If You Can't Beat 'Em, Buy 'Em: TXU Gets an Offer from Green-Friendly Equity Funds

Holy sh*t! This is huge:

Under a proposed $45 billion buyout by a team of private equity firms, the TXU Corporation, a Texas utility that has long been the bane of environmental groups, will abandon plans to build 8 of 11 coal plants and commit to a broad menu of environmental measures, according to people involved in the negotiations.

The roster of commitments came through an unusual process in which the equity firms asked two prominent environmental groups what measures could be taken to win their support. The result is an about-face from the company's earlier approach to climate-change issues, and includes a goal of returning the carbon-dioxide emissions by TXU to 1990 levels by 2020.

Environmental groups said yesterday that they had never known of a financial deal with such an ambitious built-in environmental component.

The "tipping point" concept is cheap from overuse these days, but to me this is the clearest sign yet that we have entered a fundamentally new stage in the fight against global warming. It'll take a while to fully sink in, but here are a few thoughts:

• If it is approved by the TXU board today (Sunday), it will be the largest leveraged buyout ever and the largest ever purchase of an energy company. Even if it were purely a story for the financial pages, it would be huge.
• Fear of litigation and bad PR from environmental groups was a major driver behind the deal. Environmentalism is dead? Somebody should yank Shellenberger and Nordhaus' book deal.
• Who did the equity firms approach about making the project environmentally acceptable? NRDC and Environmental Defense. Green groups like these get grief from hardcore enviros because they work closely with business and favor market-based solutions. They get grief from the Reaper crowd because they're stodgy and technocratic and not hip to the new Apollo Alliance-style "framing." But who's making things happen?
• TXU now has to figure out how to generate 9,000MW of clean electricity. I'm sure they'll spend some dough on IGCC coal plants, but inevitably that's going to mean substantial investments in wind and solar. Economies of scale, here we come!
• This is bigger than TXU. It's about whether it makes sense to build new dirty coal plants in the U.S. TXU was working with a sympathetic governor in a conservative state, and it turned out to make no business or environmental sense for them. Who's it going to make sense for? From this point on, proposed new coal plants will sit under a cloud of financial, legislative, and public relations risk. Even without a price on carbon, which is inevitable, that will make them a volatile and expensive investment.

(On a side note, not to brag, ahem, but I predicted this.)

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