I was wondering, for those in an IBD energy group, how would you go about valuing something like a power station? Specifically, what kind of factors would you take into account?
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any ideas?...
DCF
For emerging markets, you have a (generally long term) PPA (power purchase agreement) which gives you the revenue side, and you should have some sort of longer term agreements on the input side.
Then you've got a pretty certain DCF valuation.
I'd assume its the same for OECD countries (although you wouldn't mind shorter term contracts as much).
What kind of a power station?
Hypothetically, a thermal power station generating electricity for a region the size of say, Texas.
Thanks for the responses so far- keep them coming.
stox is right. you want to check out the cash flows coming in from any PPA's in place, tolling agreements, and hedge revenues. Is the energy merchant or capacity? You will usually have some sort of offtaker who will also get rated and that will also have to do with the power plant's valuation.
Other things to consider - availability of electricity (frequently experiencing outages?), size of facility, what type of energy (gas/oil, hydro, nuclear, etc.), energy wastes, etc. Lease/rental agreements if there are in (in terms of equipment, land, etc.), capex, and other expenses.
Usually, valuation is broken up into two phases: pre construction and post construction. Unless of course you are talking about a power plant already in existence. in that case, it's really easy to just do a DCF, look at the parameters I mentioned above.
Hope this helps a bit.
How is valuing a power station different then valuing any other asset? Run DCF and Comps.
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