NRG Energy: Utility Revolution

11/20/2013 8:00 am EST

Focus: STOCKS

David Dittman

Chief Investment Strategist, Australian Edge, Canadian Edge, & Utility Forecaster

David Crane has been one of the most vocal and forward-leaning CEOs—advocating a revolution in the way tradition-focused electric utilities and power generators think about delivering their product, explains David Dittman in the Utility Forecaster.

That's the big-picture explanation for why we're adding NRG Energy Inc. (NRG) to the aggressive section of our Growth Portfolio.

Bypassing its utility clients, the utility is installing solar panels on rooftops of homes and businesses. And it plans to offer natural gas-fired generators to customers to rely on when the sun goes down.

NRG is the first operator of old-school, large-scale power plants to branch into running mini-generation systems that run a single building.

The initiative, an overt recognition of a distributed-power-based future, provides NRG a head-start, as a business model that's been in place for more than a century is deconstructed.

Meanwhile, in October, NRG announced its intention to acquire Edison Mission Energy for $2.6 billion. NRG will become the third-largest renewable energy generator in the US, with more than 2,900 megawatts of wind and solar capacity in operation, or under construction.

The deal will nearly quadruple NRG's existing wind generation, and add capacity outside of its existing renewable footprint in Texas and the Southwest.

Recently completed, or soon to be completed, solar projects should add approximately $340 million to 2014 earnings.

And with the completion of the GenOn Energy merger in December 2012, NRG is now the largest competitive generator in the US, with total capacity of 47,000 megawatts. The Edison acquisition would increase NRG's generation portfolio by nearly 8,000 megawatts.

All told, management expects to post free cash flow of more than $480 million in 2014. NRG Energy is a buy for long-term growth.

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