netrashetty
Netra Shetty
Calpine Corporation is an electric utility that produces 30% of its energy from Geothermal sources (the remainder is produced with natural gas). Government subsidies for alternative energy - such as California's Renewable Portfolio Standard requiring that 20% of the state's electricity come from renewable energy sources by 2010 - is a major boost for technologies like Calpine's, which also benefits from government subsidies that support the massive infrastructure investments geothermal plants require.
Geothermal produces about 30% of Calpine's revenues, however; the balance (70%) comes from natural gas. Calpine's dependence on gas means its margins are heavily dependent on natural gas prices, which have fluctuated unpredictably over the past few years. The volatility of natural gas is offset, however, by the flexibility of gas-powered plants, which let the company more easily adjust electricity production. In regions where temperature fluctuates heavily through the day and over a year, like the West Coast and Texas, these plants let the company cut operating costs by reducing production when it isn't necessary.
CPN's Geysers Assets located in northern California represent the largest geothermal power generation portfolio in the U.S., and it produced approximately 21% of all renewable energy produced in the state of California.[1] This is significant because California's Renewable Portfolio Standard requires tha 20% of the state's electricity come from renewable energy by 2010- a standard that certainly benefits CPN significantly.
Contents
1 Company Overview
1.1 Business Financials
2 Trends and Forces
2.1 Utilities Regulation Can Affect Calpine's Energy Prices
2.2 Calpine's Use of Natural Gas Makes it Regionally Competitive
2.3 Legislative Support for Renewable Energy Makes Calpine's Geothermal Plants More Competitive
2.4 Climate Change Regulations Have the Potential to Increase Calpine's Costs
3 Competition
4 Notes
Company Overview
Calpine is an energy company with 24,802 MW of generating capacity with 77 operating plants spread amongst 16 different states.[1] Its primary customers are industrial electricity users, government agencies, and electric utilities; 10% of its revenues come from the California Department of Water Resources.
In December 2005, Calpine filed for Chapter 11 bankruptcy. The company had $17 billion in debt[2], and after the Enron scandal, the collapse of the power market led to investor examination of power company finances - and an eventual run on power stocks, causing Calpine's price to drop from $50/share to $0.30/share between 2001 and 2004. Calpine emerged from bankruptcy in February of 2008, resuming trading on the NYSE under the ticker "CPN"[3].
Most of Calpine's operations are in its "West" segment, which spans California, Arizona, Colorado, and Oregon, as well as its Texas segment. The company's margins were highest in the West, possibly because of the price premium attached to energy from the company's geothermal plants in California. The West and Texas also have higher energy prices because of seasonal temperature fluctuations, leading to higher sales prices for Calpine.
Business Financials
In 2009, CPN posted total revenues of $6.6 billion, a significant decline from its 2008 total revenues of $9.9 billion. However, this large decline in revenues did not have a negative impact on CPN's net income. Between 2008 and 2009, CPN's net income increased from $10 million in 2008 to $145 million in 2009.
Trends and Forces
Utilities Regulation Can Affect Calpine's Energy Prices
Calpine's margins are further affected by the regulation of electric utilities in the U.S. and Canada. Regional governments set electricity prices to ensure both profitability for utilities companies and accessibility for all consumers. Because of utilities regulation, the prices that energy companies charge the utilities companies must be low enough for the utilities to make a profit; this leads to price competition and depressed margins for the whole energy industry. Calpine remedies this problem by selling energy that is considered "cleaner" than many other types; natural gas does not emit the particulate pollution that coal and oil do, and it has no dangerous wastes, like nuclear. Geothermal energy is almost completely clean. With cleaner electricity generation methods, Calpine can compete based on electricity users' preferences, as well as on regulatory grounds; without the need to install costly scrubbers and filters, it can sell electricity for slightly cheaper than its coal competitors.
Calpine's Use of Natural Gas Makes it Regionally Competitive
Utilities regulation can vary by region, depending on electricity use patterns and the dominance of certain energy sources. Calpine's main markets are in the Western U.S. and Texas, where electricity use tends to come in peaks and valleys because of temperature changes depending on season and time of day. These regions tend to see higher set electricity prices, making natural gas plants useful; though gas is more expensive than most base-load plants, it can be used to provide variable amounts of energy, allowing Calpine to reduce production (and costs) when demand is low. This allows the company to maximize the price at which it sells its electricity.
Legislative Support for Renewable Energy Makes Calpine's Geothermal Plants More Competitive
State governments across the U.S. are implementing legislation to encourage alternative energy production, due to political pressure from public concerns about climate change, oil prices, and energy independence. Twenty-six states have set Renewable Portfolio Standards that set varying targets for the amount of energy to be obtained from renewable sources by certain dates. California, where all of Calpine's geothermal facilities are located, has targeted reaching 20% renewable energy usage by 2010[4]. What this means is that there is now a "premium" on the price of all energy that comes from renewable sources in California, including Calpine's geothermal plants. Electric utilities are scrambling to reach the allotted mix, and Calpine has benefited both from the growing demand for renewables and the hike in geothermal energy prices caused by it. In February 2008, for example, the company made a deal to sell 175 MW of geothermally-produced electricity to western utilities powerhouse PG&E - a deal that will bring the ratio of PG&E's renewable electricity contracts to the required 20%[5].
Climate Change Regulations Have the Potential to Increase Calpine's Costs
Despite the climate-friendly nature of Calpine's geothermal plants, with just 725 MW[6] out of 24,000 MW[7], they amount to just about 3% of Calpine's total energy mix. The rest comes from natural gas, which is cleaner than coal or oil in terms of particulate emissions but still emits large quantities of greenhouse gases. In the event that the U.S. government, or individual state governments, levy carbon emissions limits, Calpine's operations will be significantly compromised. For this reason, Calpine actively lobbies against carbon control initiatives.
Competition
As an energy company, Calpine faces a wide range of competitors.
Pacific Gas & Electric - PG&E is a utilities companies that provides electricity to 5.1 million customers and gas to 4.3 million customers. It owns nuclear, hydroelectric, and fossil-fuel power plants with a total generating capacity of 6,271 MW[8].
Dynegy - With 19,156 MW of natural gas-powered capacity, Dynegy's youth (it incorporated in 2007) has not stopped it from expanding operations across thirteen states[9].
FirstEnergy - FirstEnergy's holdings include eight electric utilities that operate in Ohio, New Jersey, and Pennsylvania. Its total generating capacity is 14,127 MW, 54% of which comes from coal, 28.5% of which comes from nuclear, 10.9% of which comes from oil and natural gas, 3.3% of which comes from hydroelectric, and 3.3% of which comes from the company's interest in Ohio Valley Electric Corporation[10].
As one of the few major geothermal operators in the U.S., Calpine competes with:
Ormat Technologies - Ormat is the only pure-play geothermal energy company in the U.S., and had 407 MW installed.[11]
Chevron - With an installed geothermal capacity of 1,273 MW in Indonesia and the Philippines, Chevron supplies 13% of the global geothermal energy supply - and is the largest private geothermal energy company in the world[12].
Geothermal produces about 30% of Calpine's revenues, however; the balance (70%) comes from natural gas. Calpine's dependence on gas means its margins are heavily dependent on natural gas prices, which have fluctuated unpredictably over the past few years. The volatility of natural gas is offset, however, by the flexibility of gas-powered plants, which let the company more easily adjust electricity production. In regions where temperature fluctuates heavily through the day and over a year, like the West Coast and Texas, these plants let the company cut operating costs by reducing production when it isn't necessary.
CPN's Geysers Assets located in northern California represent the largest geothermal power generation portfolio in the U.S., and it produced approximately 21% of all renewable energy produced in the state of California.[1] This is significant because California's Renewable Portfolio Standard requires tha 20% of the state's electricity come from renewable energy by 2010- a standard that certainly benefits CPN significantly.
Contents
1 Company Overview
1.1 Business Financials
2 Trends and Forces
2.1 Utilities Regulation Can Affect Calpine's Energy Prices
2.2 Calpine's Use of Natural Gas Makes it Regionally Competitive
2.3 Legislative Support for Renewable Energy Makes Calpine's Geothermal Plants More Competitive
2.4 Climate Change Regulations Have the Potential to Increase Calpine's Costs
3 Competition
4 Notes
Company Overview
Calpine is an energy company with 24,802 MW of generating capacity with 77 operating plants spread amongst 16 different states.[1] Its primary customers are industrial electricity users, government agencies, and electric utilities; 10% of its revenues come from the California Department of Water Resources.
In December 2005, Calpine filed for Chapter 11 bankruptcy. The company had $17 billion in debt[2], and after the Enron scandal, the collapse of the power market led to investor examination of power company finances - and an eventual run on power stocks, causing Calpine's price to drop from $50/share to $0.30/share between 2001 and 2004. Calpine emerged from bankruptcy in February of 2008, resuming trading on the NYSE under the ticker "CPN"[3].
Most of Calpine's operations are in its "West" segment, which spans California, Arizona, Colorado, and Oregon, as well as its Texas segment. The company's margins were highest in the West, possibly because of the price premium attached to energy from the company's geothermal plants in California. The West and Texas also have higher energy prices because of seasonal temperature fluctuations, leading to higher sales prices for Calpine.
Business Financials
In 2009, CPN posted total revenues of $6.6 billion, a significant decline from its 2008 total revenues of $9.9 billion. However, this large decline in revenues did not have a negative impact on CPN's net income. Between 2008 and 2009, CPN's net income increased from $10 million in 2008 to $145 million in 2009.
Trends and Forces
Utilities Regulation Can Affect Calpine's Energy Prices
Calpine's margins are further affected by the regulation of electric utilities in the U.S. and Canada. Regional governments set electricity prices to ensure both profitability for utilities companies and accessibility for all consumers. Because of utilities regulation, the prices that energy companies charge the utilities companies must be low enough for the utilities to make a profit; this leads to price competition and depressed margins for the whole energy industry. Calpine remedies this problem by selling energy that is considered "cleaner" than many other types; natural gas does not emit the particulate pollution that coal and oil do, and it has no dangerous wastes, like nuclear. Geothermal energy is almost completely clean. With cleaner electricity generation methods, Calpine can compete based on electricity users' preferences, as well as on regulatory grounds; without the need to install costly scrubbers and filters, it can sell electricity for slightly cheaper than its coal competitors.
Calpine's Use of Natural Gas Makes it Regionally Competitive
Utilities regulation can vary by region, depending on electricity use patterns and the dominance of certain energy sources. Calpine's main markets are in the Western U.S. and Texas, where electricity use tends to come in peaks and valleys because of temperature changes depending on season and time of day. These regions tend to see higher set electricity prices, making natural gas plants useful; though gas is more expensive than most base-load plants, it can be used to provide variable amounts of energy, allowing Calpine to reduce production (and costs) when demand is low. This allows the company to maximize the price at which it sells its electricity.
Legislative Support for Renewable Energy Makes Calpine's Geothermal Plants More Competitive
State governments across the U.S. are implementing legislation to encourage alternative energy production, due to political pressure from public concerns about climate change, oil prices, and energy independence. Twenty-six states have set Renewable Portfolio Standards that set varying targets for the amount of energy to be obtained from renewable sources by certain dates. California, where all of Calpine's geothermal facilities are located, has targeted reaching 20% renewable energy usage by 2010[4]. What this means is that there is now a "premium" on the price of all energy that comes from renewable sources in California, including Calpine's geothermal plants. Electric utilities are scrambling to reach the allotted mix, and Calpine has benefited both from the growing demand for renewables and the hike in geothermal energy prices caused by it. In February 2008, for example, the company made a deal to sell 175 MW of geothermally-produced electricity to western utilities powerhouse PG&E - a deal that will bring the ratio of PG&E's renewable electricity contracts to the required 20%[5].
Climate Change Regulations Have the Potential to Increase Calpine's Costs
Despite the climate-friendly nature of Calpine's geothermal plants, with just 725 MW[6] out of 24,000 MW[7], they amount to just about 3% of Calpine's total energy mix. The rest comes from natural gas, which is cleaner than coal or oil in terms of particulate emissions but still emits large quantities of greenhouse gases. In the event that the U.S. government, or individual state governments, levy carbon emissions limits, Calpine's operations will be significantly compromised. For this reason, Calpine actively lobbies against carbon control initiatives.
Competition
As an energy company, Calpine faces a wide range of competitors.
Pacific Gas & Electric - PG&E is a utilities companies that provides electricity to 5.1 million customers and gas to 4.3 million customers. It owns nuclear, hydroelectric, and fossil-fuel power plants with a total generating capacity of 6,271 MW[8].
Dynegy - With 19,156 MW of natural gas-powered capacity, Dynegy's youth (it incorporated in 2007) has not stopped it from expanding operations across thirteen states[9].
FirstEnergy - FirstEnergy's holdings include eight electric utilities that operate in Ohio, New Jersey, and Pennsylvania. Its total generating capacity is 14,127 MW, 54% of which comes from coal, 28.5% of which comes from nuclear, 10.9% of which comes from oil and natural gas, 3.3% of which comes from hydroelectric, and 3.3% of which comes from the company's interest in Ohio Valley Electric Corporation[10].
As one of the few major geothermal operators in the U.S., Calpine competes with:
Ormat Technologies - Ormat is the only pure-play geothermal energy company in the U.S., and had 407 MW installed.[11]
Chevron - With an installed geothermal capacity of 1,273 MW in Indonesia and the Philippines, Chevron supplies 13% of the global geothermal energy supply - and is the largest private geothermal energy company in the world[12].
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