MERCHANT POWER PLANTS, ONCE IGNORED BY INVESTORS, DRAW CAPITAL, COMPETITION
Since the beginning of 2004 there has been a resurgence of interest in US merchant generating assets with the closure or announcement of over 40 gigawatts of merchant power plant transactions. This increased interest in merchant generators points to more than just a dwindling availability of contracted assets in the market. Additional capital from financial investors, some of whom are new to the power sector, is available for deployment and price levels are well supported by increased competition for assets. CERA projects the following trends in near-term asset transactions.
- High transaction volume will persist as capital from financial sponsors flows into and out of the market
- Utilities seeking to add capacity to their rate bases will "buy instead of build," as existing assets continue to sell at a discount to new construction.
- Merchant asset values will show an increasing locational bias.
- The accurate and timely assessment of market fundamentals and their recovery will become increasingly critical to buyers and sellers.
