and other renewable energy activities, into a separate company.

As explained by NRG CEO David Crane, this GreenCo will “in a matter of months instead of years stand on its own two feet financially and as its own investment proposition.” In a conference call with investors, Crane made it clear that the GreenCo will receive “finite and clearly defined financial support from NRG”, exclusively through a US$125 million revolving fund.

NRG anticipates that Home Solar will burn through $168 million in cash during 2015, which was less than anticipated. However, the company cites higher sales and marketing expenses and lower margins due to fewer than expected installations in the division.

This is despite a sharp growth in bookings. With another 2,500 bookings in August, the company had around 13,000 customers at the end of the month. And while Crane notes that Home Solar has been experiencing “operational shortcomings” when it comes to installations, he also says that the division is in contention with Sunrun for third place in residential market share behind only SolarCity and Vivint.

There may be other factors. NRG’s stock has slid over the last fifteen months from a high of $37 to around $19, and in the call Crane cited the need to “unlock capital to right-size the capital sheet of NRG by shrinking debt and by share repurchases”.

NRG Yield will remain a separate company from GreenCo. NRG plans to sell 814 MW of wind assets from its Edison Mission Wind portfolio to the yieldco, which will provide $210 million in cash for the parent company. NRG Yield’s stock performance has also been disappointing, with shares falling from a high of $27 in early June to around $15 in recent weeks.

Crane has been outspoken about his confidence in renewable energy, and describes Home Solar as a “fast-growing business”. However, he appears to be hamstrung by NRG’s investors, and during the call Crane noted the "concern of investors in the past few weeks… on the overall cash burden of our green businesses".