NRG Energy to divest wind and solar assets
Houston power company NRG Energy's shares rose to a two-year high of $21.09, after it announced it will divest between $2.35bn and $4bn of assets, including most, if not all, of its national wind and solar power projects, as well as conventional power plants, in a cost-cutting exercise some have described as "baffling". NRG CEO Mauricio Gutierrez told analysts the measures would save $6.3bn in cash, and the firm would be "able to thrive under any market structure". NRG's decision represents a rare reversal of strategy at a time when other utilities across the US are embracing renewables.

The Houston power company NRG Energy said Wednesday that it plans to sell most, if not all, of its wind and solar power projects around the country as part of plan to divest $4 billion in assets in a bid to cut costs, slash debt and boost its stock price.

The plan, which includes the sale of conventional power plants, will almost certainly lead to layoffs - the company has already set aside money to cover severance costs - but the impact on Houston, where NRG employs about 2,400, and Texas, where the company operates nine power plants and owns all or part of seven wind and solar projects, remains unclear. NRG officials did not disclose which plants and projects would be sold off and how many jobs would be cut.

The move follows a campaign by two of NRG's biggest shareholders, the New York hedge fund Elliott Associates and the Dallas investment firm Bluescape Energy Partners, to shake up the company's board of directors and increase the price of its stock, which the activist investors have called undervalued. NRG's stock surged nearly 30 percent after the company unveiled its so-called transformation plan, with the share price jumping from $16.30 a share to $21.09.

But analysts were confounded by the strategy, which some described as shortsighted. The company would sell the majority of its wind and solar projects when renewable energy is profitable and energy firms - including the world's largest oil and gas companies - are increasing investments in green energy.

"We think NRG's announcement is reshuffling the deck more so than creating value for shareholders," said Travis Miller, an analyst who covers utilities for the Chicago research firm Morningstar. "We thought that the NRG renewables business was a good growth platform with some attractive returns, but management clearly decided that their investors would prefer going a different route."

As with other merchant power companies in Texas, NRG has struggled to profit amid low wholesale electricity prices and increasing competition from abundant and cheap wind power. Last year, the company's revenues plunged near 15 percent to $12.4 billion from $14.7 billion in 2015.

Sharp reversal of strategy

NRG's stock reached a five-year high at $37.24 in June 2014, but swiftly plummeted, remaining stubbornly below $20 for the past two years.

In January, Elliott Associates and Bluescape Energy Partners forced the ouster of the NRG's chairman and secured two seats on the board for its candidates, one of them Barry Smitherman, a Houston lawyer who has served as chair of both the state Public Utility Commission and Railroad Commission, the state's oil and gas regulatory agency.

NRG's transformation plan represents a sharp reversal of strategy, which analysts said is rare in the corporate world. NRG had made tentative steps away from renewable energy with the 2015 firing of then-CEO David Crane, a proponent of electric car-charging stations and residential solar panels, and the hiring of CEO Mauricio Gutierrez, who favors more traditional sources of power like natural gas.

But Gutierrez repeatedly said the company remained committed to clean energy and last year completed a $183 billion deal to purchase large-scale solar and wind projects from the bankrupt renewable energy company SunEdison.

"At a time when other utilities across the country - from Florida to New England to the Midwest - are embracing renewables, NRG's decision is baffling," said Jim Marston, a vice president who oversees clean energy issues for the Environmental Defense Fund, a national environmental advocacy group. "This move is another example of NRG's new management abandoning its clean energy leadership position, and focusing on short-term profit over the company's long-term future."

NRG plans to divest between $2.35 and $4 billion in assets in an effort to cut 70 percent of its $13 billion debt. The company expects to sell anywhere from half to all of its share in NRG Yield, a subsidiary that owns most of NRG's renewable projects, including large-scale solar and wind projects in West Texas. It also plans to sell conventional power plants with a combined 6,000 megawatts of generating capacity, about 15 percent of its fleet's capacity of more than 41,000 megawatts.

In a call with analysts, Gutierrez estimated the sale of renewable projects and power plants would generate $6.3 billion in cash, including savings in operations, maintenance and payroll. The company has set aside nearly $300 million over the next two years to cover the costs related to its divestment plan, including severance.

"With this plan we now have a clear path to success in this industry," Gutierrez said. "Our business will be simplified and able to thrive under any market structure."

Parent of Reliant Energy

Gutierrez said the company will put more emphasis on its profitable retail electricity business, particularly in Texas, where its companies, including Reliant Energy and Green Mountain Energy, are the biggest providers in the Houston area. While low electricity prices are squeezing both retail and wholesale businesses, retail has held up much better.

Last year, NRG's retail sales of $6.3 billion exceeded generation revenues, $5.7 billion in 2016, for the first time in years.

"We're always going to be focused on the markets that are the most attractive markets," he said. "Today, from our perspective, the most attractive market is Texas, with a few pockets in the Northeast. Tomorrow, that may change."