During his presentation at the Bloomberg New Energy Finance (BNEF) Future of Energy conference, BNEF Founder Michael Liebreich quipped that there is “no alternative energy, and no alternative facts”. As such, the business of wind and solar is increasingly the business of energy.
Nowhere is this more true than at power giant NRG, which under the leadership of former CEO David Crane became one of the first large U.S. power companies to heavily invest in renewable energy.
During the first quarter of 2017, NRG showed continued investment into solar despite a multitude of challenges both in its renewable division and conventional power business. The company’s Renewables division put only 21 MW of solar online, but contracted 204 MW of solar projects, bringing its solar backlog to 546 MW.
NRG currently has 220 MW of solar under construction, including 101 MW of utility-scale solar in Texas and Hawaii, and 119 MW of community solar and distributed generation in nine states. NRG additionally added 302 MW to its utility-scale and DG solar pipeline, which now stands at 2.6 GW.
And while solar dominates NRG’s backlog, the company added a much larger capacity of wind in its pipeline at over 1 GW.
The financial results were less positive. NRG’s Renewables division – which does not include the remnants of its residential solar business – reported a US$31 million loss during the quarter. The company cites bad weather for lower wind and solar output during the quarter, including in California where heavy rains affected both solar deployment and PV output.
This is much better than the larger company, which reported a loss of $203 million and is currently undergoing a formal business review. CEO Mauricio Gutierrez noted the ongoing difficulty in many regional markets, including Texas’ ERCOT grid, where low prices are putting “significant pressure” both on new builds and older plants struggling to stay online.
And as NRG builds more renewable energy projects, it is quickly spinning them over to its yieldco. During the quarter NRG dropped down 311 MW of utility-scale solar to NRG Yield, including a 46 MW share in its Agua Caliente project and a 50% share in seven utility-scale solar projects in Utah which it bought from SunEdison on the cheap.
But while NRG acquired these assets from SunEdison for the fire sale price of under $0.10 per watt (DC), NRG Yield is paying substantially more for them. The drop down comes at a cost of $131 million in cash and assumed debt of $463 million, which puts the price paid for these assets closer to $2 per watt.
NRG Yield has also added 234 MW of solar projects to its right of first offer portfolio, including the 154 MW Buckthorn project in Texas, which holds a power contract with the city of Georgetown.
And despite the higher price paid for assets and lower productivity of its wind and solar fleet, NRG Yield still managed its fourth consecutive quarter of dividend increase at $0.27 per share. The company’s cash available for distribution (CAFD) was wiped out to zero during the quarter, but the company sees no impact on dividends due to timing of distribution and is forecasting a $255 million CAFD over the course of 2017.
Overall, NRG may be seeing tighter rates of return, but plans to continue its growth path in renewables. Both the CEOs of NRG and NRG Yield stressed the need for continued growth, with NRG mentioning distributed solar and community solar in Minnesota and New York.
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