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Small mercies

19 November 2008

Does the US power finance market suffer from a crunch-related cold, or something more terminal? In the face of low gas prices, looming carbon caps, and creeping re-regulation, does independent power have a recovery to look forward to? By Tom Nelthorpe.

The credit crunch could be the least of US power finance bankers' worries. An economic downturn and the collateral damage from the collapse of Lehman Brothers could redraw the contours of US power market.

The 2001 economic downturn in the US was a distant memory by the time credit markets hit their 2006 peak. For equity investors, the bankruptcy of Enron, formed, with scandals such as Tyco and Worldcom, part of a broader picture of corporate malfeasance.

For power markets, Enron's collapse was more traumatic, and its effects on the market's structure were much more profound. But the credit crunch has exposed the weakness of this market structure. Meanwhile, newer technologies, which have only really known this post-Enron landscape, may be the biggest sufferers.

The 2001-3 period was marked by distressed asset sales, the withdrawal of commercial banks from large parts of power finance, and a drastic reduction in the...

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