Keys for Success in Power Plant Investing

Fortnightly Magazine - January 1 1999
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It's not as straightforward as it seems, says an industry veteran.

No one can foresee with a high degree of certainty how electric energy markets will be structured over the long-term. The changes facing the electric energy industry may be as profound as those upheavals we've seen in the airline industry during the past two decades. In the "good old days," a flight from New York to Chicago had one price and an electric generating plant had a regulated price for each kilowatt-hour produced. Today everyone on the New York to Chicago flight pays a different price from his seatmate, and electric production pricing seems to be moving toward such severe volatility that it may make airline ticket pricing appear tame.

Investors face substantial risks in a restructured electric generating business. Some of these risks are rooted in the capital-intensive and commodity-like nature of electric generation assets, and some are driven by regulatory effects likely to linger into the future. However, there may be opportunities for successful investment strategies founded upon deep knowledge of the marketplace and superb operational execution.

There are some fundamental understandings and objectives potential investors can - in fact, must - achieve to develop successful electric production investments. These considerations include:

• specific market knowledge;

• specific transmission system knowledge;

• detailed site characterization;

• available technology options;

• creative partnerships; and

• superb operations.

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