Asset Valuation, Price Forecasting, and Market Analysis

LEI provides valuation, price forecasting, and market analysis in a broad range of energy and infrastructure industries, including electricity generation, transmission, and distribution, natural gas networks, water and wastewater treatment, mass transit, airports, and highways. By combining exhaustive sector specific knowledge and a suite of proprietary quantitative modeling tools, LEI provides reliable, independent, substantial, and comprehensible valuation-related deliverables. LEI’s modeling approach has been refined over a twenty year period to incorporate state-of-the-art statistical and market dynamic examination techniques when analyzing competitive wholesale markets. Our strengths include an ability to interpret incentive-based rates, quantify potential efficiency gains, relate revenue growth to population, weather, and local economic trends, and identify regulatory and technological risks.

Asset Valuation

LEI deploys economic fundamentals to determine appropriate, defensible ranges for value. LEI applies its economic valuation skills in conjunction with its understanding of the underlying industries to provide for realistic value assessments linked to genuine market conditions – LEI valuations are never “black box”, entirely hypothetical, or based on arcane accounting principles divorced from market realities. Thus, LEI valuations are often used to support various positions during dispute resolution, mergers and acquisitions, tax preparation, and stakeholder communication.

Price Forecasting

London Economics International LLC uses its proprietary models of merit order dispatch and of bidding strategy to provide a variety of energy and capacity price forecasting services. Our extensive modeling experience in markets across North and South America, as well as overseas, enables us to respond quickly to the needs of our clients. Depending on the level of customization required, we generally provide basic price forecasts for key markets in 2-3 weeks. Our involvement is often more far reaching: we work with clients from the initial bid stage through to final financing. This can entail assisting in board presentations, writing portions of the offering memorandum, and supporting the client in presentations to rating agencies.

Tools Employed

Wholesale Electricity Market Models: Using POOLMod, our proprietary pool simulation model; CUSTOMBid, a game theoretic framework which analyzes strategic bidding behavior; real options valuation techniques; and Monte Carlo scenario analysis, our team is able to develop a range of plausible wholesale electricity market outcomes, which we then employ to forecast revenues to generation stations.

Comparative Network Efficiency Calculator: We employ techniques such as total factor productivity modeling and data envelopment analysis to determine the relative and potential efficiency of network industries. These techniques identify the magnitude of potential cost savings for particular networks, and thus the possible upside under incentive-based rates.

Cost of Capital Database: By maintaining an expansive database of industry-wide and company specific betas and capitalization ratios, an up-to-date understanding of market-risk premiums and their application in international settings, and a practical knowledge of hurdle rates employed in actual transactions, LEI is able to quickly and defensible calculate the appropriate cost of capital for any specific investment.

Contract Configuration Matrices: Our detailed understanding of force majeure provisions, minimum credit standards, backstop arrangements, and other contract elements enables us to calculate the value of each element and incorporate it into consideration of the overall transaction, and to suggest more favorable configurations

Indicative Work
  • Assessment of impact of market design/pool rules on revenues;
  • Detailed modeling and regional price forecasts;
  • Risk registry, with attention to role of new entrants, changing fuel prices, and regulatory uncertainty;
  • PPA, bilateral, and vesting contract design, with creative use of options value, locational/fuel arbitrage, and embedded incentives;
  • Quantification of transmission pricing impact on generators;
  • Liaison between developers, financial institutions, power marketers;
  • Valuation of distribution franchises and distribution tariff analysis;
  • Economic valuation and risk assessment of transmission investments and associated transmission rights and derivative contracts.