San Francisco, New York: NRG Energy Inc., the worst-performing member of the S&P 500 Utilities Index this year, said it will form a separate renewable energy unit and consider selling a majority stake in it, addressing investor concerns about the future of the business.
The biggest US independent power producer will place its home and commercial solar and electric-vehicle charging businesses in a unit tentatively called GreenCo, CEO David Crane said during a conference call with investors. The unit will be created on January 1, 2016.
NRG has been facing increasing pressure from investors to show how the company plans to fund its renewable energy business while holding onto conventional resources such as coal- and natural gas-fired power plants. The Princeton, New Jersey-based company has dropped almost 30 per cent in the last four months amid a slump in energy prices.
“Some have been looking for this separation,” said Paul Patterson, a New York-based analyst with Glenrock Associates LLC. “There had been a perception that some of the parts would be valued greater than the combination of the two businesses.”
Separately, NRG will drop down 814 megawatts of wind assets into NRG Yield Inc., a sale that will produce $210 million (Dh771.05 million) in cash for NRG, according to a slide presentation for investors posted on its website. The company will look to sell certain power generation assets while cutting costs by $150 million through 2016, Crane said.
“The yieldco market is saturated. All of the yieldcos have been underperforming the market,” Stacy Nemeroff, a Princeton, New Jersey-based analyst for Bloomberg Intelligence said. “There have be concerns of dilution of among current unit holders.”
Affiliate NRG Yield, the owner of long-contracted renewable and gas-fired generation, is the worst performer this year in the seven-company Bloomberg Industries North American Power Yieldco Valuation Peers index. The shares have lost 37 per cent this year, compared with a decline of 23 per cent for the index.
Crane forecast the creation of GreenCo in an August 4 call with investors when he said the company would consider carving out parts of its green energy business into a separate company next year. NRG would be “open to selling a majority or substantial minority” stake in the new unit to a partner, and prefers “a strategic partnership to an outright sale,” Crane said on Friday.
NRG will limit its financing of the new unit to $125 million, Crane said. “NRG financial support will not be provided beyond the $125 million,” Crane said. “In the event that the financial projections for GreenCo are not achieved and GreenCo cannot reduce its burn rate in order to live within the limits of the intercompany revolver, GreenCo will have to find other ways to fund itself or shut down one or more of it’s businesses.”
The market for an initial public offering is not ripe, Crane added.
Separately, NRG will buy back $250 million in shares this year, Crane said. Asset sales and cost cuts will be used to fund $1.3 billion in share buybacks and debt reduction through 2016. NRG’s power plants can generate more than 50,000 megawatts, according to its website. The company and its subsidiaries serve customers in all US states and Washington, the website shows.
