NRG Energy has signed a definitive agreement to acquire rival company GenOn Energy in a $1.7bn stock-for-stock tax-free deal.

The firms will merge to form the largest US independent power producer, with 47,000MW of power plants across the country and a combined enterprise value of $18bn.

NRG president and chief executive David Crane said that the deal would usher in a new era of scale, scope, market and fuel diversification in the competitive power industry.

“The greater depth and breadth gained through the combination with GenOn will put NRG in a uniquely strong position to fulfil the needs of American energy consumers in the 21st century,” Crane added.

Both companies have considered merger opportunities over the last few years as a way to cut costs and expand the range of services available.

“The power plant is designed with high operating efficiency, low generating costs, and reliability as key criteria.”

The deal is predicted to boost annual combined company EBITDA by $200m by 2014, through realising cost and operational efficiency synergies.

The deal, expected to close in the first quarter of 2013, will help the combined firm to reduce its interest and liquidity costs, and realise other balance sheet efficiencies in aggregate of $100m a year.

US-based NRG Energy operates some 24,000MW of nuclear, natural gas and coal-fired power plants in Texas, New York, Connecticut, California and other states, enough to serve aournd 20 million homes.

The company also has a retail-power business, which sells electricity to customers in deregulated states such as Texas, New Jersey, Pennsylvania, Maryland and Illinois.

GenOn chairman and CEO Edward Muller said: “This combination will deliver immediate value to the shareholders of both companies, who will benefit from the combined company’s merger synergies, balance sheet efficiencies, increased
scale and additional geographic diversity.”

“NRG and GenOn are a great fit geographically and operationally and we look forward to working together to capture efficiencies from the scale associated with the transaction to deliver enhanced value to our investors.”