Financing Merchant Power

Abstract

Over the past two years, credit analyses for merchant power projects necessarily have focused on market analyses provided by consultants and financial projections have depended heavily on consultants' forecasts of power prices. Now that three summers of market experience are available from most U.S. regional markets, fairly reliable correlations have become observable between power prices and fuel prices, weather, forward markets, market heat-rate averages, and the like that are more useful in analyzing the prospects for merchant projects than mere price forecasts. This article takes a backward-looking tour of four U.S. power markets and attempts to point out several correlations and trends that have positive as well as negative implications for financings and investment in merchant power assets.