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NRG's Grand Ambition To Dominate The Solar Market

This article is more than 9 years old.

As an owner of  a fleet of coal and gas power plants worldwide, NRG Energy's headlong dive into the world of solar power plant development and operation over five years ago made it an oddity in the power industry. It both bought a 21-megawatt project built by First Solar — NRG's first solar power plant in operation — and invested in eSolar and its projects under development in 2009. Since then, the company has become a major investor in some of the biggest solar power plants in the country.

Now NRG is setting its sight on dominating the commercial and residential solar market. And it's been making big changes to its business model to try to accomplish that.

The company's executives spent its investor day last week to convince its shareholders and the world that it could become a serious player in the two solar market segments. The company's head of the renewable energy business, Tom Doyle, pointed to NRG's size and experience in energy delivery as an advantage over rivals that set up shop as pure solar energy service companies, such as SolarCity, in winning over corporate customers.

A business wants "the comfort level of signing that contract with a company that's a Fortune 500 company," Doyle said during a presentation. "In 2014, we wanted to own that space, and in 2015, we will own that space."

The company is gunning for the residential solar market as well.

"We are not content as a peer competitor of SolarCity and Vivint. We are willing to sprint with them today, but we are in for the marathon," said Kelcy Pegler, Jr., president of NRG Home Solar, at the investor day.

The big plan is to target the Millennials, many of whom are either first-time homeowners or will become so soon enough, and offer them a variety of services. Those products and services range from installing solar panels and energy storage systems to selling electric car charging services and portable charging equipment for consumer electronics, which  come with batteries that require frequent refills. NRG executives noted that these younger customers embrace clean energy and digital technology and are willing to pay a good price for both. NRG hired Steve McBee, which previously ran his own corporate consulting firm, late last year to run NRG Home.

"The Millennials think about their technology in a totally different way. It's a seamless experience, fully integrated," McBee said. "You don't win with a single product or service but by developing a platform of products and services that can be integrated that make their lives work."

The New Jersey company's interest in the distributed solar market  has been known for several years now, starting with its purchase of Solar Power Partners in 2011. It's taken a few years to line up the necessary pieces to formulate a strategy. Back in early 2013, Doyle told me about the company's design of a solar pergola and accompanying energy storage system for tackling the commercial and residential market. But that was just one component of what became a larger plan to promote solar equipment installations and energy sales to businesses and homeowners. And back then, Doyle said  he was trying hard to figure out who were the players and what NRG could do to set itself apart.

The purchase of Roof Diagnostic Solar last year helped NRG to better define its strategy in the residential solar space. Pegler was Roof Diagnostic's CEO and now the guy who will lead the NRG's charge in the home solar space. NRG then bought a solar sales and marketing business, Pure Energies Group, late last year.

In fact, 2014 was a big year of acquisitions for NRG as it prepared for a full assault of the consumer market. It bought a retail business of Dominion for $165 million and increased its residential and commercial customers nationwide by about 30% to nearly 3 million. Many of these new customers are in the Northeastern states and Texas. NRG spent an undisclosed sum for Goal Zero, a maker of portable solar powered chargers, flashlights and speakers. The company also re-organized its business units to reflect its effort to become a major consumer solar brand.

NRG executives promise to deliver products and services that will earn loyalty among their customers. Winning and then retaining those customers will be a big challenge. The growth of the rooftop solar has given consumers greater choices for where they get their electricity. It's happening not only in deregulated markets that allow multiple utilities to co-exist but also in regulated markets that historically have one utility dominating a particular territory. Solar installers and financing companies such as SolarCity, Sunrun and Vivint are getting a chunk of the money that their customers previously handed over to their utilities via their monthly bills.

Like other solar service companies, NRG is counting on referrals from happy customers and a wide range of sales and marketing channels to persuade consumers to choose NRG. Pegler talked about stationing sales people in retail giants such as Home Depot, buying print and radio ads, installing solar panels at sports stadiums, doing direct mailing and creating co-branding campaigns. He mentioned  Upromise, an online shopping portal that gives you cash back when you buy from certain retailers and promotes putting that money into a  college fund, as a partner to attract the younger set. NRG will announce more marketing partnerships in the first quarter of 2015, Pegler added.

NRG isn't alone in plotting ways to grab people's attention. Its rivals also have been thinking about how to reach consumers more effectively and make shopping for solar an easy and pleasant experience. SunPower, a solar panel and power plant developer, is beefing up its sales and marketing effort to help line up consumers for its network of dealers. Last November, its executives highlighted a plan to emulate Dell by creating an online shopping portal and hired Dell's former marketing chief to carry out that task. SolarCity is embarking on a similar mission.

NRG's bullish bet on solar means it behaves quite differently than many of the other fossil fuel power plant owners and utilities. Its jump into the solar retail segment, in particular, is prompting concerns from its investors that NRG will lose revenues from selling electricity from its big power plants and that their stock will suffer as a result, since the company is now aiming to get people to generate their own electricity.

The company's strategy to target the young, tech-savvy consumers by increasing its investments in online and mobile marketing and sales isn't new. But NRG has one strong advantage: it has the money and scale to carry out its ambitious plan.

Many of NRG's peers in the conventional energy space and new rivals in the solar market are no doubt waiting to see whether the company can execute its strategies well. Its shareholders, too, are paying attention and hoping that this significant change in the company's business model will boost the value of NRG's stock.

"We have to prove that we can create a brand in the energy space that people care about," noted David Crane, CEO of NRG Energy, who declared, "We have created the foundation. Now we have to go prove it."