As documented in prior blogs here, the Clean Power Plan (CPP) requires that the electric sector reduce its carbon dioxide (CO2) emissions by 30% nationwide by 2030. Many in the coal and power industry believe that this requirement is yet another nail in the coffin of fossil fuel fired power plants and coal plants in particular.
However, in a recent announcement—“Dynegy Rises from the Ashes” (Wall Street Journal, August 23-24, 2014)—Dynegy will nearly double its power-generating capacity when it buys 21 plants from Duke Energy Corp. and Energy Capital Partners (ECP). The 12,500 megawatts being acquired consists of 5,054 MW of modern combined cycle natural gas plants and 3,793 MW of environmentally compliant coal generation plants. These new plants are located in Illinois, Ohio, Pennsylvania, Connecticut and Massachusetts. The purchase would increase Dynegy’s generating capacity to about 26,000 megawatts from 12,000 megawatts it controlled just two years ago.
Dynegy is acquiring these assets, which Duke and ECP are selling due to unacceptable price volatility in power markets. These same assets will require investment in order to be in compliance with the CPP. However, it appears Dynegy believes that by increasing its power plant portfolio with these assets, it will reduce overhead costs by 34% to $1.10/MWh. Thus, Dynegy must think that any potential costs to be incurred for CPP compliance will be at least covered by performance savings. Further, Dynegy chief executive Bob Flexon said, in justifying the purchase, “I really believe we’re going to see dramatic improvements in the second half of the decade”.
While some portions of the power industry are focused on the cost and risk of CPP compliance, Dynegy is at least one power generator who sees an opportunity to expand its footprint. West Monroe Partners is working with companies like Dynegy to identify risks created by CPP, and also uncover opportunities to solidify or expand their business. If you need to better understand your risks and opportunities, please contact me at email@example.com.