Must-know: Why Dynegy doubles capacity

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Dynegy’s capacity doubles

After the deal, Dynegy’s (DYN) total generation capacity will double to 26 gigawatts (or GW). As a result, Dynegy’s capacity will be at par with the third largest competitive U.S. generator among the independent power producers (or IPPs)—Calpine Corporation (CPN). NRG Energy (NRG) and Exelon Corporation (EXC) are the top two IPPs. They have a generation capacity of 53 GW and 35 GW, respectively.

Generation

The additional capacity of ~13 GW comes from a combination of gas and coal-fired power plants. The plants are part of the deal.

Duke’s assets

The deal with Duke Energy gives Dynegy access to five coal plants and six gas-fired plants. These plants have a combined output of 6.1 GW.

Energy Capital Partners’ assets

Enterprise Capital Partners (or ECP) sold nine plants to Dynegy. These plants increase Dynegy’s generation capacity by 6.4 GW. Only two of the plants are coal-fired. The rest of the plants are gas-powered. This justifies the higher acquisition price for ECP’s assets.

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Coal plants are more expensive than gas-fired plants. There’s an additional cost for treating emissions from a coal plant. Gas plants are cleaner. Also, a gas-fired plant can manage the output efficiently. This isn’t the case for coal-fired power plants. Gas-fired power plants can easily increase or decrease the desired output levels. However, coal-fired power plants operate at constant output levels. It takes a lot of time to realize any change in output.

Dynegy will become a bigger player after the deal. It will be interesting to see if gets included in the Utilities Select Sector SPDR (XLU).

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