NRG’s renewable investments begin to pay off

Image: SunEdison

Power company NRG struggled in the fourth quarter with low power prices as it moves back towards profitability, according to fourth quarter and full year 2016 results released this morning. And while the company’s difficulties include losses from its renewable energy investments as well as conventional generation, its lucrative acquisition of SunEdison projects is beginning to pay off.

NRG’s net loss of $1.05 billion in the fourth quarter brought down its full year results to a loss of $891 million, against $12.4 billion in revenue. And while its conventional generation business represented most of this quarterly loss at $889 million, the combination of the company’s Renewables division and Corporate division, which includes its residential solar business, and NRG Yield lost $482 million, which was offset by a healthy profit in its retail division.

In more concrete terms, the losses stemmed from a $1.2 billion impairment of goodwill and fixed assets, which NRG says is due to continual declines in the forecast for power and gas prices. However, it is important to notes This is an improvement from 2015, when NRG reported a $6.4 billion net loss, led by staggering losses in its conventional fleet.

And while NRG joins other power companies in struggling with the new low-cost environment, it is beginning to make money on some of its renewable energy investments, and investing deeper in wind and solar.

On February 24, NRG agreed to drop down 311 MW of utility-scale solar to NRG Yield for $130 million in cash, representing a 16% interest in the Agua Calienta project in Arizona and NRG’s 50% interest in over 500 MW of utility-scale solar in Utah. These solar projects were acquired at $0.12 per watt-AC as part of NRG cleaning up in a SunEdison fire sale, and the result is looking to be highly profitable for the company.

“For this transaction, we have already recovered 100% of our total utility-scale purchase price with just the first 265 MW drop down to NRG Yield,” noted CEO Mauricio Gutierrez on the company’s earnings call. “This means we have over 1 GW of projects in this portfolio at effectively zero cost.”

These are not the last projects NRG plans to drop down to its yieldco, and has also amended its right of first offer agreement with NRG Yield to include 234 MW of utility-scale solar projects in Texas and Hawaii

During 2016 NRG acquired 1.7 GW of wind and solar assets, and its priorities have been focused on both reducing debt and acquisitions. During 2016 NRG dedicated 65% of its capital to debt and preferred stock reduction, and another 31% to “growth investments”. In 2017 the company is looking to deleverage its balance sheet further, with 70% going to debt and preferred stock reduction and 19% going to such investments.

However, the company is scaling back its investment in residential solar. In February the company gave notice of layoffs to more of the employees from its former Home Solar division, where it is getting away from installation and transitioning to a lead generation and sales model.

It is difficult to say the financial position of NRG’s residential solar division, as its results were folded into NRG’s corporate division, however the division in the past has reported losses.