Atlantic Power sells 800 MW of generating capacity in Florida and Texas; Goldman Sachs buys Imperial Valley project from FirstSolar; Duke acquires two solar plants in California; Southern Company...
Generating Plant Sales and Acquisitions: Who's Doing What, and Why
high load factors. By acquiring multiple assets with similar fuel types and technologies, owners can create a low-cost operating model across the entire business. Companies pursuing a strategy to support scale efforts include Williams Energy Services Co. and Duke Power Services.
Both Williams and Duke are leveraging their fuel procurement and power marketing abilities with asset transactions. They view coal and gas plants as fuel converters and try to acquire plants in regions where they can derive profitability by more strategically procuring fuel for the plant. This is evident in Duke's latest acquisition of PG&E gas-fired assets in California.
It appears also in a recent tolling deal between Williams and AES Corp. In that transaction, AES acquired 2,600 MW of Southern California Edison's gas-fired assets. It then arranged to take gas from Williams Energy Services Co., convert it to electricity at a set price and transfer the power back to Williams for marketing. Based on this tolling deal, AES was able to finance 90 percent of this $780 million deal with nonrecourse project financing.
(Note: Enron has not yet entered the asset-buying spree, despite its desire for a national presence. It may be that Enron feels that the prices seen in the market are too high and the assets being sold will be back on the auction block at lower prices.)
Asset-Backed Trading. Some plant buyers may seek to acquire generating assets to fulfill unique market needs. Variations of this strategy can be extremely diverse; they range from ownership of must-run units to supplying on-site emergency backup power to large-volume users with critical applications. Another example, now emerging, uses ownership of generation to provide backing for commodity marketing.
The asset-backed operating strategy may be the toughest to achieve and is dependent on integration of asset management, marketing and sales, and plant operations. Marketing and trading functions work closely with asset management to build a portfolio consistent with the strategy. For example, trading and sales departments can provide insight into the regional transmission grid and assist in developing a plan for asset acquisition. Marketing also must work closely with operations to ensure assets are operating to meet customer needs. The essential point is that marketing and trading functions set the direction of the company under this model, with appropriate checks and balances from asset management.
Naturally, asset ownership will remain an important element of an energy marketer's portfolio as long as market liquidity remains an issue, allowing the marketer to avoid the kind of "squeeze" and subsequent financial exposure seen in the Midwest last summer. In fact, energy commodity marketers, particularly the top 20, are realizing the advantages associated with ownership of assets. In general, owning or controlling generation assets allows a marketer to have customized, higher margin products, offer price insurance in a volatile price environment and prepare more credible responses to bid proposals.
The types of assets owned will vary with the strategy. While backup generation providers will likely build on-site generation for their customers, energy marketers may seek to acquire or control must-run and/or peaking assets in resource-constrained areas to