Dive Brief:
- Energy Capital Partners will acquire natural gas generator Calpine Corp. for $15.25/share or $5.6 billion, the companies announced Friday, three months after the Wall Street Journal noted the financially-embattled company was exploring a sale.
- Calpine confirmed they were negotiating a sale at the end of July after reporting significant losses in the second quarter, the Houston Chronicle reported. They expect to close the deal, following regulatory and stockholder approval, by the beginning of 2018.
- The generator noted increased operating expenses and higher income taxes played into a loss of $216 million in the past quarter, compared to a loss of $29 million during the same period in 2016.
Dive Insight:
Generators are increasingly struggling to compete in Texas, as renewable energy penetration and low wholesale prices hurt the merchant generator business model.
Calpine operates mostly in Texas, but also has assets in 18 other states and Canada.
Dynegy is another generator potentially exploring a sale with independent power producer Vistra Energy, which owns TXU Energy and Luminant, but it's unclear whether those talks have advanced from the early stage. However, the deal, coupled with Calpine, underlines pressures generators face with low power prices and high levels of subsidized wind in Texas.
To counteract these pressures, NRG and Calpine in May proposed market fixes, and argued for changes in system-wide price formation, local scarcity pricing and transmission cost allocations to avoid "subversion" of the market model.
"2016 natural gas prices in ERCOT were at their lowest level for 15 years," they wrote, "and ... the average real‐time price in 2016 of $24.65/MWh was the lowest on record for ERCOT."
NRG is also selling 6 GW of generation and shedding its renewable assets in a restructuring plan, due to low prices in the nation's wholesale power markets.
Because Texas lacks capacity markets, generators get their revenues from the shorter-term energy market, and rely upon scarcity pricing events — which can pay up to $9,000/MWh during high demand periods — to cover plant costs.
But the rising influx of wind reduced the number of such events, eating into potential revenues for the generators, said Texas Public Utilities Commission Chair Donna Nelson at an energy conference in March.
"Last summer, for the first time, we saw days with high demand where we saw about 4,000 MW of wind online,” she said. “Now, that's not enough where you can count on wind to always be there, but it is enough to remove the scarcity pricing."
These problems aren't confined to Texas however. The Federal Energy Regulatory Commission held a technical conference earlier this year to mull how to integrate state climate and renewable energy goals into eastern wholesale markets. A recent study by Wilkerson Barker Knauer LLP and the Power Research Group found the merchant power business model is distressed and headed for a “second round of bankruptcies."
