This Visionary CEO Is Killing the Energy Paradigm

In a changing world, the survivors are often those who can jettison the familiar in favor of entirely new strategies. It's harder to do than you think, requiring a willingness to abandon things you've long held dear. "Kill your darlings," editors tell writers about sentences we're convinced are perfect, but don't really work. In industry, you may have to kill an entire paradigm.

David Crane, CEO of NRG Energy (NYSE: NRG  ) , is the rare brand of leader who can do just that. At the recent Bloomberg New Energy Finance (BNEF) Summit, he laid out his vision for his company and the future of the energy sector.

Power to the people
NRG is the largest power provider to U.S. utilities, and it's one of the largest equity owners of solar power. The existing energy system in the U.S. is based on centralized command and control, and Crane wants to shift that autonomy into people's homes. He sees a future in which there are more forms of generation at the house. Remarkably, this represents a cannibalization of NRG's legacy business model, which relies heavily on centralized utilities.

Putting his money where his mouth is, Crane recently led NRG into a partnership with Nest, a company that provides home energy-consumption solutions with an emphasis on elegant design. Crane sees a natural interplay between Nest's technology and rooftop solar, into which NRG is increasingly expanding. The company has begun installing rooftop solar panels on homes and businesses through its NRG Residential Solar Solutions unit.

The move could constitute a real threat to incumbents like SolarCity (NASDAQ: SCTY  ) . Still, SolarCity may be down but it's not out. Goldman Sachs is providing the company with $500 million in lease-finance capital to install about 110 megawatts (MW) of solar energy systems on residential and commercial rooftops with little or no up-front cost.

Meanwhile, NRG is working in partnership with other solar companies. NRG and SunPower (NASDAQ: SPWR  ) are developing the 250-MW California Valley Solar Ranch together. Once the project is completed – which is projected for December 2013 – the companies will operate and maintain it jointly for two years, after which NRG will take sole responsibility. Just last month, First Solar (NASDAQ: FSLR  ) completed the 66-MW Alpine Solar Generating Facility it built for NRG. First Solar is also building Agua Caliente – the world's largest solar plant at 250 MW – for NRG and Warren Buffett's MidAmerican Solar.

Despite these megaprojects, Crane ultimately sees no future for high-voltage transmission lines. "It's idiotic to put panels in the desert and transmit electricity to cities." Noting that there are 130 million wooden utility poles across the U.S., Crane wryly observed, "The 21st century economy should not be based on wooden poles." Crane envisions a distributed solar future, whether it's through rooftop or parking lot installations, observing that solar photovoltaic (PV) technology downsizes well.

The end of utilities?
Crane sees change coming for our energy economy as a whole. He notes that technologies like electric vehicles and solar generation are positive catalysts, while hurricane Sandy was a negative catalyst. "If we keep having extreme weather events and the inadequacy of the system keeps revealing itself, people may not want to keep reinvesting in something that's 100 years old the day it's built."

Crane believes that solar and wind are about to separate; wind needs high-voltage transmission lines and solar does not. He thinks solar and natural gas belong together – "They just don't know it yet." He observed that while natural gas prices have plunged recently, consumers have reaped almost no benefit because the savings have been captured by middlemen. "Americans have spent $150 billion on natural gas and it's not going into our pockets. Someone has taken $150 billion from the American public and they want it back."

Crane reckons that the natural gas industry will figure out that they can disintermediate utilities and deliver directly to the consumer, basically cutting out the middleman. NRG is preparing for that, with plans to supply customers with both solar PV and natural-gas-fired generation packages. Natural gas would provide a stabilizing balance to solar's unreliable availability, such that customers would only need grid connections as a backup.

Sustainability matters
After the conference, I asked Crane why retail investors should care about this stuff.

If you're a long-term investor, you have to think in terms of societal trends and where they're headed. Sustainability is one of those trends, and it's as much a business driver as anything else. The generation of people who started college around 1995 views social justice and environmental issues as fundamental considerations, and they're all in their mid-thirties now. If you're investing in your future, and your children's future, then you have to include this in your analysis.

Now that's the kind of vision I want to see from a CEO.

All signs point to a renewable energy explosion in the coming years. And yet, investors and bystanders alike have been shocked by First Solar's precipitous drop over the past two years. The stakes have never been higher for the company: Is it done for good, or ready for a rebound? If you're looking for continuing updates and guidance on the company whenever news breaks, The Motley Fool has created a brand-new report that details every must know side of this stock. To get started, simply click here now.


Read/Post Comments (3) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 08, 2013, at 12:52 PM, brookarcher wrote:

    Westinghouse Solar (WEST) has an innovative microinverter integrated onto the back of each one of their plug and play solar panels. An inverter is needed to convert solar generated DC to AC so it can be used in your home. Most solar systems feed power to a single inverter on the house. Those larger inverters are expensive and often require a professional electrician to install. The way solar panels are usually connected, this means if one panel goes down the whole system goes down. Because each panel has its own individual inverter on it, Westinghouse Solar's plug and play design is a game changer.

    Their stock is bouncing off a support level and since Board of Director Robert F. Kennedy Jr. just picked up thousands of shares it's been getting quit a bit of attention in the form of higher volume. Now, with the EU just announcing it's putting levies on Chinese solar imports, Westinghouse Solar should do really well due to its European exposure with partner CBD Energy which has significant European market share. A comment about Westinghouse Solar on and article about value investment guru Mary Whitman in the online edition of Forbes June issue, was highlighted this week. Expecting significant rise in WEST in the weeks to come. $WEST

  • Report this Comment On June 08, 2013, at 5:33 PM, rschantell wrote:

    I think Westinghouse may be a late-comer in the micro-inverter world. Enphase and Power-One seem to be the leaders in actually getting these things installed in large numbers. SMA is working on one as well. My company, SWT Energy Inc, in Lincoln, NE has several homes wired with micro-inverters and many more coming. Check out www.SWTenergy.com and take a look a few. What is really nice is the diagnostics. The signal from each micro-inverter is sent to a commication module that ties to the internet. The whole system is monitored on-line. It also keeps track of performance history. Go to www.enphaseenergy.com click on the enlighten link. Username- SWTenergy@yahoo.com Password- Sammy1 Start typing any of the system names and they will fill out completely (Doane, Tiedeman, Fairchild). Enter one and browse as you please. Cool Stuff!!!!

  • Report this Comment On June 08, 2013, at 6:30 PM, nonStitZealot wrote:

    KILLING the energy paradigm ... a little too strong ? The lack of clear communication of ideas is manifest in this piece .

    For one thing favoring solar over wind is completely unjustified . They both contribute to alternative energy although wind power has only certain regions where it is feasible .

    And both require storage of energy for the times when they are not producing power . Currently the easiest way to accomplish that is by feeding power back to the grid ... ie wooden poles .

    Also what does this mean exactly :

    "Nest, a company that provides home energy-consumption solutions " .

    This statement doesn't give a clue to what Nest actually does . Again ... a lack of clarity .

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