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Focus on generation transactions: GenOn's Hunterstown combined-cycle plant

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Focus on generation transactions: GenOn's Hunterstown combined-cycle plant

GenOn Energy Inc.'s planned sale of the Hunterstown CC power plant in central Pennsylvania comes at a price that represents a modest discount to S&P Global Market Intelligence's projected valuation range for the 810 MW combined-cycle, gas-fired facility.

The company announced Feb. 27 that it had agreed to sell Hunterstown to private equity firm Platinum Equity Advisors LLC for $498 million (before working capital adjustments), which is below S&P Global Market Intelligence's projected valuation range $562 million to $569 million.

GenOn is a subsidiary of NRG Energy Inc. but is trying to split from NRG as part of an ongoing bankruptcy reorganization process.

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The valuation estimates are based on the Market Intelligence Power Forecast, which provides forward projections of merchant plant earnings for generators across all major U.S. markets. In the case of Hunterstown, the sale of this relatively prime asset frees up capital for GenOn as it pursues bankruptcy reorganization, and may provide the new asset owner reasonable certainty of return on investment, given settled capacity prices in the 'PJM RTO' zone. The chart below estimates total merchant earnings for the Hunterstown combined cycle plant from 2015 to 2026.

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Estimated earnings and cash flow to Hunterstown and similar natural gas generators was strong in 2015 due to high prices in the Northeast during the "polar vortex" winter of 2014-2015. Since then, energy margins have normalized and capacity prices have moved lower in PJM RTO, which is the lowest priced load delivery area in PJM. Total earnings from the plant in 2016 and 2017 were estimated at $60 million per year. Looking ahead, forecast earnings levels are similar, with a modest boost in earnings from the capacity market offset by lower spark spreads attributable to increasing natural gas competition in PJM.

About the Data

This research note features proprietary S&P Global Market Intelligence Power Forecast data, which was used to calculate a net present value of forecast earnings for the plant. If you are not a Power Forecast subscriber, and are interested in getting access to this data, please contact Jeremy.Stander@spglobal.com. Estimates of historic earnings were generated by the Revenue and Margin Estimates for Gas Power Plants template.