Reporting some sobering financial results for year-end 2010, NRG Energy Inc.'s CEO David Crane talked in less than bullish terms about the prospects for natural gas-fired generation and his company's bet on new nuclear generation in Texas during a conference call with financial analysts Tuesday. But Crane was still upbeat about solar energy and the inevitability of "sustainability" becoming a key market factor in energy development.
NRG reported a loss for the fourth quarter last year of $15 million (minus 7 cents/diluted share), compared to profits of $33 million (11 cents) in the same period in 2009. For all of 2010, net income was $476 million ($1.84), compared to $941 million ($3.44) in 2009.
Crane kicked off his conference call by calling attention to the fact that it has "now been 32 months since natural gas prices began their relentless fall."
Lamenting what he called the "missed opportunity" to secure a Maine plant and three California-based natural gas-fired generation plants from Dynegy (see Power Market Today, Nov. 29, 2010), Crane said for this year NRG is focused on the repowering of its El Segundo power plant near the Los Angeles International Airport, which gives the independent power producer what Crane called "a modern, fast-start combined-cycle gas plant inside the Los Angeles Basin load center." He said the company also hoped to make similar progress with its Astoria plant in New York and Encina facility in California's San Diego County.
However, he said he is no longer bullish about the market opportunities for combined-cycle gas technology (CCGT) generation this year and next. "The optimism I once held that the first half of 2011 would be a buyers market for CCGT plants in the United States has largely dissipated," said Crane, noting that acquisition markets are "lumpy, generalities are difficult and predictions are often proved wrong.
"I see no sign of a flood of assets on the market, and the combined-cycle transactions that were announced recently have been priced at levels significantly above what we can justify to ourselves, or explain to our shareholders."
On the nuclear front, Crane reiterated what he said most of last year -- NRG's partnership to build new nuclear generation units at the South Texas Project (STP) complex depends first on getting federal loan guarantees by the mid-part of this year and then lining up long-term power contracts for at least 1,000 MW. This was emphasized in similar calls last year. The need for the long-term contracts is critical to NRG continuing its involvement in the project, and that issue needs to be addressed "no later than the third quarter this year," Crane said.
"We intend to be in a position by late this summer to make a final decision on NRG's continued participation in this [STP nuclear] project," he said. "At that point the market should have significantly more clarity about this project and NRG's role in it."
In looking at the longer-term economics of a new nuclear project, Crane said in response to questions that even at $4 prices for natural gas, STP and/or new large-scale solar projects are viable, in his opinion. Of course, at $6-7 gas prices, the proposed nuclear plant is even more viable, he indicated.
Ultimately, NRG's total investment in the new nuclear units would be around $800 million, Crane said, noting that it projects total annual cash flow and tax benefits around $500 million from the project, but he also acknowledged that is based on gas prices rising to the $6-7 range. "The project still works in a $4 gas environment, too," he said, based on the production tax credits associated with nuclear projects.
At these same $4 gas prices, Crane said NRG still expects in the next few years to accumulate "a solar portfolio of true scale and significant benefit in the context of the larger portfolio of NRG." Crane acknowledged that the attractiveness of the large-scale solar developments is largely created by what he called the "favorable government policies and financial assistance."
He predicted that much of the government subsidy is going to be trimmed in the next few years, and at that point he is betting distributed solar photovoltaic (PV) technology is going to be the market to enter. When renewables are left mostly without subsidies, Crane said he doesn't think this will "mark the end of a flourishing solar market." Solar PV will do very well, he predicts.
"We're already planning this transition [from large-scale to distributed solar] within NRG so that potential decline in the availability of large-scale solar or the attractiveness of their returns will be exceeded in aggregate by the increase we will be doing in smaller, distributed residential solar projects," Crane said.
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