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Reports: Dynegy in talks to combine with Vistra Energy

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In a further contraction of the merchant generation business, two Texas-based independent power producers are negotiating a merger.

According to The Wall Street Journal, Dynegy and Vistra Energy have been in talks since spring 2017. If the purchase deal goes through, it would mark yet another consolidation in the merchant power generation sector, which is facing the challenge of increasing costs to operate power plants.

CNBC reported Dynegy stocks leapt 17 percent on reports of the merger, with Vistra seeing an increase of almost 4 percent.

A combination of forces, including flat demand, cheap natural gas and low renewable energy prices, are putting pressure on merchant generators, making it hard for them to recoup their costs.

According to a study by the Wilkinson Barker Knauer LLP law firm and the Power Research Group, merchant generation funded by private risk capital was once thought of as the future of power generation. Instead, the industry is facing the prospects of more bankruptcies and mergers to strengthen weaker companies.

NRG Energy unit GenOn Industry, with more than 15 GW of power across 18 states, filed for bankruptcy in June 2017. Meanwhile, Calpine’s 2016 profits nosedived by 60 percent from a year earlier.

Dynegy went bankrupt in 2011, and reported a $1.24 billion loss in 2016. Vistra split off from Energy Future Holdings as a part of that company's bankruptcy reorganization.

NRG also eyed Dynegy as a potential purchase earlier in 2017.

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