RE Coup at TXU

February 28, 2007 at 4:30 pm
Contributed by: Chris

Folks,

Here’s my latest article for Green Chip Stocks, about the recently announced buyout of the largest electric utility in Texas by a group of private equity investors…a very significant event for the renewable energy world!

RE Coup at TXU

By Chris Nelder

An amazing thing happened yesterday: the largest electric utility in Texas, TXU Corp., agreed to a $45 billion takeover bid by two of the largest private equity (PE) firms . . . making it the largest leveraged buyout in U.S. corporate history.

The two firms, Kohlberg Kravis Roberts & Co. and the Texas Pacific Groups, were joined by Goldman Sachs Group, Morgan Stanley, and Citigroup in the deal.

The buyers immediately announced plans to cut subscriber rates by 10%, saving customers more than $300 million a year, and to cancel eight of the eleven coal plants that TXU had planned to build in Texas.

Those plans had drawn the incredulous ire of climate change “concernists” everywhere, because those eleven plants would have made TXU the country’s largest corporate emitter of greenhouse gases . . . putting out more than entire countries such as Denmark, New Zealand and Sweden, and negating nearly all of the planned emissions reductions of Japan and the U.K.

And that is at least part of the reason why Wall Street has suddenly shown some interest in the utility business . . . a business they have historically eschewed as being capital-intensive, regulated and low-return.

But Wall Street is always a little bit ahead of the curve. Analysts are looking at the climate change side of things now, and seeing a future of big bucks for renewables, but big costs for emissions.

And they know what side of the climate change situation they want to be on – the side that profits from solutions, not hemorrhages from problems.

But the effects of the deal ripple out well past Texas: many “concernists” had feared the Texas coal plant explosion was a harbinger of hundreds of other coal plants yet to come, from one end of the country to the other.

Now they’re singing a different tune, calling this Wall Street’s first major signal that it is willing to write the nation’s energy policy from the bottom up, and get it right this time, Big Oil cronyism and sluggish legislators notwithstanding.

And in the last few years, deregulation has proceeded apace in the utility sector, especially in Texas. Now it’s a wide-open playing field, with choice pickings offering guaranteed streams of nicely increasing profits.

I honestly didn’t think that deregulation would turn out to be such good news for the renewable energy sector.

Now, I couldn’t be happier. Where regulation-bound utilities might have plodded their way to just barely meeting RPS “20 in 20” standards, instead we might see a groundswell of PE money choosing RE over fossil fuels in a big way, right now.

Instead of a rash of coal plants spreading out from Texas to the rest of the country, we may see a flush of windmills and solar panels.

Because the new owners of TXU have to figure out how to generate nine gigawatts of energy without coal, pronto.

Since Texas is already the biggest wind generating state in the Union, I think I have an idea how they’ll do it.

But the potential for solar and geothermal is enormous in Texas as well, and there are some great plays to capitalize on that.

They say that everything’s big in Texas . . . but instead of big greenhouse gas emissions, the smart money chooses big renewable energy!

Until next time,

—Chris

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