By Michael Kuser

NRG Energy is transforming itself by “right-sizing” its generation fleet, reducing costs and expanding its retail business, the company’s chief executive said during an earnings call Thursday.

NRG earned $233 million in the first quarter, compared with a loss of $169 million in the same period last year.

CEO Mauricio Gutierrez said the improved results were driven by $80 million in cost savings and higher energy prices caused by cold weather in Texas and the Northeast.

NRG continued to reduce its generation fleet last quarter, closing on the $42 million sale of its 154-MW Buckthorn Solar project to NRG Yield. The company also announced the sale of its Canal 3 peaking plant in Sandwich, Mass., for approximately $130 million, with the deal expected to close in the third quarter. It expects to close $3 billion in asset sales this year.

NRG last quarter also spent $210 million acquiring supplier XOOM Energy, expanding the company’s retail sales capabilities and presence in the East.

Texas Shines

While the company has in recent years highlighted the significant risk of retirements and the slowdown in new builds in ERCOT given persistently low power prices, Gutierrez pointed out the situation is showing signs of reversal.

“Last year, we finally saw the retirement of about 4,200 MW of uneconomic coal generation, which tightened reserve margins,” Gutierrez said. “As a result, we are entering this summer with the lowest reserve margin on record at around 10%. Prices have responded accordingly with summer on-peak prices currently trading at about $150/MWh.”

Asked whether he expects Texas to see an increase in either new gas-fired generation or more utility-scale solar coming online in response to the high peak prices, Gutierrez said one season does not mean much when deciding on a 25-year investment.

“So far, what we have seen is only the expectation on one summer of high prices,” Gutierrez said, adding that in an energy-only market such as ERCOT, “price is everything,” providing the “right signal and incentive” for developers to invest capital in the market. “So, you need to see two things: You need to see them high enough and you need to see them long enough to attract this capital investment.”

PJM Capacity Auction

Gutierrez also highlighted the PJM capacity auction for planning year 2021/22 being held this month, with results scheduled to be posted May 23.

“Last auction saw a slowdown in new builds and over 7 GW of announced retirements added to the PJM deactivation list this year,” he said. “But there is still uncertainty on how these will play out in terms of market tightening. As you are aware, some generators are seeking compensation for plants that are not needed for reliability and not economically viable.

“While some entities are grasping a bailout in the short run, we see capacity rationalization as a necessary first step towards a healthy market,” Gutierrez said. “And we are confident that there will be continued support for the competitive market value proposition. Beyond PJM, our risk portfolio is well-positioned given our fuel diversity and location near load pockets.”

Gutierrez referred to the “uncertain” effect of “all these out-of-market conversations that are happening today.”

But, he said, “I am encouraged by seeing FERC and the different ISOs take a very specific stance in terms of the protection of competitive markets and making sure that they don’t negatively impact those markets.”

Quotes courtesy of Seeking Alpha.