By David Wagman, Managing Editor
The power plant market may be small compared with the housing market, but sales prices are every bit as revealing.
One interesting detail is the price paid per kilowatt. Calculating this allows asset values to be compared across fuel types, regions and type of plant, whether baseload, intermediate or peaking.
A couple of cautions are in order. First, if multiple units using a variety of fuels are rolled into a single deal, calculating a per-kilowatt value for the package can be misleading. The comparisons here consider same-fuel types only.
Second, with nuclear asset sales it’s important to remove items such as fuel costs and decommissioning funds. Both items are interesting to know, but they remain “non-core.”
The deals below reveal dollar-per-kilowatt values across fuel types and markets. Prices reflect factors such as local market conditions, electricity supply contracts, transmission constraints and competitiveness versus new construction. Values also may be affected by speculation over possible carbon regulation in the United States. Natural gas price volatility also plays a role, resulting in some distressed asset sales.
The first deal is FPL’s December news that it plans to buy the two-unit, 1,033 MW Point Beach nuclear plant from Wisconsin Energy Corp. for $757 a kW. The deal includes a long-term purchase power agreement, which will see FPL sell electricity back to We Energies at a steadily rising rate through the life of the agreement.
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For comparison, consider the $476/kW Entergy Corp. agreed to pay Consumers Energy in mid-July for the single-unit, 798 MW Palisades nuclear plant in Michigan. That deal included $242 million for the plant, $83 million for fuel and $55 million in other assets. Consumers also agreed to pay Entergy $30 million to take over the spent fuel at its already decommissioned Big Rock Point plant. As at Point Beach, Entergy agreed to a long-term power sales agreement with Consumers. And, like FPL, Entergy offers economies of scale and scope that are difficult for single-plant owners to achieve.
A waste-to-energy plant in New York State offers a look at renewable asset values. U.S. Renewables Group last fall agreed to pay $569/kW for 53 MW of capacity fired by coal, wood chips and tires. WPS Resources Corp. sold the plant. A USRG official said the company plans to convert the plant in 2007 to burn biomass rather than coal, possibly deepening its shade of green.
Kelson Holdings in early December agreed to pay $397/kW for the 580 MW Aries station in Missouri, an intermediate load natural gas plant sold by Calpine. Aquila bid $272/kW in late September, but was shut out soon after. “We felt that was as high as we could go,” said COO Keith Stamm. Aquila and Calpine built Aries in 1999 for $300 million, or around $517/kW.
Other notable 2006 deals included:
- Buckeye Power paid $246/kW for the 200 MW Greenville natural gas-fired peaker in Ohio. DPL Energy sold the six-year-old asset, which was built for $90 million and recently had a $66 million book value. DPL said it would record a $17 to $19 million impairment charge on the asset.
- Duke Energy bought five natural gas-fired peaking units in North Carolina for $236/kW. The units make up the 825 MW Rockingham station, sold by Dynegy.
- DPL Energy sold the 480 MW Darby station in Ohio, a natural gas-fired peaker, to AEP for $212/kW.
- Westar Energy bought a 300 MW gas-fired peaking plant in Oklahoma for $176/kW. The seller was ONEOK.
In early January 2007, PSEG said it would sell its 1,096 MW Lawrenceburg Energy Center in Indiana to AEP for around $297/kW. PSEG opened the plant in mid-2004, having spent $584/kW to build it. PSEG reportedly had run the plant around 20 percent of the time, given high natural gas prices. PSEG said it would take an $0.83 a share charge to reflect the discontinued operations.
Conspicuous for their absence are coal-fired baseload units. Running at high capaciy factors, there isn’t much incentive either to sell or buy coal assets right now. Whether or not coal plants hold their value should carbon regulation be adopted in the next several years will be interesting to note in future deal comparisons.