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Is Calpine Developing a Moat?

Growing electricity demand in Texas, environmental legislation in California, federal emissions regulations, and increasing market uncertainty may help Calpine establish a moat.

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Fundamental changes in  Calpine’s (CPN) core Texas and California markets are creating opportunities for it to establish a moat in what we typically consider no-moat wholesale power markets. Above-average electricity demand growth in Texas, environmental legislation in California, federal emissions regulations, and increasing market uncertainty give Calpine’s low-cost flexible-generation fleet a growing competitive advantage and support our positive moat trend rating. We think the market fails to give Calpine full value for the cash flow benefits we think it can realize as power prices rise, plant run times increase, and grid operators offer power plant owners incentives to meet growing demand.

Calpine’s Low-Cost Advantage
Calpine is the largest natural gas power producer in the United States, with 2.5 GW of simple-cycle combustion turbines, 23.9 GW of combined-cycle combustion turbines, and 725 MW of California geothermal generation. Its natural gas generation portfolio is almost evenly split across Texas, California, the Southeast, and the North.

Andrew Bischof does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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