Sales prices for power generation assets in the United States during the past two years have climbed to unprecedented levels. This trend should continue. More than 20,000 megawatts of generation assets have been sold, with another 20,000 MW announced. During the next five years, it is expected that 70,000 to 140,000 MW will change hands. We have seen only the beginning of a massive redistribution of generation assets - from regulated utilities to unregulated marketers and plant operators.
In fact, the prices we've seen for generation assets may turn out to be bargains. Don't compare the price paid to the booked cost in the hands of the former utility owner. Instead evaluate the price in the context of the strategic objectives of the buying companies.
Of course, there is no single correct asset strategy. Here we take a look at various strategies for asset sale and acquisition, with examples taken from among recent transactions. These strategies may involve a full ownership interest, or perhaps only the management of leased assets or sale of management services. However, while ownership and control differ significantly in terms of capital requirements, risk and other characteristics, the steps in acquiring ownership and control are largely similar. Hence we treat acquisition of ownership and control in a similar manner.
Why They're Selling: Players and Strategies
Power plants involved in sales transactions vary widely in terms of geographic location, transaction price, power plant technologies and other items included in the sale such as power purchase agreements. However, all completed or announced sales are based on either of two reasons:
1. Compliance with state regulatory or legislative guidelines related to restructuring for retail access; or