Where do these factors leave the U.S.
market for merchant generation?
Given the uncertainty surrounding
the EPA’s pronouncements and the
specter of further regulation regarding
cooling water, coupled with a changed
outlook for coal prices vis-a-vis
natural gas prices, coal-fired power
plant development has declined
significantly in the U.S. in recent years.
SNL Energy recently announced
that there were no coal-fired plant
development announcements in 2011.
Natural gas power plant development
has supplanted coal as the base
load plant for new development.
Michael A. Tribolet is a managing director in
Wells Fargo Bank’s Power and Utility Group and is
responsible for industry analysis and underwriting
of credit within the group. With 27 years of corporate
banking experience, Tribolet is experienced in
relationship management, credit restructuring, and
credit underwriting. Since 1992, he has specialized
in the energy industry to include exploration
and production, oil field service, midstream,
independent power generation, regulated utilities,
and commodity derivatives. He holds a bachelor’s
degree in finance from the University of Arizona.
With all the uncertainty stemming from
EPA regulations, coal-fired plants can
carry a diminished valuation multiple.
Weak spark spreads have depressed
the valuation of other merchant power
plants as well. Plants that have strong
PPAs with creditworthy entities have
held their values better. Much of value
can be the form of an above-market
electricity price, given how electricity
prices have fallen. For the most part, the
investment grade generators, despite
some modest credit downgrades, have
While merchant power developers
traditionally looked to long-term PPAs
of 15-25 years, prior to the financial
crisis certain power plant purchasers
used financial intermediaries to hedge a
five- to seven-year profile. Many of these
hedges are now maturing and, absent
low leverage, many may need some sort
of financial restructuring as their cash
flows step downward as hedges expire.
maintained a hedging profile, adequate
liquidity, and manageable leverage.