One of the nation’s largest independent power generators and an avowed advocate of more natural gas-fired generation in the Northeast, Princeton, NJ-based NRG Energy Inc., will not buy any additional gas- or coal-fired facilities in the current over-heated market, according to CEO David Crane.
While reporting strong second quarter earnings and cash flow growth ($621 million in second quarter profits vs. $210 million for the same period in 2010), NRG is no longer interested in adding new gas-fired generation, said Crane, citing inflated prices for combined-cycle plants that are attracting more pure financial players. Crane said last year he anticipated that 2011 would be a good year for NRG to be in the market buying power plants, but all that has been turned upside down.
“Right now, nothing could be further from the truth,” he said. “What we have seen in the last several months, particularly regarding gas-fired power plants, is that there are a lot of people chasing the gas plants in the market, and they are willing to pay prices that we can’t justify. The difference between the price we think is justified and the prices other people are willing to pay is not shrinking, it is getting larger.
“The other thing that we are seeing in the market for gas-fired power plants is that it is no longer just strategic buyers in the market anymore, it is financial buyers. It seems that people are anticipating a turn in the commodity cycle, and private enterprises that don’t have to worry near-term about appreciation or dilution are amassing power plants on the idea that the forward power price curve is about to turn in a positive direction.
“So I would say that of all the things you might see us buying, the least likely thing we will be buying would be combined-cycle, gas-fired power plants.”
But what about coal-fired plants now that there is more clarity with U.S. Environmental Protection Agency rules out there?
“It is really too early to tell because no one is sure how the new rules will kick in and if they are going to be applied on time,” he said. “I think the jury is still out on whether there is value to obtained in buying coal plants.”
Nevertheless, Crane said it continues to be “an aspiration of this company” to own more traditional power plants in the Northeast, particularly in the PJM market in Pennsylvania, New Jersey and Maryland. Right now, he does not think NRG can do that and add value for its shareholders.
That leaves alternative energy (particularly solar) and the growing retail business in Texas for investment opportunities, said Crane, but he noted those are much smaller-scale projects than a gas- or coal-fired generation plant.
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