case studies

Maximizing Value in the Face of Wind Energy Disruption

In 2018, following the acquisition of several gas generation plants on Long Island, an international merchant power company faced a tough decision in the wake of New York's Governor announcing a massive 9,500 MW wind energy project off Long Island's northeast coast. With fear of insolvency and dramatic erosion of asset values, they reached out to ArrowHead, whose custom-tailored models showed that an alternative, profitable, outcome was achievable.

altMaximizing Value in the Face of Wind Energy Disruption

Challenges

  • 01

    New Competition

  • 02

    Supply & Demand

  • 03

    Asset Management

In 2018 the Governor of New York had revealed plans to develop over 9,500 MW of offshore wind energy off the northeast coast of Long Island, with the intent of supplying power to Long Island itself - the same market that the Merchant Power Company had profitably serviced for many years.

The additional 9,500MW being delivered to the grid was set to provide Long Island with a surplus of power, thereby driving prices down and decreasing margins for all the power producers in the region.

Fearing that their assets might become worthless, the international merchant power company urgently sought to determine a "fire sale" selling price for their gas plants, which they believed could be as low as zero. They needed expert guidance to assess the situation and make a critical decision.

ArrowHead's primary task was to evaluate the impact of the planned 9,500 MW of offshore wind on power prices in Long Island and the broader Northeast region.

The solution

The results spoke for themselves, and the company reaped the rewards of their analytics-driven decision-making. By relying on the model's price trends, they retained ownership of their plants and continued to receive good operating times, good revenue- and margin-recovery and thereby to retain their high value. Rather than selling them at fire sale prices, they kept them and realized the hundreds of millions of dollars in profit that the new owner (not they) would have reaped. It made hundreds of millions of dollars for their shareholders.

Results and Benefits

02

Price Forecasting

ArrowHead also calculated the "capacity price,"—the fair market value of capacity—which provided the Power Company with a clear benchmark for their assets' worth. Remarkably, these capacity prices remained firm on Long Island despite the substantial injection of wind energy.

Results and Benefits

03

Decision Analysis

ArrowHead also calculated the "capacity price,"—the fair market value of capacity—which provided the Power Company with a clear benchmark for their assets' worth. Remarkably, these capacity prices remained firm on Long Island despite the substantial injection of wind energy.

Results and Benefits

04

Outcome

ArrowHead also calculated the "capacity price,"—the fair market value of capacity—which provided the Power Company with a clear benchmark for their assets' worth. Remarkably, these capacity prices remained firm on Long Island despite the substantial injection of wind energy.

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