The past year has allowed the North American power sector to continue its recovery, but it has been a treacherous time for investing. Asset values, and the value of their associated debt...
The Utility Sector: A Wall Street Takeover?
report on reserve margins says this problem stays with us, possibly to the end of the decade. It's hard to see merchant companies climbing back out of the debt hole and into investment-grade ratings."
That leaves the question of whether the only successful merchant power model will be one that involves large-scale financial firms and multinationals. "The cyclical and capital-intensive nature of this business has not gone away," says Cinergy's Murphy. "It has been transformed with deregulation and trading, but you still need a strong capital structure to ride through those cycles."
The next phase in the evolution of the merchant power industry might be here already, as financial firms take ownership of distressed merchant plants-willingly or otherwise. Perhaps they can develop a new merchant business model that is built on a foundation of capital management-not just cash flow-and backed by a balance sheet that can endure the ups and downs of a volatile market.
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