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15 December 2005 - Prices for US merchant power assets appear to have halted a three-year free fall and now more than 100 000 MW of electricity generating capacity is expected to change hands over the coming 12 to 18 months, according to a new research report.
The report by Cambridge Energy Research Associates (CERA), Terra Firma: Merchant Power Prices Hit Bottom, predicted that the same amount of electricity would change hands in the next year to year and a half that had been traded in the last three years.
According to the report, when US power plant sales began to gain momentum in mid-2002 lightly contracted or uncontracted merchant plants generally were not included in the deal flow. That situation had changed since the beginning of 2004, with over 80 per cent of nearly 58 000 MW in announced transactions coming out of the merchant sector.
"While this resurging interest in merchant generators reflects more than just a dwindling availability of contracted assets in the market, it does not necessarily point to an intermediate and broad recovery for the merchant power sector," said the report's co-author, Patricia A. DiOrio. "Bid ask spreads have tightened and an increasing number of announced deals are closing, indicating a bottoming of the asset value cycle."
According to CERA's research, more than $20bn in private equity has been earmarked for energy investment. Financial sponsors and plant operator/financial investor partnerships have, by far, been the most active buyers in the sector, participating in over 60 per cent of power generating asset transactions, both contracted and merchant, from the beginning of 2004 through September 2005.
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