NRG sheds stake in German power plant

With this sale, the US energy company exits the European market.

By Jul 19, 2012 12:31PM

Image: Power lines (© Digital Vision)By Zacks Equity Research

Diversified power provider NRG Energy Inc.'s (NRG) subsidiary, Saale Energie GmbH (SEG), sold its 41.9% ownership stake in Schkopau, a 900 megawatt coal-fueled power station, situated near Halle, Germany, to Czech Republic-based coal mining and electricity company, Energeticky A Prumyslovy Holding (EPH).

The plant, Kraftwerk Schkopau GbR, was collectively owned by SEG and its German partner E.ON Kraftwerke GmBh. SEG also held 44.4% of Kraftwerk Schkopau Betriebsgesellschaft mbH, the facility's operating company.

The Czech energy company purchased NRG Energy's interest in the power plant for 141 million euros. NRG expects to realize net proceeds of roughly $174 million prior to the end of 2012.

The Schkopau plant burns lignite from the Profen Mine held by EPH's MIBRAG unit for energy supply. EPH had earlier purchased NRG's integrated coal-mining and power-generating unit, MIBRAG, in 2009.

The divestiture of the non-core asset is part of NRG's long-term strategy of focusing on its retail electric business in core domestic markets. This will enable the company to divert the sale proceeds for meeting capital requirements in its fast growing renewable business. Besides, the gain from this sale will aid in expanding NRG's investment options and will positively influence operations.

NRG has with this sale completely exited the European market. This lowers the company's exposure to the volatile European financial market and the continuing debt crisis.

NRG Energy's closest competitor, The AES Corporation (AES), has entered into two agreements to divest a significant portion of its businesses in China for an aggregate amount of $134 million. The deal is anticipated to close in the latter half of 2012.

Although the company did not provide any earnings guidance for 2012, it retained its cash flow expectation in the range of $800 million to $1,000 million. The Zacks Consensus Estimates for the second quarter and 2012 are currently pegged at 21 cents per share and 87 cents per share, respectively.

Based in Princeton, New Jersey, NRG Energy is a wholesale power generation company engaged in the ownership, development, construction, and operation of power generation facilities.

The company is also involved in the trade of fuel and transportation services and the sale of energy, capacity, and related products in the U.S. and internationally. The company presently has a Zacks No. 2 Rank, which translates to a short-term "buy" rating.

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