Sour year not ending quietly for NRG, other independent producers
A year to forget for U.S. independent power producers is almost over, but 2015 isn’t going out on a quiet note for the IPP sector.
Four companies in that realm — Calpine Corp., NRG Energy Inc., Dynegy Inc. and Talen Energy Corp. — have seen their share prices take continued hits in recent weeks.
A stock plunge at NRG is viewed as a major reason David Crane — a high-profile figure in the energy world — stepped down abruptly as the company’s CEO last week (EnergyWire, Dec. 4). And, amid a variety of shaky market signals, observers are left to wonder just when IPP stocks might hop on a road to recovery.
Last Friday was particularly brutal as NRG and Dynegy Inc. both tumbled about 18 percent, according to Yahoo Finance. That followed significant drops for both last Wednesday — the day before Crane’s departure was announced.
Even with gains last Thursday and early this week, NRG shares after regular trading yesterday still were down about 63 percent compared with the end of 2014. Dynegy plunged 62 percent in that time. Calpine dropped 42 percent. Talen tumbled about 59 percent from the end of July through yesterday after beginning trading earlier this year.
The four companies saw their combined market capitalization fall to less than $10 billion, Greg Gordon of Evercore ISI noted this week in a video update.
“They’re courting irrelevance,” Gordon said.
Questions about independent producers fester at a pivotal time in the power sector, as states and companies contemplate looming regulations such as U.S. EPA’s Clean Power Plan. That plan seeks to reduce carbon dioxide emissions from power plants, and is being challenged by more than two dozen states.
Some companies, such as Calpine and NRG, have expressed support for cutting carbon emissions. Calpine made a point of noting the role its natural gas-fired power plants could play. Yet the electric industry continues to have questions about the carbon rule’s future effects on fossil fuel-based generation, especially coal.
A ‘litany’ of factors
The four IPPs have different generation mixes and rely on a variety of fuels, but significant coal-fired holdings are in place at Dynegy, NRG and Talen.
Independent producers also must cope with and plan for market swings outside of state regulatory processes that can support traditional utilities.
UBS Securities LLC, in a report last week, said a “litany” of factors has put pressure on the IPP set, such as updates from the Electric Reliability Council of Texas (ERCOT) and PJM Interconnection LLC.
ERCOT issued an outlook last week showing sufficient reserve margins over a 10-year period, though environmental regulations could alter projected numbers. And UBS said a draft load forecast released recently for the PJM region was “particularly weak.”
UBS also mentioned Ohio, where Dynegy has said a deal between regulatory staff and FirstEnergy Corp. could distort the power market. Other issues for IPPs include a discussion of extending renewable subsidies, weak prices on assets, and a downward slide for power and gas prices, according to UBS.
The firm said it perceived “limited confidence in the sector from investors keen to avoid” near-term pressure on commodities. UBS also described rising perceptions of structural issues tied to potential renewable projects, as well as the effects of possible re-regulation of certain power assets.
