You might take energy for granted when you turn the lights on. But one of the largest independent power producers in the U.S. isn't taking its future for granted, especially with energy reform on the horizon.
Over the last few months, NRG Energy (NYSE: NRG) has begun overhauling its portfolio in preparation for a very different market landscape for electricity providers. Though it's traditionally operated mostly coal and natural gas plants, the company is now turning to alternative energy for future growth.
Nuclear power is on the top of NRG's list, as work continues with the Department of Energy and the Obama administration to approve the STP 3&4 nuclear reactors. Currently the biggest bet in NRG's portfolio, this could be the first new nuclear plant licensed in the U.S. since 1996.
NRG has also purchased its fourth wind farm near Sweetwater, Texas, along with a 20-year power purchase agreement with American Electric Power (NYSE: AEP). This brings NRG's total wind capacity to 450 megawatts.
Of course, solar wasn't left out. NRG has 1,150 MW of solar projects under development in California and the Southwest, built primarily with power purchase agreements from PG&E (NYSE: PCG) and other utilities. If you're thinking that solar doesn't make a good investment for an energy provider, think again. Not only does NRG see projected levered returns in mid-high teens, but solar is also a strategic PR boost, as coal comes under pressure. Timing couldn't be better for solar, as NRG aims to take advantage of a manufacturing glut that has yielded low panel prices.
But what would a business-model change be without a couple of interesting curveballs? To go along with a carbon-capture project in Houston, last month NRG purchased a cooling plant in downtown Phoenix. Who wouldn't want to bet on the need for cold water in the middle of Arizona?
These moves have transformed NRG's position in wholesale power production, and set the company up for upcoming energy reform. No matter what reform looks like, NRG is in a better position to handle any changes than it was a year ago. Shareholders should be happy about that.
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