This won’t be a long post. I saw an article this morning that NRG is purchasing a power generation plan in Corpus Christi for 244 million dollars. You can read about the details: here. Here’s why this news is completely absurd:
For years now, the power generators in Texas have been complaining about how natural gas plants prices are so low that they can’t invest in new power generation construction. As a result the Texas electricity market has been racing towards the reserve margin for power generation. And the repeated company line by all these power generators, such as NRG, is that they simply can’t guarantee making a profit while natural gas prices are so low.
And yet, big companies like NRG keep purchasing more existing power generation plants. This is the second or third large plant that has been purchased by a big power generation company in the past year. So if it is so difficult to make a profit in this market, with these prices, then why are big companies gobbling up all the existing generation assets possible?
If you apply logic, the answer is simple: Companies like NRG keep buying existing power plants because they are, in fact, making a profit. Additionally, while the power generation situation in Texas is in flux, power generators have been leveraging the situation for greater benefits from the Texas PUC, such as a ruling to triple the market cap for energy purchases during times of high usage. As the generators continue to wring concessions from the PUC, the generators know that by gobbling up existing plants in Texas, they’re positioning themselves for an even larger slice of the Texas electricity pie. And the sad situation is that generators can make more money by buying existing assets and leveraging market scarcity than investing in new plants and helping stabilize the market. Even worse, the PUC isn’t giving them any reason to not behave this way.