What prompts me to write about PE is its current relation to investments in the energy arena. According to one authoritative estimate by Cambridge Energy Research Associates (CERA - which has been so opposed to Peak Oil theory, but which also does quite good work in other areas), the U.S. electric power sector will require about $800 billion of new investment by 2020. By way of comparison, the current net book value of the U.S. power sector is about $700 billion. So right away, the discerning mind can figure out that it will require significant outside investment to keep the lights on in the U.S. over the next 15 years. Much of that new investment will probably come from PE.
Private equity and energy: proposed TXU takeover
One large deal that is in the news is the proposed, $45 billion-plus takeover of the Texas utility TXU by a group composed of PE players KKR and Texas Pacific Group. The PE players want to take TXU private, and run the power houses and distribution channels themselves. The interesting angle of the takeover is an “environmental” play, as well as a financial offer for the stock. That is, the PE group is promising to cancel up to eight proposed pulverized-coal power plants that TXU has previously announced its intent to build. By changing TXU’s management and strategic direction, the proposed PE takeover will focus on using a mixture of conservation methods and new, more “green” generating capacity, to lower the impact of TXU power-generating activities on the environment in general and the atmosphere in particular. Will it work? I suppose that anything can work, if the management and funding are present. And anything can fail to work, where the will, ways, and means are lacking.
MoneyWeek
