POWER January 2011 - 34

2011 INDUSTRY FORECAST
recently, " Perhaps part of the reason for
the stark difference in decision outcomes
between Georgia and Wall Street is that
the people making the Vogtle decision realize
that money is just a tool. They also
recognize that financial performance is
only one of many measures of the value
of an activity. "
Presumably, recognizing the social value
of nuclear power is what Congress did in
also applies directly to energy mergers and
acquisitions.
In August, Blackstone Group, a private
equity firm, inked a deal to buy Dynegy
Inc., one of the original players in the
independent generating business of the
1980s, in a deal worth about $4.7 billion.
Blackstone, at the same time, agreed to sell
3,884 MW of Dynegy's generating fleet in
California and Maine to NRG Energy for
In 2008, at the height of the credit crunch
that marked the onset of the " Great Recession, "
the consulting firm Accenture suggested
that one likely energy market scenario was
that large firms with lots of cash would look
at smaller, promising firms struggling to finance
growth as promising acquisitions. That
has come to pass.
For 2011, lack of credit appears to be
The EIA's projections anticipate a rather
anemic nuclear rebound. The agency says
it expects nuclear generating capacity to
increase from 100.6 GW in 2008 to 112.0
GW in 2035.
2005, and what the Obama administration
reaffirmed in requesting, futilely, another
$36 billion in nuclear loan guarantees in
its fiscal 2011 proposed budget. That effort
appears not to have worked, as we're still
waiting for a nuclear renaissance.
The EIA's projections anticipate a rather
anemic nuclear rebound. The agency
says it expects nuclear generating capacity
to increase from 100.6 GW in 2008
to 112.9 GW in 2035. The 2035 figure
consists of 4 GW in upgrades at existing
plants and 8.4 GW in new capacity, or
only six new units. " All existing nuclear
units continue to operate through 2035, "
says EIA. The forecast assumes that the
owners of the existing units " will apply
for, and receive, operating license renewals,
including in some cases a second 20year
extension after they reach 60 years
of operation. "
The Return of Industry M&A
Finally, here's another trend from 2010 that
looks robust for 2011: energy merger and
acquisition (M&A) activity. Late last summer,
New York Times business columnist
Andrew Ross Sorkin commented, " August
is shaping up to be the busiest month for
M&A in recent memory. . . . The animal
spirits of corporate America appear to have
awakened, with business leaders feeling
bold again even as the economy remains
sluggish. " Sorkin's comment encompassed
all of corporate America. But what he said
January 2011 | POWER
$1.36 billion. Earlier in the year, Mirant
Corp., another nonutility generator, agreed
to buy RRI Energy, formerly the power
plant operating business of Reliant Energy
in Houston, for $1.6 billion. RRI has
14,581 MW of generation and Mirant, a
1990s spinoff of Southern Co., has 10,000
MW in capacity.
There also has been lots of M&A activity
in the renewable energy sector, as
the wind and solar businesses are seeing a
major shakeout and concentration, likely
to continue in 2011. Last September, for
example, Exelon Corp. bought John Deere
Renewables for about $860 million, picking
up 735 MW of nameplate wind capacity
that is operating and another 230
MW under development. Hot M&A activity
in renewables makes sense, noted
Energy Business Daily, which suggested
that " more mergers and acquisitions will
occur as businesses try to consolidate the
large number of start-up companies in the
market. "
In mid-September, NRG continued its
merger surge, buying Green Mountain Energy,
a retail electricity marketer, for $350
million in cash. Green Mountain, with major
markets in Texas and New York, was
one of the first retail electricity firms in the
U.S. to emerge during the market restructuring
period. Texas billionaire Sam Wyly
founded the firm, which has no connection
to Green Mountain Power, an investorowned
Vermont electric utility.
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less of a problem. Money is available at interest
rates that have not been lower in the
memory of most people now in business.
Successful firms are piling up cash. The
need to find a place for all that corporate
gelt-estimated at $2 trillion $3 trillion-
and easy credit now appear to be M&A
drivers. Cash-rich companies are looking
at ways to boost the bottom line and use
up their reserves before their investors demand
the money. Robert Profusek of the
Jones Day law firm says, " Shareholders
are telling companies, either do something
with all the cash or give it back to me. If
you can't grow, how do you support your
multiple? You do a deal. "
The buzz over gas is also likely to contribute
to greater M&A activity, said the
New York Times: " This latest wave of consolidation
comes with new enthusiasm
for natural gas production, especially in
the United States, where new technology
has significantly expanded the nation's
reserves. The huge potential of new gas
fields has driven most mergers in the North
American energy sector in recent months,
with more to come this year [2010], according
to bankers and analysts. "
" In this industry, where you're in the
business of increasing your reserves, there
are two ways to do so-to drill or to acquire, "
Christopher W. Sheehan, director
for M&A research at IHS Herold told
Times reporter Jad Mouawad. " There is an
intense competition for access to resources
through mergers. "
The American philosopher and sage Yogi
Berra allegedly said, " It's tough to make
predictions, especially about the future. "
(See the sidebar on the previous page for
a report card on some of our 2010 industry
predictions.) Who could have predicted the
mess that mired BP in the Gulf of Mexico
last year? Or the worst coal mine disaster
in 50 years? Or a major gas pipeline explosion
in a suburb south of San Francisco?
Educated guessing is the best one can do,
and that leads to this prediction for 2011:
Much of the same. Or, to use another Yogiism,
" déjà vu all over again. " Not surprisingly,
that's what we said last year. ■
-Kennedy Maize is a POWER contributing
editor. Dr. Robert Peltier, PE is
POWER's editor-in-chief.
33
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POWER January 2011

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