While it recently beefed up its California holdings by acquiring several natural gas-fired generation plants, Princeton, NJ-based NRG Energy Inc.'s long-term strategic plan in the West is centered on robust renewable development that will increase the value of baseload gas-fired power as a balancing agent, CEO David Crane said at the recent Bank of America Merrill Lynch Investment Conference in San Francisco.
"A market that has 33% renewables is going to need a lot of gas-fired generation to firm it up, so one of the other big motivators for us to buy gas-fired generation with fast-start capability in California is we want to be there -- to be the ones providing the firming for that 33% renewables [by 2020]," said Crane, adding that the solar segment is the most enticing to NRG.
The California Air Resources Board approved a 33% renewable target last Thursday as part of the state's climate change law implementation.
With the prospect for the unprecedented jump to 33% renewables in the next 10 years, Crane said California's major utilities have been very quick to sign long-term contracts with solar developers. "We have been involved in many [solar] projects in California, some of which have been announced and others that are yet to be announced in terms of a wide range of solar technologies," he said.
In the past two years NRG has announced plans with various solar developers in the Southwest to develop nearly 1,000 MW of solar installations in Southern California and neighboring parts of Nevada and Arizona.
Acknowledging that some people are critical and leery of California regarding large-scale solar development because of its boom-bust history in the 1980s and 90s, Crane thinks long-term power agreements with the major utilities for the "type of generation that the state clearly favors and wants" have an "extremely low" chance of being overturned by future changes in the policy initiatives in the state.
"We see solar in California as one of the most attractive, risk-adjusted investments that we can make on behalf of our shareholders," Crane said.
His company's recent focus on solar, renewables more broadly and electric vehicles is all part of what Crane sees as "enormous changes" facing the power sector (see related story), and he thinks most major investor-owned, vertically integrated utilities, while still dominating the industry, are not well suited to take advantage of these sweeping changes. He sees independent power providers as being far more flexible and entrepreneurial.
"We can respond because we are not a rate-based utility, and we're not made up of people who think in that type of sector," he said.
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