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The Future of Energy: Can the Nation's Largest Merchant Generator Thrive in a Transition to Distributed Energy?

by Bob Shively, Enerdynamics President and Lead Instructor

 

The threat that new technologies and market evolution have on the current utility business model is very real. In a world of declining load growth driven by energy efficiency and increasing viability of distributed generation, utilities are faced with finding new strategies for success. 

 

Meanwhile, it seems that merchant generators who make their money selling power from centralized fleets are even more vulnerable. After all, utilities assume consumers will need a distribution grid for some time and have some regulatory protections.

 

For a glimpse into how the transition to the future may go, we listened in on NRG Energy’s fourth quarter earnings call on Feb. 28, 2014[1].  NRG Energy, the largest merchant generator in the United States, is paradoxically increasing its fleet of central generation at the same time that CEO David Crane describes an "inexorable trend towards a distributed generation-centric, disaggregated future."

 

According to Crane, this future will feature "individual choice and empowerment of the American energy consumer . . .That this future is going to occur is, in my opinion, inevitable. That it is going to occur faster than almost every person thinks it’s going to occur is highly probable." 

 

In fact, during the call’s question-and-answer period, Crane made the statement that he believes residential solar will become cost competitive in 20-24 states within 12-24 months.  He described a hybrid solar/gas-power Stirling engine technology called the Beacon 10[2] that he says will create a “non-intermittent” distributed generation (DG) system to combine the best of solar power with the wide availability of the natural gas distribution grid. This differs from many other solutions that depend on large amounts of batteries to firm renewable power.

 

NRG provided the following chart to address how it plans to bridge the current world with Crane’s vision of the future:

 

 

Source: Provided by NRG Energy during the Q4 2013 Earning Conference Call, February 28, 2014

 

 

Even with Crane’s strong words about the speed of change, he added that “the future will take a fair amount of time to realize.”

 

He believes that central generation will coexist for a period of time with distributed generation. He described it like fixed-line long distance phone service, which “graciously gave way to cellular world dominance only after a couple of decades of fairly peaceful coexistence.” 

 

Thus, in the short term (this year), plus the medium term and even into the long term (he didn’t define these last two), Crane believes running a successful central generation fleet combined with retail sales operation is critical for current success and to “win the future world.” During this period NRG’s merchant business will focus on keeping its fleet in top operating condition plus repowering strategic units with flexible fast start capabilities to match up with growing use of renewables on the grid. 

 

NRG’s generation also supports the success of NRG’s retail business (mostly done under the names Reliant Energy and Green Mountain Energy). Crane believes this business is a “pivotal” part of its business strategy since it allows NRG to develop direct relationships with energy consumers. As energy-related products such as the Nest Learning Thermostat accelerate, NRG believes that positive relationships with the energy consumer are critical. 

 

NRG’s longer-term vision is represented by the third column in the above chart. Here, Crane sees a “post-centralized grid” energy future relying on renewables, storage, and local automation to balance production and load in real-time. Crane referred listeners to NRG’s recent announcement on the Necker Island Renewable Energy-Driven Micro-grid Solution as an indication of where things are headed[3]. This project — in development with Richard Branson’s Virgin Limited Editions company and the Carbon War Room — will convert the Caribbean Island’s power source from diesel generation to a system powered by solar and wind coupled with energy efficiency, storage, and local automation and control provided by a microgrid. 

 

Exciting change for the future? It sure seems so. But as Crane reminded everyone at the close of his remarks, success depends on NRG taking care of day-to-day business.  If you can’t survive the next few years, you can’t build the future.  And taking care of business now requires successfully running a central fleet of generation.

 


References: 

 

1. To listen to the call, go to http://phx.corporate-ir.net/phoenix.zhtml?c=121544&p=irol-EventDetails&EventId=5092175

 

2. See: http://www.energychoicematters.com/stories/20131022a.html

 

3. See:  http://phx.corporate-ir.net/phoenix.zhtml?c=121544&p=irol-newsArticleNRG&ID=1896768&highlight=

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