In a world where credit is suddenly hard to come by, a lot of projects become difficult to finance. I can hardly think of a greater headache today than trying to fund a multibillion-dollar nuclear power plant.
But there's another way. Existing assets are suddenly available at fire-sale prices, thanks to the market's recent death-defying drop. As a consequence, the power sector is suddenly consolidating at a breakneck pace.
The first match was made between Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) subsidiary MidAmerican Energy and Constellation Energy (NYSE:CEG). I noted at the time that MidAmerican's "discount entry into the nuclear business may be the most promising part of the purchase." Now Exelon (NYSE:EXC), already this country's dominant nuclear player, is making a move of its own.
NRG Energy (NYSE:NRG) brings a lot more than nuclear to the table. The company is the second-largest power player in Texas, behind the company formerly known as TXU. NRG is pursuing state-of-the-art carbon-capture technologies, and it has a wind farm joint venture with BP (NYSE:BP) in the works. But I still view the company's South Texas Project, which is being expanded from two to four nuclear units, as NRG's key asset, and potentially worth the price of admission all by itself.
Based on statements by FPL Group (NYSE:FPL) a year ago, I estimate that a new two-unit plant could easily exceed $15 billion today. That's more than the entire enterprise value (which includes debt) being placed on NRG today. If Exelon's bid were to prove successful, this would be a major coup for the Chicago-based utility.
Related Foolishness:
- Nukes outdated? Nope.
- This jolt for uranium miners proved short-lived.
- There are still bright spots evident for some players.
