Former Coal-Company CEO Seeks to Build the Clean-Energy Future

David Crane ran NRG Energy for a dozen years, transforming the owner of a smattering of aging power plants into one of the largest independent power producers in the United States. He was fired last December, after a year and a half of declining stock prices and slipping confidence in his strategy.

In an era of growing concern over climate change, NRG supplies wholesale and retail power, much of it made by burning coal. During his tenure, Crane made large investments in traditional energy holdings, including coal and natural gas. But he also invested widely in clean energy, buying rooftop solar installers, building the largest U.S. network of electric-vehicle charging stations, and investing in one of the largest carbon capture projects in the world. This would be the company’s route to a new energy future, he said.

Not every green bet worked. He spent $300 million to expand the South Texas Project nuclear plant, for example—a plan that was eventually abandoned. NRG also became the lead investor in the Ivanpah solar project, the world’s largest solar thermal generating station. Ivanpah has been opposed by environmentalists, who claim the facility is hazardous to local bird life, and critics charge that it has failed to supply the contracted amount of power.

But Crane’s bigger problem was NRG’s tumbling stock price. In 2014, with its shares falling, Crane reorganized the company, eventually shifting NRG’s clean-energy assets into a separate company called GreenCo in late 2015.

By last December, with NRG stock down 75 percent in 19 months, shareholders and board members had lost faith. Crane was fired, but in his departure letter to NRG employees he reasserted his belief in renewable energy, writing: “There is no growth in our sector outside of clean energy; only slow but irreversible contraction.”

Crane spoke with MIT Technology Review energy editor Richard Martin about the obstacles he faced, the errors he made, and what his next act will be.

You left NRG Energy in December. What are you doing now?

I’m trying to put bread on the table for my family. I’m still in my noncompete [period] with NRG. That ends [in April] with respect to the clean-energy sector, and with respect to the conventional sector in January 2017. Which is a bit ironic. The area where I have no intention to go, they’ve got me out longer.

I’m very bullish on solar—more so than, say, wind—so I’d say my focus will pretty much be on solar.

[In April, Pegasus Capital Advisors, a private equity firm, said that Crane would be joining the company as a senior operating executive.]

When do you think you lost the confidence of the board?

What laid the foundation for me being fired was the stock collapsing. But the stock collapsed because of underlying commodity prices, natural gas in particular. And the poor future of coal plants in a natural-gas-price-driven environment. What got me fired was being the outspoken transformative green person that I am.

That just irritated people. One analyst said, “Look, a guy who has the view that there’s no future in coal-fired generation should not be running a coal-fired power company.” I took the attitude that my job was to run an electricity company. You have to want to succeed where success is to be had. Which is in renewable energy.

Until the last month [of my term] the board was supportive. Even in the last month, while some of them expressed skepticism, no one offered a coherent alternative strategy.

Looking back, what would you do differently?

One thing I’d definitely do is tone down the outspokenness. Someone needed to shine a light on the fact that distributed [rooftop] solar is going to be an option for people, before the utilities changed everything to advantage themselves. I was outspoken for a reason. But I should have been less outspoken about the limited future of coal.

The second thing was that as NRG was growing in the area of clean energy, we were also buying more conventional power plants. Even though at the time I was fired we were the first- or second-largest solar producer in the U.S., and the fifth-largest renewable-power producer, that was insignificant in the eyes of investors compared to 48,000 megawatts of conventional electrical generation.

If I wanted to state it succinctly: I think the mistake I made was not in tilting toward renewables, but in not tilting hard enough.

How do you convince investors that the future is in clean energy and those companies that don’t make that transition will be left behind?

This is the problem: from an investor perspective if you’re investing in coal-fired power plants in the U.S. in the 21st century, you’re investing for value and cash flow [i.e., to generate dividends and reap the value of existing assets]. Those plants are fully [paid for]. In solar, all the costs [of building the farms and installing rooftop panels] are up front, and that’s [better for] a growth-oriented investor. [NRG’s share price] got whipsawed between growth investors and the value investors in our core business who didn’t appreciate the growth in solar, didn’t value it.

There’s a moral dimension to coal-fired versus solar panels. NRG never managed to attract the sustainability investors who factor in that moral dimension.

We hired a specialized investor relations firm nine months before I got fired to evaluate how we could attract those green investors, and they ended up giving up the assignment. They said, “You just can’t. Those people aren’t going to invest in the fourth-largest polluter in the U.S.”

Imagine that the major oil companies, like Royal Dutch Shell, BP, and ExxonMobil, which are 30 times the size of NRG, decided that the world is not going to let them burn all the oil they have in reserve, and they want to change. Who’s going to let them? There’s no way to build an alternative business that’s anywhere near the size of what they’ve got today.

In the early 1990s lots of people started to build cell-phone towers, and then it all fell over. Private equity firms came in, picked up the pieces, rebuilt the industry, and earned 40 times their money. I think we could see the same thing in the solar industry.

Another reason I [was outspoken] is that I was speaking to an internal audience [i.e., NRG’s employees and directors]. If you want to change what a big company is doing, you have to paint a dire picture of the future: “Yeah, this is a very comfortable cabin, but we just hit the iceberg.”

Do you think there was a strategy that would have worked?

We announced a plan in September to try and deal with the difference between the value investors and the growth ones, to get the green businesses in the hands of people who’d appreciate them more, but still associated with NRG so the company would get the benefit of that.

The timing of that GreenCo exercise was looking very bad by November—SolarCity [the largest solar provider in the U.S.] reported their third-quarter earnings and the stock got crushed. That was the worst possible time to be looking for investors in a solar company.

Since December we’ve also seen the spectacular crash of SunEdison, which filed for bankruptcy April 21. Do you think the fundamentals of the solar power business are weak?

You can split solar into two worlds: big, utility-scale solar and home solar. ­SunEdison was NRG’s biggest rival in big solar. I think they were in all the right areas, but they were fantastically too aggressive in raising debt and in how much they were willing to pay for acquisitions. We looked at a lot of the acquisitions they did, and they were willing to pay twice what NRG was willing to pay. And we thought our numbers were aggressive. Their strategy was right, but their implementation was just way too aggressive.

What are the lessons to be learned from NRG’s experience?

Unfortunately, the only conclusion you can reach is that transformation from within is really difficult. Most people running power companies in the traditional space will look at NRG and say, “I’m going to stick to my knitting and hope that the future doesn’t come that soon.”

Eric Schmidt [executive chairman of Google] has said that given the pace of technological change in every industry, every company faces some form of existential threat over the next five to 10 years. I’m amazed that the market not only allows most CEOs to ignore that threat but actually rewards them for ignoring it.