NRG revamps Home Solar unit; will sell contracts to Sunrun and Spruce

NRG Energy has revamped its money-losing residential solar business, entering into new partnerships with Sunrun and Spruce Finance, and says it will now focus on three markets: Massachusetts, New Jersey and New York.

Separately, NRG today reported it swung to a quarterly net profit of $47m, or $0.24 per share, from a $136m loss, or $0.37 per share a year earlier.

New Jersey-based NRG will now originate solar system contracts with its residential electricity customers and then sell them to Sunrun and Spruce Finance, who will provide support over the contract life.

California-based Sunrun is one of the largest residential solar installers in the US. Spruce Finance was recently created from the merger of Clean Power Finance and Kilowatt Financial.

“We are migrating to a gross margin model rather than a gain on sale model,” Kirk Andrews, NRG's chief financial officer, said on a conference call. “Rather than see proceeds come in as return of capital and capex go out in advance of that, that is now going to be revenue which is what we will receive lock, stock and barrel for the entire system.”

While some investors believe NRG should have exited distributed PV entirely, chief executive Mauricio Gutierrez made it clear that he sees residential solar as an integral part of NRG’s retail offering and expects the business to break-even in 2017.

“I’ve always looked at residential solar as another product in our retail offering. It makes a whole lot of sense as we already have that relationship with the residential customer. This is one of the products they are asking for and that we provide it,” he says.

“If we can provide it in a way that is cost-effective and satisfactory in value, we should have it in our line of product offerings. The rationale is there and so is the appetite for rooftop solar. We needed to make pretty significant changes in the way we restructured the business model to ensure it was a profitable one. Those are steps we have taken,” he adds.

Gutierrez argued that “rightsizing” residential PV to three northeastern states made sense as New Jersey-based NRG has a well-established retail foothold there.

A big potential opportunity is Texas as economics for residential solar improve, where NRG has 3 million customers, he says.

NRG scrapped its short-lived Greenco unit by fully integrating the residential PV business and selling a majority stake in EVgo to Vision Ridge Partners for $49.5m plus a potential future earn-out payment of $70m.

EVgo has the nation's largest public, direct-current charging network for vehicles. EVgo results will no longer be consolidated into NRG financial statements.

"The Greenco process is concluded," says Gutierrez.

Gutierrez sought to project calm and an improving financial outlook for NRG as disgruntled investors fled the stock in the last year in disagreement with the company’s high-profile push into clean energy, and concerns over mounting losses and the company’s deteriorating balance sheet.

NRG is the country’s largest independent power producer with almost 50,000MW of generating assets, mostly fossil fuels.

“We have turned the past on this period of uncertainty and are now focused on executing our plan,” he says.

Shares were up 2.53% to $14.99 per share in midday New York trading, versus a one-year low of $9.00 last 4 December when former chief executive David Crane resigned and was replaced by then-chief of operations Gutierrez. They are still off the $26.41 52-week high.