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The Journal of Structured Finance

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Primary Article

How Much to Discount Merchant Power Prices?

James F. Guidera and Benjamin Serra
The Journal of Structured Finance Summer 2000, 6 (2) 7-13; DOI: https://doi.org/10.3905/jsf.2000.320215
James F. Guidera
A Senior Vice President and Head of Project Finance,Credit Lyonnais Americas
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Benjamin Serra
A graduate degree candidate in Engineering at L'Ecole Polytechnique.
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Abstract

With little relevant price history, developers and their lenders have relied upon price forecasts from market consultants when constructing downside scenarios for merchant power plants. However, no one has known how reliable these forecasts would really turn out to be. The real question appears to be where the generator is located on the dispatch curve. For plants with high dispatch factors (baseload capacities), a 10% price decrease may be a satisfactory downside assumption, whereas for mid-merit or peaking plants, because of decreases in both prices and dispatch factors, a 30% discount could be too light. Consequently, rules of thumb suggested by rating agencies that plants should be able to tolerate revenue discounts to break-even (DTBE) of 30 % would not be applicable across the cost curve.

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The Journal of Structured Finance
Vol. 6, Issue 2
Summer 2000
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How Much to Discount Merchant Power Prices?
James F. Guidera, Benjamin Serra
The Journal of Structured Finance Jul 2000, 6 (2) 7-13; DOI: 10.3905/jsf.2000.320215

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How Much to Discount Merchant Power Prices?
James F. Guidera, Benjamin Serra
The Journal of Structured Finance Jul 2000, 6 (2) 7-13; DOI: 10.3905/jsf.2000.320215
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