Fuel Procurement Strategies to Support Merchant Power Plant Financing

Abstract

The fuel procurement strategies of merchant power generators have changed dramatically from earlier independent power contracts and illustrate much greater market risk. Fuel-price and availability risks must be managed effectively or the power generator runs the risk of an imbalance between its fuel costs and power revenues. The competitive nature of the merchant-power market is encouraging merchant generators to minimize their fixed-cost exposure to remain competitive with other generators. New and creative financial/fuel procurement arrangements are evolving to manage such an important risk, and the gas and electric industries are continuing to converge.