I made it to second round for a very well known independent power generation company, based in london, but job is the states (where I’m from). I will be reporting directly to the CFO. Now, this position entails a lot of modeling and presentations, which I have experience in, but I’m not too familar with the energy sector, specifically on power generation companies; I know enough of how they operate, and the process of converting raw materials into fuel–but unsure on what type research sources the analysts use ? Any analysts out there that cover energy, how do you approach your analysis? Cheers!
When deregulation forced utilities to divest generation assets, they spun off IPPs and signed long-term (10y+) contracts for all their output. They have all the risk and return of a heavily regulated entity. If you desire a wilder ride, try merchant power generation. Here’s a decent intro: http://www.amazon.com/Understanding-Todays-Electricity-Business-Shively/dp/0974174416/ref=sr_1_1/102-1868954-1929737?ie=UTF8&s=books&qid=1192501101&sr=1-1
Quick Q: What exactly was the cause of deregulation that made these power generation companies reduce it’s assets? Does it apply internationally? DH–Can I get your email. I have a few other questions. Thanks for your help. Z.
‘cause’ of deregulation was the gummint. Why? They wanted a free market. Here’s an intro: http://en.wikipedia.org/wiki/Electricity_market or just type “power deregulation” into Google…
Ok. I understand basics of the industry, One question I has was what type of models do the analysts design in order to look at growth opportunities or aquiring or building a plant.
That’s beyond me. It certainly varies market by market. Pre-deregulation it was based on demographics and weather outlook.
If you’re trying to ask about renewable power sources, then you need to learn about RECs (I’ll post a link, not sure you’ll read it tho: http://en.wikipedia.org/wiki/Green_tags). Since these technologies currently have negative value, you’ll quickly come to discover that their only hope for producing investment returns lies entirely in the political realm. So call your local representatives and try to divine which way the regulators are heading. Without figuring that out any DCF exercise is a waste of keystrokes.
There is a book you should read, it was printed in 1998, but it gives a good explanation of the industry and deregulation… Understanding Electric Utilities and Deregulation, by Lorrin Philibson
Zforce12000 Wrote: ------------------------------------------------------- > Ok. I understand basics of the industry, One > question I has was what type of models do the > analysts design in order to look at growth > opportunities or aquiring or building a plant. Zforce, Get a good understanding of the different types of technologies used in power. For instance, Coal fired plants are the most expensive to build (prices are going up b/c of steel costs to in some cases, almost $2,000/kw) but coal is a very cheap fuel so they are profitable. combined cycle gas turbines are considered the state of the art technology, cheaper to build, but natural gas prices are making them unprofitable (except for peakers which only operate when electricty prices are the highest) also, i think it was mentioned before but there are many valuable tax credits for developers of greenpower nuclear plants can be very valuable, but getting a liscence from NERC is difficult, and their ARO can be extremely high (as you would expect to decommision a nuclear plant) the big driver in plants though is fuel costs, and you can get a good idea by looking at what futures for different types of fuels are trading for, compare them with expected electricity price forecasts… also, plants with in the money power purchase agreements are something to look for hope this helps
the key difference between regulated and unregulated generating assets is that the regulated assets have rates of return fixed (hence power prices paid to such assets are “capped”).
engineer2finance Wrote: ------------------------------------------------------- > the key difference between regulated and > unregulated generating assets is that the > regulated assets have rates of return fixed right >(hence > power prices paid to such assets are “capped”). er, no, particularly if the utility is allowed cost recovery, which they are in something like 45 of the 50 states. As alluded to earlier, the real risk in this game is the speed and nature of deregulation that this industry is undergoing. Everyone agrees we will continue to deregulate, but beyond that it’s anyone’s guess. At this point I’d say that IPPs have more guaranteed cash flows than the typical regulated entity since who knows what the regulatory landscape will look like in 5 years (much less than the typical IPP contracting horizon).
I finished my last round of interviews…I think I got it, but we will see. The position, mostly true in corporate finance, requires a bottom up approach analysis. Power generation companies are really looking for growth opportunities and capitalize on the deregulation. It looks like Wind farms, though not very economically feasible, may give some corporations tax credits in the future. Industry itself is very interesting.