Under visionary former CEO David Crane, NRG was among the first large power companies to dive whole hog into renewable energy, including creating a residential solar business. But it can be difficult to be first, especially in the fast-moving and often unforgiving power sector. Two years ago Crane was removed as CEO and replaced with more conservative leadership, which has taken a more cautious tack on renewable energy.
Today NRG’s experience in renewable energy is coming full circle, with the company announcing an agreement to sell off both its renewable energy operations and maintenance (O&M) and development business, as well as its 46% stake in yieldco NRG Yield to New York’s Global Infrastructure Partners (GIP) for $1.375 billion in cash.
The transaction is subject to the usual conditions and is expected to close in the second quarter of 2018. For the $1.375 billion, GIP is getting 5.1 GW of assets of wind, solar and natural gas assets in NRG Yield, as well as Renewables’ 630 MW of assets, its 6.4 GW project pipeline and 2.4 GW of O&M contracts in 17 states.
Big changes at NRG
Along with the sale, NRG is accelerating drop downs of assets to NRG Yield, which will bring NRG an additional $407 million in cash. Along with the simultaneous sale of coal and natural gas plants in Louisiana and East Texas through its South Central Business, NRG will be gaining $2.8 billion in asset sale cash proceeds, as well as removing $7 billion in consolidated debt.
The net result of this move will be a smaller and more focused NRG. The move comes on the heels of several difficult years, with NRG CEO Mauricio Gutierrez famously stating last year that the independent power producer (IPP) model is “obsolete and unable to create value over the long term”. NRG has additionally engaging prominently in multiple efforts to reform electricity markets.
The sale of these assets is hardly a surprise, as in July 2017 NRG announced a wide-ranging Transformation Plan, one component of which was to sell off both NRG Yield and its Renewables businesses, in order to “deconsolidate and simplfy NRG’s structure”. NRG is still holding on to its retail electricity businesses in the Northeast and Texas, as well as its wholesale business throughout the United States.
GIP to invest in renewable development, assets
Concurrent with today’s transactions NRG Yield has announced contracts to buy the Carlsbad Energy Center, a 527 MW gas plant under construction near San Diego, as well as the 154 MW Buckthorn Solar project in Texas.
GIP has agreed to potentially backstop the Carlsbad transaction, as well as speeding up both acquisitions. To support such actions GIP has set up a $1.5 billion backstop credit facility, which includes $400 million for the Carlsbad drop down. This is part of $1.9 billion that GIP has announced in capital support, not including the $1.375 billion to acquire NRG Yield and Renewables.
As was the case with Brookfield’s acquisition of TerraForm, GIP’s deep pockets make much of this possible. NRG notes that the company has over $45 billion in assets under management and roughly $9 billion in equity invested or committed in the renewable energy sector.
“With today’s announcement, NRG Yield can now look forward to its next phase of growth, including solidifying near-term objectives through the most recent drop down transactions and, most importantly, aligning with GIP, whose strategy and breadth of global investment capabilities are well suited to our business model and long-term objectives”, notes NRG Yield President and CEO Christopher Sotos.