Product details

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Published by: Harvard Business Publishing
Originally published in: 2000
Version: 4 April 2003
Length: 24 pages
Data source: Field research

Abstract

In December 1996, Enron Europe and The Eastern Group were on the verge of signing an innovative transaction in the utility industry. Eastern was going to buy a long-term option to convert natural gas into electricity from Enron, thereby giving it the economic right to operate a "virtual" power station. This structure was vastly different from the traditional independent power plant (IPP) structure, and the executives involved had to convince their superiors of its wisdom before they could proceed. This case was jointly written for Large-Sclae Investment and Corporate Financial Engineering, and covers topics related to both project finance and financial engineering. Illustrates a new paradigm in the electric power industry: the creation of virtual power stations backed by physical power stations with merchant exposure. Illustrates how physical operations (constructing and operating a power plant) can be used to offset contractual obligations and trading exposures.
Location:
Size:
USD100 million revenues, 150 employees
Other setting(s):
1996

About

Abstract

In December 1996, Enron Europe and The Eastern Group were on the verge of signing an innovative transaction in the utility industry. Eastern was going to buy a long-term option to convert natural gas into electricity from Enron, thereby giving it the economic right to operate a "virtual" power station. This structure was vastly different from the traditional independent power plant (IPP) structure, and the executives involved had to convince their superiors of its wisdom before they could proceed. This case was jointly written for Large-Sclae Investment and Corporate Financial Engineering, and covers topics related to both project finance and financial engineering. Illustrates a new paradigm in the electric power industry: the creation of virtual power stations backed by physical power stations with merchant exposure. Illustrates how physical operations (constructing and operating a power plant) can be used to offset contractual obligations and trading exposures.

Settings

Location:
Size:
USD100 million revenues, 150 employees
Other setting(s):
1996

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