Seeing What’s Possible

Arena’s Deals

A collection of stories about Seeing What’s Possible.

Steam Heat

Powering the City of St. Louis

Can a formerly coal-fired power plant built in 1904 be a reliable, economic, and efficient solution for energy in the 2020s? It can with the right funding, technological enhancements, and foresight. This plant on the St. Louis downtown riverfront was created when Theodore Roosevelt was president, later converted to an oil-fired plant, and subsequently overhauled and redeveloped as a natural-gas-fired co-generation facility that simultaneously generates both electricity and steam for heat.

QDQTI___AIR___Success_Stories___Steam_Heat___All Devices___650x300___ILE___2024-06-19 (1)
Y5QCV___AIR___Success_Stories___Steam_Heat___Thumbnail___All Devices___300x300___ILE___2024-06-25B

The electricity from the Ashley Street Power House is sold into the wholesale power grid, and the steam is distributed to buildings through more than 17 miles of piping that runs underneath the downtown St. Louis central business district. This system has heated many of the city's landmark buildings and businesses for more than 100 years and today is the exclusive and sole provider of steam heat to 75 buildings and facilities in downtown St. Louis, including Busch Stadium, the Four Seasons, Marriott and Westin hotels, the Federal Reserve and Federal Courthouse, the Enterprise Center arena, and government buildings of the city of St. Louis itself.

If this plant were to cease operation, the likely alternative for heat for the buildings and facilities on the steam loop would be to entirely refit each with a boiler system, a process both capital-intensive and ultimately less energy efficient than a utility-scale solution. Because the plant is so crucial to downtown St. Louis, it is important to the city that it be operated by a company in alignment with the city’s needs and aims.

In 2015, the city elected not to continue negotiations with the previous owner of the plant for a new service agreement, reflecting the city’s distaste for the lack of alignment and inefficiencies inherent in dealing with a massive foreign utility conglomerate. St. Louis instead gave notice of its intent to exercise and assign a purchase option to a third party, an entity formed by an Arena joint venture partner for the sole purpose of acquiring the option to purchase the plant. Concurrent with the closing of the purchase, the city agreed to enter into a new 20-year service agreement with this new servicer, but the company was seeking capital to fund the acquisition—which is where Arena came in. Arena saw what was possible with this opportunity and provided a $7.5 million senior secured first lien and second lien loan with a term of 3 years to fund the purchase.

Arena itself was aligned with the city’s interests insofar as the plant provides 100% of the power to the city’s buildings within the steam loop. The city is the plant’s largest customer, and should the plant be decommissioned, the cost of replacing the vital utilities it provides to the city is estimated to be more than five times the cost of ensuring that the plant remains viable and profitable under the operation of a city-approved enterprise.

Given such alignment, the repayment of Arena’s loan was implicitly supported by the plant’s intrinsic value and the city’s motivation to maintain a viable plant—but also explicitly supported by numerous payment and performance guarantees. This transaction presented a compelling opportunity for Arena to earn an attractive risk-adjusted return to provide financing on a fully secured, hard-asset-backed basis. Arena is proud to fund investments like this that not only helped a great American city transition one of its most important energy resources to a team that it felt great about, but also helped keep the lights on for dozens of key businesses in the downtown area for years to come.