NRG Energy has been developing its capabilities in residential solar for a few years now, but it has largely avoided sharing details about its business.

Yesterday’s third-quarter earnings call was one of NRG’s first efforts to “pull back the curtain” on the company’s strategy in this highly competitive space, said CEO David Crane. The thrust of it: NRG’s retail solar business is going to be about much more than just solar panels.

“Our home solar business is going to be about marrying up, cross-selling and seamless integration of solar-driven home energy solutions, including complementary grid system sales, backup generation and other energy products and services,” said Crane. “In this regard, unlike other residential solar companies that talk about offering more than just solar to their customer base, we already have many of the capabilities in place to offer many of these complementary products and services.”

NRG has created a competitive business platform with the acquisition of Roof Diagnostics Solar and Pure Energies, coupled with its existing multi-channel customer reach and financial acumen, according to Crane. The company is currently ramping up with tax equity financing to either close or negotiate nearly $600 million of residential leases.

On this trajectory, NRG will install more than 10,000 systems worth about 70 megawatts by the end of the year. It plans to triple its business by the end of 2015, with an objective to install at least 35,000 systems totaling approximately 280 megawatts. This amounts to more than a quarter of what SolarCity plans to install next year.

In April, Tom Doyle, CEO of NRG's renewable energy business, said he wanted to give SolarCity "a run for [its] money" in the solar business.

NRG forecasts its costs coming down to where it can offer residential solar for between $3.20 and $3.30 per watt in 2015, with further reductions in the following years. While prices vary significantly across the country, the national average for a residential turnkey system is currently $3.81 per watt, according to GTM Research.

NRG’s targets are well within reach. In its second-quarter earnings, SolarCity reported a blended residential and commercial cost of $2.90 per watt. Installers in competitive markets like Texas have also logged system pricing in the $3-per-watt range. GTM Research forecasts indicate the average residential solar price next year will reach $3.40 per watt.

Going forward, NRG plans to leverage the reach of its retail arm with a target of 3 million customers and sell them on going solar. (Crane said NRG will offer financial analysts more detail on how to value the link between its retail and home solar businesses at an investor day in January -- the company’s first in five years.)

This approach underscores NRG’s customer-oriented focus, which sets it apart from other independent power companies like Dynegy. But NRG hasn't lost its focus on large-scale energy projects.

Recent project wins

Yesterday, NRG won big in Southern California Edison’s Local Capacity Requirement (LCR) solicitation, a long-term plan to bring approximately 2,200 megawatts of grid resources on-line by 2022 to help replace generation from the retiring San Onofre nuclear power plant. The company secured a total of sixteen contracts for “preferred resources” -- demand management, energy efficiency andstorage-- worth 178 megawatts. By winning these awards, NRG is positioning itself to capture a first-mover advantage as preferred resources become a more significant part of the energy mix both in California and across the United States, said Crane.

NRG was also awarded a twenty-year power-purchase agreement with SCE to repower the company’s Mandalay facility in Oxnard with 262 megawatts of more flexible and efficient natural-gas generation. The project complements changes at NRG’s 600-megawatt Carlsbad Energy Center, where it's replacing conventional generation assets with smaller, more flexible, fast-start peaking units.

These actions show the company is "focused...on winning the short- to medium-term future of our business based on the current 20th-century grid-based paradigm, while also preparing to win the medium- to long-term future of our industry as its 21st-century paradigm takes shape,” said Crane.

Where NRG is lagging in that mission is in the domain of utility-scale renewable energy.

Stiff competition

“Our relative lack of success in this area has been caused by a relative lack of opportunity, as the last couple years have witnessed an ever-increasing number of wannabe wind and solar developers piling into the big renewable space,” said Crane. “These new entrants are making bargain-basement bids based on excessively optimistic assumptions [about] the price track for solar equipment.”

“We won't chase deals that look good upon announcement, but destroy shareholder value once implemented,” he added.

The utility-scale solar space has become saturated by new entrants with aggressive and sometimes unrealistic expectations about the all-in costs of developing and owning utility-scale PV assets, said Cory Honeyman, solar analyst at GTM Research.

“In 2014, we are without question in an unprecedented low-priced PPA environment. A higher volume of projects are submitting bid prices between $50 and $70 per megawatt-hour,” he said, based on data from GTM Research's Utility PV Market Tracker. “In my view, these ‘bargain-basement bids’ are partly rooted in the continued downward trend in system pricing for utility-scale solar, highlighted by further reductions in cost of financing.”

As a separate issue, a slew of companies from the wind industry and the broader wholesale power market have been vying to get into large-scale PV. But that doesn’t necessarily mean they’re submitting unviable bid prices. Some of these companies are smaller than NRG and as such can benefit from lower overhead costs and higher tolerance for thinner margins. Only time will tell if a $65 per megawatt-hour bid price in California will work as utility-scale projects achieve commercial operation and degrade over time.

“NRG's not wrong in asserting that new entrants, as well as established players, have set new precedents for what's viewed as a competitive bid price,” said Honeyman. “What remains to be seen is whether these developers are indeed ‘wannabe’ actors that are submitting unrealistic bids, or have simply found a new sweet-spot bid price range to make projects pencil out at lower acceptable margins.”