Is the Merchant Power Producer a broken model?

Deregulated energy markets were founded on the Merchant Power Producer, a stand-alone generator that sold its production to the spot and short-term forward markets, underpinned by long-dated project finance. The initial enthusiasm that existed for investment in existing and new merchant power plant capacity shortly after power system deregulation has progressively dissipated, following an excess entry result. In this article, we demonstrate why this has become a global trend. Using debt-sizing parameters typically used by project banks, we model a benchmark plant, then re-simulate its performance using live energy market price data and find that such financings are no longer feasible in the absence of long-term Power Purchase Agreements. - Highlights: ► We model a hypothetical CCGT plant in QLD under project financing constraints typical of the industry. ► We simulate plant operations with live market data to analyse the results. ► We find that a plant which should represent the industry's long-run marginal cost is not a feasible investment.