NRG Could Be The Green Victim Of Green Energy
NRG stock is down by one-third in the last year despite its green energy gloss. The company’s problem is that it produces and sells solar and wind but does not own utilities. Next Era Energy has a better economic model. NRG (NYSE: NRG ) CEO David Crane has the reputation of being one of the smartest guys in the energy industry, certainly the smartest in the utility business. He talks big about ruling and overthrowing the utility industry, with a big boost from renewable energy. But over the last year he, and his shareholders, have been getting their comeuppance. NRG shares are down by one-third over that time. Profits have been down for three consecutive quarters, and the March quarter saw the company make a $120 million, 37 cent per share loss. The company raised the dividend a penny in defiance of this, to 15 cents, but the company’s yield of 2.33% is still not awesome compared with its peers, and it looks a lot more threatened. What went wrong? Some might argue the problem lies in its business model. NRG makes most of its money as a “standby” energy producer. It doesn’t control customer accounts. It builds and holds energy production, and makes money on the production cost. When investors look at it, however, they see things like Green Mountain Energy , which works to get consumers using “green” energy and lower their costs at the same time. But NRG is not a utility. It does not control the delivery of the energy it sells. Green Mountain is often confused with Green Mountain Power , a Vermont utility that does do business with NRG but is actually owned by Gaz Metro , a company which, through a web of holding companies and partnerships , is connected to Quebec’s public pension funds and Enbridge (NYSE: ENB ), a pipeline company whose Alberta Clipper pipeline serves the region’s oil sands. Contrast it with NextEra Energy (NYSE: NEE ), the parent of Florida Power & Light, which recently announced a deal to buy Hawaii’s Hawaiian Electric (NYSE: HE ). Th at deal has some in a bad odor but the idea is to run Hawaiian Electric, where renewable energy is abundant, more like Green Mountain Power. That is, the company can make money by financing energy savings for consumers and sharing in the proceeds, as described this week at The New Yorker . When the company delivering energy savings to a consumer is also the consumer’s electric utility, it can be creating multiple routes to profit. It’s selling and financing something other than power generation. It’s actually creating a financial benefit for itself out of lower power use. It’s also gaining control of an account that can help it deal with the costs of solar and wind energy, including its intermittent nature. Utilities don’t have to be opponents of green energy, the story goes, they can make money from being its advocates. If what Green Mountain Power did in Vermont works in Hawaii, it’s a huge win for NextEra Energy. Trouble is, that lower power demand also becomes a huge loss for companies like NRG, whose business depends on selling power, and whose profits depend on maintaining a high price for that power. Perhaps that is the reason that NEE stock has been stable over the last year, and it has nearly double the net income, $1.45/share, it needs to pay the dividend of 77 cents per share, up a nickel from last year’s 72 cents. The dividend means a yield of 3.04% that is quite sustainable, and it has profit opportunities that NRG can only dream of. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.