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These Factors Could Drive NRG Energy’s Sales up in 2Q16

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Sales in 2Q16

North America’s largest independent power producer, NRG Energy (NRG), is planning to report its second quarter financial results on August 9, 2016. According to analysts’ estimates, it’s expected to report revenues of $3.2 billion for the quarter. In the corresponding quarter last year, it reported revenues of $3.4 billion.

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Revenue drivers

Being the largest merchant power producer, NRG Energy is very exposed to commodity prices. Lower commodity prices have dented wholesale power prices in the last couple of years. Weaker demand led by mild weather has also hurt NRG’s top line recently. NRG Energy’s total power generation fell 1.5% last year driven by unfavorable weather in the Northeast. NRG generates the most profits from the Northeast, as it fetches capacity revenues from this region.

The retail segment of NRG Energy partially alleviates the risk of its merchant power segment. Most of NRG’s retail customers are based in Texas, and their load is matched with merchant power in the state. Therefore, lower electricity prices in the wholesale markets are compensated with higher margins from the retail business.

Apart from NRG Energy’s mainstay wholesale power business, it also operates retail, renewable, and home solar businesses. Although NRG Energy is the only independent power player with exposure to renewables, the contribution of renewables to NRG Energy’s consolidated sales is very small.

NRG Energy’s peer Dynegy (DYN) will release its second quarter earnings on August 3, 2016. Calpine (CPN) reported a loss for the third consecutive quarter in 2Q16. Calpine shares were hammered on the bourses based on poor 2Q results. It corrected ~6% on July 29, 2016.

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