The resource overbuild in the West complicates the company’s efforts.
Gary L. Hunt is president of Global Energy Advisors. Contact him at ghunt@ globalenergy.com. Devrim Albuz is senior manager, Asset Valuation, at Global Energy Advisors. Contact him at firstname.lastname@example.org.
Calpine’s announcement that it will shed 20 of its 92 power plants, close three offices, and lay off 775 more staff in a bid to emerge from bankruptcy caused by more than $22 billion in total debt was not unexpected. The question is whether these actions will be sufficient to get the job done.
Global Energy estimates valuation for Calpine’s all-generation portfolio, including all the contracts, to be $14.5 billion compared with its current $17 billion in long-term debt. This valuation assumes gas prices will be moderated to a $5-$6/MMBtu range in the middle of our long-term forecast period. But if gas prices stay as high as $7-$8/ MMBtu for the foreseeable future, the overall portfolio value may increase to $18 billion to $19 billion.
This potential increase in valuation is driven by Calpine’s more efficient gas-fired, combined-cycle units benefiting from higher margins in gas-fired markets. The downside is that higher gas prices further will support coal and nuclear development in several markets during this same long-term forecast period. That may change totally the fuel mix of future development. On the other hand, if gas prices decrease below expectations and stay low for some time, the Calpine portfolio value may drop to a level between $11 billion and $13 billion.