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Plants for Sale: Pricing the New Wave

Financial players and load-serving utilities are looking for power asset deals.
Fortnightly Magazine - February 2004

of the total dollar value. By far, financial players have been the most significant buyers of this type of plant-accounting for more than 70 percent of the transactions. Cogen capacity has been the third most highly valued form of capacity after wind and hydro, at around $750/kW.

Coal transactions made up around 15 percent of the total capacity sold and less than 10 percent of the dollar value of the transactions. While in the prior wave of generation asset sales, coal values peaked in the $700/kW range, the average value of transactions thus far is $415/kW. Buyers of coal plants have been primarily large diversified energy companies such as Sempra and Dominion, buying plants in markets adjacent to their regulated franchises.

Simple-cycle gas turbine plant sales comprised a small volume of total capacity sold and dollar sales value. The average value for capacity was $360/kW. The relatively high average value may be explained in part by the buyers' motivations and resource needs. Two-thirds of the buyers were LSEs, with the majority of these either co-ops or municipal utilities.

Transactions involving wind capacity have been on the rise, edging out hydro, the other main renewable power source. The lack of available public information on wind transactions has made it difficult to put a dollar value on the cumulative value of deals. Of those made public, transactions have ranged between $600/kW to $1500/kW. Three hydro deals came in at an average $880/kW, the second highest value for capacity. Such value is largely consistent with the supply-constrained nature of this resource.

Where Are the Transactions Occurring?

The Northeast Power Coordinating Council (NPCC) is by far the region with the most asset sales activity over the past two years. As shown in Figure 2 on p . 49, the region's 11 transactions accounted for about 50 percent of the total megawatt capacity sold and 45 percent of the proceeds raised. The region's higher average capacity value-$700/kW-is attributable largely to high-priced nuclear deals, hydro, and a few rich cogen plants.

In terms of capacity sold, the Mid-Atlantic Coordinating Council (MAAC) and Western Electricity Coordinating Council (WECC) follow with around 15 percent and 10 percent, respectively. The WECC values are somewhat understated given that almost all wind capacity sold in the last two years occurred in this region, and these values are not included. The average capacity sales values are $515/kW in MACC and $640/kW in WECC. The higher values may be explained by active participation in both regions by financial players (targeting cogen capacity) and LSEs.

The NPCC, MACC, and WECC (especially California), with high electricity prices, were at the center of early efforts to deregulate and restructure. Driving the first wave of asset sales was the promise of stranded asset recovery with divestiture. In September 1997, New England Electric System (NEES) kicked off the trend with the auction of 4,000 MW. PG&E's $1.6 billion purchase of NEES's capacity, at just over $400/kW for a technology and fuel-diversified portfolio, drew both applause as a gutsy first-mover strategy and criticism as an example of the "winner's curse." Today,