Dynegy's 12.5GW of plant purchases clears review

OREANDA-NEWS. March 31, 2015. Merchant generation owner Dynegy expects to close deals this week to spend \\$6.3bn to buy about 12.5GW of coal and gas-fired capacity in the US northeast and midwest after clearing a long-awaited regulatory review.

Dynegy will buy 5.9GW of capacity in the PJM Interconnection from Duke Energy and EquiPower Resources for \\$2.8bn. The company in a separate deal will pay Energy Capital Partners about \\$3.5bn for 6.6GW of capacity in PJM and New England, though that amount will drop by 1.5GW after the coal-fired Brayton Point power plant in Massachusetts retires in 2017.

Dynegy had expected the deals to close in the first quarter but pushed back that timeline after the Federal Energy Regulatory Commission in January requested more information about how the merger could affect power prices.

The commission on 27 March approved both the deals after finding they were consistent with the public interest and would not raise market power concerns. The approval will require Dynegy to comply with a settlement it reached with PJM's market monitor to offer all of its units into the grid's capacity market and for retirement decisions to go through heightened scrutiny.

The deals will nearly double Dynegy's generating capacity to 26GW and give the company a far larger presence in northeast power markets. The company after the transaction will own about 7pc of the installed capacity in PJM and about 13pc of the installed capacity in New England.

Forward energy assessments in both markets are relatively flat through the end of the decade as load growth in the northeast has stalled.

But forward capacity prices have been rising because of planned generation retirements. Both PJM and New England operate a three-year forward market for capacity. PJM's next auction, for the June 2018-May 2019 period, will be held in May.

New England's installed capacity will fall by 3.5GW, or 10pc of the regional total, in 2014-18. PJM planned retirements total 12.7GW in 2015-19, or 7pc of the capacity on line at the end of 2014.