is one of the nation's biggest operators of carbon-belching power plants. No wonder CEO David Crane is so keen to become the emperor of alternative energy

In the basement of the Princeton, N.J. home of David Crane, CEO of electricity giant , sits a backup generator. Called the Beacon 10, it was designed by Dean Kamen, inventor of the Segway scooter. The device runs on natural gas fed by Crane's residential gas line.

At peak output it can generate 10 kilowatts--about three times the current drawn by the average home. Unlike other backup generators on the market today, the Beacon 10 is a so-called Stirling engine (it features pistons inside a closed chamber that move at a rate governed by the amount of heat applied to the outside of the chamber). Kamen has spent ten years working to perfect his Stirling, which is far quieter and more efficient than a common diesel backup generator.

NRG CEO David Crane, June 2014. (Credit: David Yellen for Forbes)

The plan, says Crane, is for Kamen to work out the kinks (Crane's setup is just the second one out of the lab) over the next 18 months and get the costs down to about $10,000 per machine--the point at which homeowners who suffered a weeks-long blackout from Hurricane Sandy or Katrina or Ike might be interested. "In two years I would expect high-end home builders to be installing them," says Kamen.

But what gets Crane really jazzed is that, with natural gas prices cheap enough, the Beacon 10 is more than just a backup and instead works around the clock in tandem with the solar panels on his roof. This is the future, he says. If the price is comparable, how could you not want to make your electricity at your own home rather than rely on the grid to get it to you? Rooftop solar is NRG's fastest-growing business. Crane is confident that the Beacon 10 could be much bigger. "Think how shockingly stupid it is to build a 21st-century electric system based on 120 million wooden poles," Crane, 55, taunted a conference of utility executives earlier this year.

But the question is this: Why on earth would Crane be interested in this stuff at all? NRG is the nation's biggest nonutility electricity producer, with $12 billion in annual revenue. Just two years ago it acquired a heap of fossil-fuel power plants in its $5.5 billion acquisition of GenOn. Today its 125 power plants generate 53,000 megawatts in 24 states, with 48% coming from natural gas, 32% from coal, but just 6% from alternatives like wind and solar.

It's precisely because of NRG's heavy exposure to coal that Crane is sprinting to expand the alternatives business. While there is no carbon tax in the U.S. yet, the EPA's increasing regulation of coal-fired power plants worries investors in the electricity industry--especially NRG investors. Analyst Hugh Wynne of Bernstein Research modeled how a hypothetical carbon dioxide emissions tax of $10 per ton would affect the nation's biggest electricity generators. He found that NRG would be hurt the most, suffering a 50% blow to earnings. The next worse would be the Corp., at 3% of earnings. Why the outsize hit? NRG isn't a utility, so it can't appeal to regulators to let it recoup carbon costs from ratepayers.

Luckily for NRG, any carbon tax remains years off. That means "Crane has lots of time to move the rhetoric," says Brandon Blossman, managing director of research at Tudor, Pickering, Holt & Co. "And lots of money to spend building new income streams not tied to coal generation."

In recalibrating NRG to be a clean, green power provider, what Crane intends to do is sell (or preferably lease) tens of thousands of solar systems and Stirling engines and smart thermostats to homeowners. It's the kind of business plan that Elon Musk's --the nation's biggest installer of home solar systems--has been working to perfect in recent years, generating $200 million in annual sales and $6 billion of market capitalization in the process. Crane intends to grab some of that for NRG (which has just twice the market cap). "We're going to build a capability that is going to beat SolarCity," says Crane. "Our advantage is that we have all this other cross-selling stuff built in."

Through its retail electric providers including Reliant Energy, NRG has 3 million customers. Crane hopes the shift to green power systems will help keep them. "The loyalty that those customers have to us is almost zero," says Crane. "Our annual churn rate is 30%. Some people will switch electricity providers for one tenth of a cent per kilowatt-hour." Since 80% of residential solar installations are done on 20-year leases, "that means that you're my customer for the next 20 years. You're not leaving."

It will take some real doing for this new gear to make an impact on NRG. It got about $100 million from solar sales last year (up from nothing in 2011). That should increase this year with NRG's acquisition of solar installer Roof Diagnostics and the completion of the Ivanpah solar installation in California, the nation's largest.

To further justify NRG's push into "distributed generation" like solar panels and basement generators, Crane talks up his belief that the U.S. power grid will succumb to a slow death caused by anticarbon regulation and ever-cheaper alternatives like rooftop solar. It's like the U.S. Postal Service, he says. All the important mail already goes by UPS or . That puts the post office in a death spiral: It has to raise rates to cover costs, but those higher rates drive away more customers. Electric utilities have already begun responding in the same way by charging home solar adopters new fees for staying attached to the grid.

Crane even questions the dogma that natural gas will forever save us from the great carbon shibboleth: the idea that there's enough natural gas to heat all the homes, run all the power plants, fuel all the heavy-duty vehicles and still export gas. "I'm a believer that fracking is amazing," he says. "But can it do all of those?"

So what about the contraption in his basement? Crane believes there will be a substantial advantage of cheap nat gas for home power for a long time, especially since regulators require that gas supplies to homes never be interrupted, no matter the cost to utilities--it just wouldn't do to have Grandma freeze to death.

An ivy-educated (Princeton, Harvard Law) investment banker who grew up outside of Chicago, Crane got into the electricity business in the 1990s, working at Lehman Brothers' power group. He later ran wholesale generator International Power until NRG poached him for the CEO slot in 2003. At that time NRG was emerging from bankruptcy, having fallen victim to the upheaval of Enron's collapse. Early in his tenure NRG sold a handful of power plants, then in 2006 it bought Texas Genco for $8.3 billion to get a foothold in the lucrative Texas market. He also launched a $13 billion-plus plan to build two additional reactors at the South Texas Project nuclear plant but abandoned the venture in 2011 (and wrote off $300 million in development costs) after slow permitting and newly plentiful natural gas killed the economics of new nukes. Then came the acquisition of GenOn in 2012. All along, say analysts, Crane has shown the ability to change tack with the times.