NRG will sell 6 GW of generation, shed renewable assets in restructuring plan

Dive Brief:

NRG Energy on Wednesday announced a corporate reorganization plan, seeking to raise up to $4 billion in proceeds by divesting from assets representing 60% of its earnings before interest, tax, depreciation and amortization (EBITDA).
As part of the plan NRG will divest from 6 GW of conventional generation and sell off 50%-100% of its NRG Yield renewable energy business. NRG’s GenOn subsidiary will continue through its bankruptcy proceeding, after which it will be handed over to creditors.
NRG’s board unanimously approved the plan, according to CEO Mauricio Gutierrez, and the company’s stock opened up 19% on Wednesday.

Dive Insight:

NRG announced the results of its corporate transformation review on Wednesday, telling analysts it will seek to reduce its debt by $13 billion and raise up to $4 billion in revenue from selling off a large set of both conventional and renewable assets.

The plan was unanimously recommended by the Business Review Committee, which was subsequently disbanded.

Back in May, reports swirled that NRG Energy was considering a recommendation to sell all of the company's renewable energy assets as part of a review of the company's structure. At the time, media sources speculated the review could result in the sale of both renewable energy projects developed by NRG and those in NRG Yield.

The plan would leave NRG a markedly different company than the one envisioned by former CEO David Crane, who led the IPP's charge into the renewable and distributed energy markets. Following poor stock performance, investors soured on Crane's vision and he stepped down in 2015. In February, NRG shed its residential solar arm, NRG Home.

Low prices in the nation's wholesale power markets have also battered NRG, and last month the company's GenOn subsidiary — with more than 14 GW of generation — filed for Chapter 11 bankruptcy protection. In March, NRG CEO Mauricio Gutierrez told analysts on an earnings call that the independent power producer model is "now obsolete and unable to create value in the long term."

Moving forward, Gutierrez told analysts on Wednesday that NRG would focus on developing as an "integrated platform of generation and retail," focusing on a narrower set of markets.

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

That integrated IPP-retailer model, he added, has been "validated by every single IPP in our space."

Wall Street reacted positively to the plan, with NRG shares up more than 19% at the open Wednesday, the highest in nearly two years. NRG Business Review Committee Chairman John Wilder said in a statement that the changes targeted "annual improvements with 72% of run rate annual benefits of $1.07 billion achieved in 2018, 92% in 2019, and 100% achieved in 2020."

He added that "we established a rigorous capital allocation process to ensure NRG is financially flexible for years to come and to ensure NRG wisely allocates its expected 2017-2020 $6 billion of excess cash flow in 12-15% or better unlevered internal rate of return investments, or distributes the excess cash to our shareholders.”