Cleantech Market Intelligence
GreenCo in the Red: NRG Reset Highlights Tenuous Solar Model
On September 18, NRG Energy announced a restructuring designed to firm up the balance sheet of its core business and move the cash-losing solar and electric vehicle charging businesses into a new company, dubbed GreenCo. NRG’s stock has fallen by a third this year, and with interest rates poised to rise, investor pressure forced the move.
NRG CEO David Crane said in a webcast that the company will provide GreenCo with a $150 million revolver through 2016, adding that NRG believes “Now is neither the time to abandon GreenCo nor to transfer its full value to someone else, but it is very much the time to impose a new higher level of financial rigor on GreenCo befitting the type of capital discipline imposed on entrepreneurial startups by venture capitalists.” Crane also noted that formal efforts are underway to find GreenCo a strategic partner.
Selling the Upside or Saving Itself?
Back in early 2014, I wrote a blog suggesting utilities invest in solar and highlighted NRG’s (the non-utility) aggressive moves in the sector. I noted that many telecoms that invested in cellular early and consolidated (rather than divested) today find that business line to be their largest and most profitable.
But 18 months later, the losses at GreenCo have become too much for NRG’s investors to stomach. I looked at other public solar companies and, sadly, analysis of SolarCity’s financials don’t fill me with hope, either. The long-term lease model and aggressive marketing employed by solar firms recently have ballooned losses and reduced working capital, and long-term debt has grown.
Now, like solar, the cellular industry in the 1990s was particularly capital-intensive, and free cash flow losses for many were huge. But once the networks were built, cellular has turned into a nicely profitable business. Will that same dynamic prove true as the solar industry matures?
Who Should Own Solar Panels?
The difference between the telecom/cellular dynamic 20 years ago and the uneasy utility/solar relationship today is at least partially due to the fact that individuals—or even the Walmarts of the world—weren’t out buying their own cellular towers and building their own networks in the nineties in order to save money with AT&T or Verizon. It wasn’t an either-or proposition; for a long time, most people had both cellular phones (which were great when they worked) and landline phones. Of course, cellular phones dominate today, and many people no longer find a need for a home phone.
But if I put solar panels on my home today, that creates an immediate, permanent reduction in the amount of power I buy from the utility. Other critical differences include the fact that the cellular network grew exponentially in value as it became truly nationwide; solar will remain a much more local/regional business. And cellular is regulated at the national level by the Federal Communications Commission, while electric utilities all have to contend with their state-level regulatory bodies.
That doesn’t change the fact that solar will inevitably have a measurable impact on demand for the local utility’s product. Many large regulated utilities are weighing the risks of building community solar projects within their regulated business units; others, like Exelon’s Constellation, are aggressively going for the NRG GreenCo/SolarCity model.
At the end of the day, the differences between utility/solar and telecom/cellular may be greater than the similarities. But if I were a traditional utility watching more and more solar panels take up position on rooftops across my territory, I’d certainly be seeking a way to capitalize upon the trend.