The Off-Grid message sometimes seems anti-corporate – a fightback against the big Utilities and their cronies in politics and the media.
But big business also contains some sworn enemies of the Grid. None more so than David Crane, CEO of NRG Energy, America’s largest independent power producer. For the past century, we have paid electric utilities to supply power via the centralized grid. In the future Crane envisions individuals relying on power plants only for critical needs.
Last Thursday the Arizona State legislature voted to impose a tax on roof-top solar installations – it was an infuriating decision after years of lobbying from the Utility companies.
“The fundamental relationship the American citizen has with energy is about to change,” Crane told Barrons magazine. “Right now, it’s a one-way street. But when you have an electric vehicle charging in your garage, solar [panels] on your roof, and appliances in your home that turn natural gas into energy, you can become a producer as much as a consumer.”
When the Arizona decision was announced, Crane was quoted as saying: ”The more they charge people who are generating most of their own electricity for backing up that self-generation, they’re going to encourage those people to find a solution that doesn’t involve the grid at all.”
His NRG company is moving heavily into the rooftop solar business and ran a pro-solar ad in Arizona before the vote, which said that the utilities were sowing the seeds of their own destruction.
The Arizona compromise on the system, which is known as net metering — it credits residential and commercial customers for excess renewable energy they send back to the grid — allows it to continue. But it sets up a future battle over the value of decentralized solar power that will play out across the country.
More than 40 states offer some form of the incentive, according to the Energy Department, and the credit programs are under scrutiny in nearly all of them, advocates say.
In the Arizona case, as in others this year, regulators have told the utilities to re-examine their entire rate structure, not just net metering, said Bryan Miller, president of the Alliance for Solar Choice, a lobbying group, and vice president for policy at Sunrun, a residential installer.
Crane points with pride to the company’s solar installations at football stadiums around the U.S., and warns of “mortal threats” to the utility industry as customers break free of the grid. Mostly, he focuses on positioning NRG to facilitate the revolution, not be devoured by it, even though wind and solar power currently account for just 3% of the company’s generating capacity, versus the 95% produced by fossil fuels.
A lawyer and former investment banker, Crane, 54, earned his industry cred by transforming a wholesale power supplier into a leader in clean energy with a large retail customer base. But he is not doing it out of altruism. He quadrupled the company’s revenue and nearly tripled its generating capacity. NRG earned $559 million, or $2.35 a share last year, on revenue of $8.4 billion.
Last month NRG bid $2.6 billion for the wind, gas, and coal assets of Edison Mission Energy, operating under bankruptcy protection. Both deals provide additional runway to cut costs, giving NRG an edge over already-lean rivals, as well as the benefits of scale and diversification.
Crane also is trying to boost NRG’s retail business, in part by selling customers more services such as efficiency tools to monitor and automatically regulate energy use, all of which move them toward his larger vision.
NRG entered the retail market in 2009, amid the throes of the financial crisis, snapping up Reliant Energy’s retail business for $287 million, and snagging two million customers in Texas. Analysts initially were skeptical because of retail’s lower returns, but the deal generated enough free cash flow in four months to recover NRG’s purchase price.
And, the company is developing a solar-driven micro-grid for customers in the Caribbean, who face some of the highest energy costs in the world. Crane says it could work as an alternative to back-up diesel generators.
The idea for the Caribbean project came from Crane’s travels to Haiti since the devastating earthquake destroyed parts of the country in 2010. Crane has been to Haiti nine times since 2011, bringing family, colleagues, and potential donors to build solar-power systems in schools, an orphanage, a hospital, and a fish farm.
As a youth Crane became riveted by the Watergate scandal, and convinced that the U.S. had never come as close to a coup d’etat. “The lawyers saved the union,” he says. “It’s the reason I wanted to be a lawyer ever since I was 14.”
Recruited by Princeton to play soccer, Crane attended the university’s Woodrow Wilson School of Public and International Affairs. He worked in finance and then became CEO of Independent Power, a leading U.K. power producer, where he learned all the tricks he was to put into practise upon taking the reins at NRG.
Transformations rarely go entirely smoothly, and NRG’s was no exception. One of Crane’s biggest missteps involved the ill-fated expansion of a nuclear plant in Texas with San Antonio’sCPS Energy a project hatched in 2006, when natural-gas prices were high. After they fell and his partner pulled out, Crane forged on, only to end NRG’s involvement after the Fukushima nuclear accident in Japan in 2011. The company booked a $350 million loss. “I was so deep in [that] I fell victim to not seeing the big picture,” he says.
Lately, Crane has been forced to navigate a period of low electricity prices, due to the shale-gas boom that has depressed the cost of natural gas. An unusually cool summer in Texas, coupled with low gas prices, spelled double trouble, forcing the company to lower the top end of its 2013 earnings guidance last week. It also lowered its 2014 forecast for Ebitda to a range of $2.7 billion to $2.9 billion from a previous $2.85 billion to $3.05 billion.
Crane expects the Texas market to improve in 2015 or 2016 as the absence of power-plant construction leads to electricity shortages. But the slow-growing Northeast could remain under pressure.
NRG, following its usual pattern, is looking to boost growth with acquisitions, such as the $1.7 billion purchase last year of GenOn, a large independent power producer based in Houston.
“It just makes you feel happy and human,” he says.
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