Carbon warning on Dynegy, LS merger

London, 29 March: Innovest has warned of significant carbon exposure in the proposed $2.3 billion merger of US power companies Dynegy and LS Power. The new entity would become the US' "largest developer of new coal generating capacity," the advisory firm said. "The carbon risk associated with the merger warrants significant concern for investors."

Shareholders are expected to approve the merger today, creating an entity with 20,000MW of capacity, comprised of 31 power plants in 15 states. The merger would give Dynegy joint ownership of nine projects under development by LS Power, including eight coal-fired plants.

"Global warming presents a major financial challenge to any company proposing to build new coal-fired power plants," said Dan Bakal, director of electric power programs at Ceres, a coalition of investors and environmental groups.

"Dynegy's shareholders should insist upon further disclosure from the company so they can carefully assess the company's carbon risk exposure and plans to mitigate those risks," he added.

The merger would dramatically shift Dynegy's portfolio away from natural gas towards coal and increase its carbon dioxide emissions by 200%, Innovest said.

Innovest estimates that – if the proposed plants are not included in the merged company's emissions baseline – it could face annual carbon dioxide (CO2) allowance expenses of between $624 million and $1.56 billion, assuming CO2 costs of between $10 and $25 per ton.

"Dynegy's plans highlight the urgency for Congress to act swiftly, since power companies have proposed building some 150 coal plants over the next several years," said Peter Altman, who heads the coal campaign at the National Environmental Trust. "Every coal plant built while Congress deliberates will worsen global warming, make Congress' job harder, and put more pressure on other sources to take up the slack to reduce emissions."