Cheaper Plant Sales have Two-Fold Effect:
If AES or whoever starts dumping power plants on
the market, which seems likely over the short term,
(and the market is trying to price that in), this
has a two-fold effect.
It obviously takes valuations down as plants
sell for lower valuations than what people had
once estimated. I don't think the market cares
about details about whether these plants are
baseline, or peaking units, natural gas, coal-
fired, etc...not when they're in a panic mode
like they are now. The red herring though, and
important thing to remember, is that in it's
irrationality, ONLY the valuations of the IPPs
will be brought down by brokerage analysts,
not the valuations of the regulated utilites.
What does that tell you?
The other thing is that the new owners of a
plant that was sold off at fire-sale prices now
have a lower cost of ownership, and hence can
bid the power they generate at a lower price
than the other players and force the other players
to lower their bids as well, which would then
affect their profitability. Obviously, if their
bonds are rated higher than that of companies
like Calpine and Mirant, which carry junk bond
status, that only compounds their advantages,
as their cost of capital is lower.
Hope this helps. Peter. |
