Many investors feel that it is necessary to include at least one energy stock in their portfolio. Selecting one can be a daunting task. Is it safer to go with a diversified utility? Is now finally the time to commit to a renewable energy stock? Perhaps it's best to go with a company involved with oil and gas drilling and exploration?
Let's look at NRG Energy (NRG 9.66%), one of the nation's leading power generation and retail electricity businesses-- a utility that offers three compelling arguments for investment.
Reason #1: Maybe it is easy being green
NRG has demonstrated a sincere commitment to clean energy. Its portfolio contains approximately 1,200MW of utility-scale solar projects in operation or under construction. Most notably, the Ivanpah Solar Electric Generating System, owned by NRG, Google, and BrightSource, is a 377MW solar farm which will produce enough electricity for about 140,000 homes to be distributed by Pacific Gas and Electric and Southern California Edison.
Management is confident that investment in renewable projects will pay off. The 835MW of recently completed (or soon to be completed) utility-scale solar capacity and 50MW of recently completed (or soon to be completed) distributed solar capacity is projected to amount to 2014 EBITDA of more than $340 million.
Reason #2: M&A and IPO
Having completed the acquisition of GenOn Energy in December 2012, NRG is now the largest competitive power generator in the U.S. comprised of 100 assets with capacity of 47,000MW. Due to the increased synergies with GenOn, NRG is guiding for over $480 million in free cash flow by 2014.
In July, NRG Energy successfully closed the IPO of its subsidiary, NRG Yield (NYLD 5.67%), which resulted in proceeds of $460 million, but, equally important, NRG feels that it now has "a competitive cost of capital for assets that do not bear commodity price risk." In reference to second quarter earnings, NYLD contributed $61 million to NRG's adjusted EBITDA of $594 million. For the first half of 2013, NYLD contributed $95 million to NRG's adjusted EBITDA of $967 million.
The most recently announced acquisition is of Edison Mission Energy for $2.64 billion. This will add approximately 8,000MW of electricity generating capacity. Consistent with the company's interest in renewable energy, the Edison acquisition means "NRG and its affiliates will become the 3rd largest US-based renewable energy generator within the US with over 2,900 net MW of wind and solar capacity in operation or under construction."
Of the 2,600 MW of fully contracted generation in Edison's portfolio, 1,600MW (1,100MW of wind and 500MW of natural gas) are eligible to be passed down to NRG Yield.
Reason #3: Innovative offerings
NRG has demonstrated an interest in offering customers products and services that transcend the typical utility-consumer relationship. One of these products is the recently announced NRG Solar Canopy-- a novel approach to entering a residential market that is more accustomed to large rooftop structures. Many homeowners who are interested in going solar are precluded from doing so by the fact that their houses are not oriented in the right way so that they don't receive enough direct sunlight, or they may be ineligible because their roofs are obstructed by foliage or other buildings. The Solar Canopy is a freestanding structure that affords consumers the opportunity to produce electricity and then store it for use at night or during a blackout.
Another innovative offering is NRG eVgo charging stations for electric vehicle (EV) owners. Located at hundreds of public locations, the Freedom Stations allow EV owners unlimited charging for one low monthly fee. Available in markets in Texas, California, Washington DC, Maryland, and Virginia, this network of charging stations will go a long was in alleviating some of the "range anxiety" that intimidates potential EV owners. Another option for some markets is the "in-home solution," which enables EV owners the opportunity to have charging stations installed in their homes, starting at around $35/month.
One of the other companies developing a network of charging stations of EV vehicles is Tesla Motors (TSLA 3.33%). Tesla's network of charging stations offers free recharging throughout a much wider area than NRG. By the end of 2013, Tesla plans on building out the Supercharger Network so that its car owners can travel from Los Angeles to New York. According to Tesla, by May 2014, the Supercharger Network will cover nearly all of the U.S. and Canada -- owners can embark on road trips from LA to NY, Vancouver to San Diego, and Montreal to Miami.
Tesla's Supercharger stations are only intended for Tesla car owners, whereas, the eVgo stations are available for all EV owners. At the Supercharger stations, Tesla owners, for $60, may elect to swap out their depleted batteries for fully charged batteries, or they may choose to recharge their own batteries at no cost.
The Foolish takeaway...
The energy landscape today is starkly different from what it was just a few years ago. Currently, the U.S. exports more oil than it imports. Coal, once the predominant energy source for electricity production, is now growing more and more out of favor. The U.S. market installed 832MW of solar in Q2 2013 -- 15% growth over the previous quarter.
Investors looking for exposure to the energy sector have many choices to select from, but for those who are looking for an energy company that is looking toward the future -- an energy company that is committed to renewable energy sources and innovative product offerings for consumers -- NRG Energy may be the right choice.
