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Calpine ready to go it alone

Despite persistent rumors of various groups working to take Calpine private, it looks as though the company will try to make a go of it alone. The June 20 target to emerge from bankruptcy is fast approaching meaning one window for this decision is about to close, of course, another will open thereafter but the terms and situation will be vastly different.

One has to wonder if the run up in the stock price will be sustained with the changing view point on going private? Will investors be patient enough to see what the impact of Calpine’s relatively clean power can bring on the market? Given that the company has some 25,000MW of generation (700MW geothermal the balance natural gas) it is positioned as a clean energy provider in a time that coal generation is under attack. The company has made progress on restructuring its debt and streamlining its portfolio. But it’s unclear if the resulting company will be consistently profitable.

But is that enough? Prices of natural gas continue to rise squeezing margins. The geothermal bit of the portfolio is very interesting and productive, but is less than 1/25th the entire company’s generation capability. Yes, the fuel is “free”, but the cost of accessing the fuel over the lifetime of the plant is paid up front with exploration and drilling costs. Clean energy will command a premium price, that’s clear. How much of their portfolio can take advantage of that market trend? We shall see.

It’s unclear what Calpine is really worth at this point and we can’t tell if the issue provides good value or not. But, we’ll watch with interest as Calpine emerges from bankruptcy and as we can determine a fair valuation for the company, we’ll share it. Right now, it’s chock full of unknowns and potential upside.

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