EBay finds help to restart Sandy-ravaged power plant
‘A little bit odd’
• At first glance, the power plant located just north of New York City was certainly living up to a name given the surrounding area 400 years earlier: The devil’s dance chamber, or “Danskammer” in t he original Dutch.
It was 2013, and executives from Mercuria Energy Group Ltd., a Swiss commodities house best known for its oil and products trading, were assessing whether to invest in a waterlogged mess of a power plant.
Perched along the Hud- son River, the 60- year- old Danskammer Generation Station took on five metres of water in Hurricane Sandy, and sat unheated and idle through two subsequent winters. Pipes had burst, pumps and motors failed and thousands of kilometres of electrical wiring were ruined. Yet, Mercuria saw promise.
After renovations costing just US$25 million, the company now has the plant operating again, putting it among a growing list of private investors trying to spin new wealth from old power plants as the economic model for big utilities cracks apart.
The investment “isn’t gigantic when you think about the kind of optionality they might be getting out of it in a constrained market like Hudson Valley,” said Paul Patterson, an analyst at New York-based researcher Glenrock Associates LLC.
Mercuria originally got involved as a lender to Houston- based Helios Power Capital LLC, which bought the property for $ 3.5 million after Dynegy Inc. declared bankruptcy in 2012. The trading house took ownership after Helios dropped out of the project in 2014.
The decision to go forward, rather than selling the plant for scrap, wasn’t an easy one for a company with no experience running a power station, according to Marco Dunand, Mercuria’s chief executive.
“At the beginning we felt it was a little bit odd. It’s not necessarily in our core competence,” Dunand said in an interview from his Geneva office. “Our people have freedom to come to us with slightly crazy ideas.”
The plant rises 13 storeys above a bluff overlooking the river. Legend has it explorer Henry Hudson and his crew spied Indigenous Americans dancing around a fire on the site in 1609 and gave the point its devilish moniker.
By the time Larry She, who oversees the plant for Mercuria, arrived in late 2013, the facility had just two employees operating as caretakers.
“There were no lights. It was dark, it was wet,” said She, who is now president of Mercuria’s Danskammer unit. The plant “was left for dead.”
Hundreds of pieces of equipment needed to be replaced, including rare and one- of- a- kind items built more than a half- century earlier, he said. She credits former Danskammer staff the company rehired for scouring the internet for parts and deals.
A used f an motor, priced at $45,000 retail, was found for $8,000 on EBay. Workers travelled to a Connecticut Costco and returned with a shopping cart full of discount laptops.
The bigger picture made the job seem less crazy. Undercut by cheap solar, wind and natural gas, big power companies have retired older plants across the U. S. and Europe in recent years. But smaller, private investors, in turn, have stepped in, betting those units still have value as electric grids adjust to the demise of coal- fired generation and the on- again, off- again nature of renewables.
The l atest example came l ast week when a consortium including private- equity firm Energy Capital Partners and the Canada Pension Plan Investment Board agreed to pay US$ 5.6 billion for U. S. generator Calpine Corp. U. S. energy trader Castleton Commodities International LLC bought a gas- fired plant in The Netherlands in June and also purchased a Hudson River station next to Danskammer.
The trading houses have benefitted from a New York program that pays companies to maintain excess power sources even when they’re not running to ensure capacity during peak demand. Danskammer, for one, gets about $25 million to $35 million a year from the program, according to She. The 500- megawatt facility operates only a handful of days a year, he said, but still makes $10 million to $ 20 million in profit, largely thanks to the capacity payments.
Mercuria also was able to renegotiate Danskammer’s tax bills and environmental permits and, at the same time, gained from a U. S. shale drilling boom that’s driven down natural gas prices. That gave Danskammer a long- term supply of cheap gas, allowing it to switch away from the coal the plant had burned for decades.
Danskammer has its critics. Riverkeeper, a local environmental group, sued over New York State’s decision to allow the plant to reopen without installing more modern equipment to reduce its impact on the river. While the switch from coal to gas is “a step up” for air quality, keeping Danskammer alive will also slow the switch to renewable power that produces less climate-change pollution, said Richard Webster, Riverkeeper’s legal director.
The plant’s environmental impact is limited since it doesn’t operate that often, said Danskammer’s She. The plant currently employs 35 workers, about half its high-water mark before Sandy.
The i mpending retirement of Entergy Corp.’ s Indian Point nuclear power plant farther south on the Hudson stands to make Mercuria’s plant even more valuable, She said. Danskammer sits on the doorstep of the New York City power market and has ready access to natural gas supplies and the regional electric grid. Mercuria could keep booking capacity payments or look to sell out or expand operations.
“We took it from just weeks away from the wrecking ball to a functioning power plant,” She said from Danskammer’s roof, the broad Hudson flowing behind him. “This is a screaming, tangible example of our willingness to get outside of our comfort zone.”