Overview

Since mid-2002 an unprecedented $25 billion flood of private equity and hedge fund capital has flowed into the power generation sector seeking above-market returns on the investment. Now some of these "interim" power plant owners have begun to resell their holdings. CERA takes a detailed look at five cases and finds outstanding early returns, though these will not be the norm in the future.

Overview

The Newcomers Club: More Private Equity Is Moving into the Power Sector with Plans to Stay

Since mid-2002 an unprecedented $25 billion flood of private equity and hedge fund capital has flowed into the power generation sector seeking above-market returns on the investment. Now some of these "interim" power plant owners have begun to resell their holdings. This report takes a detailed look at five cases and finds outstanding early returns.

* Many factors contribute to these high returns, including power market recovery, escalation of natural gas prices, improving credit market conditions, contract and financial restructuring, risk management skills, and synergies with the parent entity's core competencies.
* Although these cases demonstrate the feasibility of above-market returns, CERA does not expect these initial extraordinary returns to become the norm because conditions contributing to the early successes may not hold in the future or for other interim investors.
* Past successes, however, are likely to keep some private equity funds engaged with the power sector for the foreseeable future, perhaps with adaptations for a longer-term role such as investing in adjacent value chain assets, participating in development and construction projects, and transforming into financial/operator joint ventures.