So far we have not witnessed any fire sales in the US. It seems that everybody is first trying to get rid of their overseas assets. Mirant sold Bewag at more than a $200 million profit, realizing net cash of $1 billion plus and a debt reduction of $550 million. A prescient move that was initiated well before the current troubles were apparent in the market. The stock sale, again done presciently at a price almost double the current price, yielded another $750 million. All indications are that Mirant will be a survivor, even if current depressed power market conditions persist for years.
Compare that to CPN, or, even worse, AES, who is trying to sell its Latin American assets and has just put its UK plant for sale:
biz.yahoo.com
Now, you are saying that plants sold at fire sale prices will reduce power prices because the buyers will have a lower cost base. This is not how markets work. Prices are determined by supply and demand. Change of ownership of a plant does not create any more supply. The demand remains the same too. The new owners will simply make more money than the old owners. On the other hand, the low prices and the availability of ready-built plants for sale has put an abrupt halt to the exuberant expansion of US power capacity -- not very good news for GE. This bodes well for the IPP survivors: there will be less future supply, and power demand is almost always increasing, even during recessions.
The current situation in the US power industry is simply a commodity cycle trough. It's just novel because people are not used to view electric power as a commodity. The Enron situation has accelerated the trough considerably, thus creating unique opportunities, IMO. The key is picking a survivor.
Kyros |
