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in Indonesia got good contracts at a fine price, typically dollar-indexed in the range of 7 to 8 cents per kilowatt-hour." Three years later, with the devaluation of the Indonesian rupia, the price is between 25 and 30 cents/KWh.
But third-world countries aren't the only risky markets in the world. Boren would put the United Kingdom on his list of trouble spots. Southern Energy was one of the first U.S. companies to invest in U.K. distribution companies.
Says Boren: "Think about it: not a difficult country to get approval from; AAA credit rating; one of the most civilized, industrialized nations, with a strong legal system - everything you could possibly want."
Three years later, and a change in government, Boren's company faced a windfall profits tax of $119 million. "Now we see the threat of potential additional reviews in the future," he says. "The United Kingdom seems less safe to us now than it did three years ago." Boren's advice to other investors: "Similar does not always mean safe." Another new maxim: "No government is as stable as it appears."
Profit Outlook: A Caution
China and India promise to continue as the largest markets for power generation, with about $20 billion a year in investments, according to John Balint of the EDC. In China, sovereign power deals will predominate, with a few private projects occurring.
Coal and natural gas will be the preferred fuel, more favored than hydro or nuclear. In fact, for the next 10 years coal and natural gas are predicted to run neck-and-neck worldwide, even though people keep talking more about gas, says Balint.
Newcourt's Morash adds that the Asian financial crisis renewed attention on power project development in North America. "For the lender, this is a passive investment with a good sponsor, good equipment, a strong package of covenants, rights and remedies," he says. But he also cautions: "The historic performance of monopoly industries that become competitive show that prices only go in one direction. And that's down. In the power market, capacity is built for peak demand, which means that you're generally looking at system marginal cost pricing.
"We've experienced declining real energy costs as the costs of finding energy has declined, and there's no reason to believe it won't continue to decline in the future on a real basis," Morash adds. "The technological improvement to new generating assets means that you may be a low-cost producer when you go into service today, but down the road you may be displaced by future low-cost producers who have a technological advantage."
Meanwhile, there's money out there for power producers. As one Canadian official quipped to U.S. independent power producers in Washington, D.C., recently: "We have baskets of money for you on the way out."
Sarah McKinley is a freelance writer based in Arlington, Va.
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