Keen to curb corporate debts, Calpine Corp has agreed to sell its 375 MW Mankato combined-cycle gas power plant to Southern Power for $395.5 million plus working capital. The CCGT, located in Minnesota, provides electricity to Northern States Power under a 20-year tolling agreement through July 2026.
Plans to expand the plant’s capacity by a 345 MW are “in advanced development,” according to Calpine, with the additional output also to be sold to Northern States Power, a subsidiary of Xcel Energy, under a separate tolling agreement.
Operational since July 2006, the facility was Calpine’s first project in Minnesota and the MRO NERC region. Powered by a Siemens Westinghouse combustion turbine and a Toshiba steam turbine, the unit has a net baseload capacity of 280 MW which can be ramped up to 375 MW in peaking mode.
Expansion envisaged by summer 2019
No timeframe has been disclosed for the expansion works but Calpine said the expansion will add a gas turbine and HRSG for the incremental steam to boost the plant’s overall production levels and improve efficiency levels. Start of commercial operation of the new unit was initially planned for June 2018 but has been pushed back by one year to June 2019.
“Mankato is a modern, efficient and well-performing plant under longterm contract to the local utility and with an expansion in advanced development. This sale is another step in our capital allocation plan to divest plants in non-core regions when we see an attractive value opportunity,” Calpine CEO Thad Hill said, thanking the Mankato team for its “commitment to operational excellence over the years.”
Selling CCGTs to curb debt, improve rating
Proceeds from the sale will be redeployed toward corporate debt reduction, he said. The transaction is expected to close in Q4-2016, subject to antitrust review and FERC approval.
Moody’s estimates that Calpine has a run-rate of cash flow from operation of $900 million with maintenance and environmental capital expenditure of $120 million, leaving about $780 million of free cash flow before growth capital expenditures against about $12.4 billion of debt. “Unlike its merchant peers with coal or nuclear generation, gas plants have a relatively low level of maintenance and environmental compliance capital expenditures,” the ratings agency stated earlier this summer.