- Power producer index drops most in more than four years
- Talen Energy leads declines, retreating almost 10 percent
U.S. power generators extended losses on Tuesday amid slumping energy prices and bleak forecasts from analysts.
A Bloomberg index of power producers fell 5.5 percent to 114.45 at the close in in New York, the biggest drop in more than four years. The index tumbled 4.2 percent on Monday.
Owners of fossil-fuel power plants that sell into competitive markets are struggling with sluggish demand, increasing environmental costs and rising competition from solar plants and wind farms. Low natural gas prices are also weighing on the sector, according to Tim Winter, a St. Louis-based analyst for Gabelli & Co.
“You want high prices and volatility if you’re in that sector,” Winter said in an interview. “They’ve got neither.”
Talen Energy Corp. led the decline, slipping 9.9 percent to $10.78. NRG Energy Inc. dropped 6.3 percent while Dynegy Inc. fell 5.6 percent.
"There seems to have been some negative momentum developing associated with a weak commodity environment and an absence of positive near-term catalysts that could lead to lower valuation expectations," said Paul Patterson, a New York-based analyst for Glenrock Associates LLC.
Meanwhile natural gas, a proxy for electricity as the fuel helps set clearing prices, is slumping. Gas futures have fallen about 9 percent on the New York Mercantile Exchange since the end of June, heading for the biggest third-quarter loss since 2011. The futures are hovering at the lowest level for this time of the year since 2001.
"The macro outlook remains challenged" for wholesale power prices, said UBS AG analysts led by Julien Dumoulin-Smith in a research note published Tuesday. Wolfe Research analyst Steven Fleishman downgraded independent power producers on a weak growth outlook, according to a research note published on Sunday.