Combined Cycle

Global Power Markets

Issue 1 and Volume 102.

Global Power Markets

By Bob Smock, Publisher, PennWell Power Group magazines

The Global Electric Power Industry is Enjoying Rapid Growth, Driven by the Widespread Adoption

of market economies in Asia and other developing nations. Electric power generation and delivery are key infrastructure industries necessary for the development of a modern economy. About 40 percent of the world`s population does not have access to electricity, but now expect it. Growth in electric consumption in these countries is rapid.

Rapid growth started in Asia where it is still strong and is now spreading to other regions such as Latin America. Eastern Europe and the Middle East are showing signs of life.

Worldwide, electricity consumption is growing at the rate of 3.4 percent per year and is the fastest growing form of energy consumption. At that rate, electricity consumption will double by 2015.

Another trend accelerating the global growth of the electric power industry is the shift from state-owned electric systems to privately owned systems. Electricity has traditionally been a government owned and operated enterprise and still is in many countries. Several countries, such as the U.S., have a hybrid system. In recent years many countries that blocked private involvement in their electricity industry have opened the doors, and the flood of private investment has helped drive growth.

Orders for new power generation equipment climbed from a rate of about 60 GW a year in the early 1980s to a forecast rate of nearly double that after the turn of the century. Power generation alone will require an annual investment of about $50 billion.

Asia will account for about half of global power generation orders in the 2001-2005 period, followed by the Americas (North and South), Western Europe, Eastern Europe and MiddleEast.

Some countries are moving to drastic deregulation of their electric power systems, allowing a high level of competition, particularly in power generation. The United Kingdom led this trend, privatizing its power system in 1990 and adopting a competitive wholesale power pool in England and Wales. Several other countries have followed this model and it will soon be used in several states and regions in the U.S.

California and several New England states are scheduled to adopt competitive electric systems in 1998, covering both wholesale and retail sales. This has spawned several interesting developments, such as the rise of merchant power and divestiture of utility-owned generating systems.

U.S. Market

Merchant power plants are independent, non-utility power plants that do not have a long-term power purchase agreement for their output, which is the conventional practice with independent power plants. Development of merchant power started in the UK, moved to other countries that adopted competitive wholesale power systems such as Chile and Argentina, and now is moving to the U.S. Several dozen merchant projects totaling at least 10 GW have been announced in the U.S.

There have been virtually no new power generation projects launched in the U.S. for several years while rising demand has eaten into generating reserve margins to the danger point. Merchant power may break loose the logjam. However, merchant plants are not being built to meet rising demand. They are being built to displace high-cost producers in competitive wholesale power markets.

Merchant developers in the U.S. are building natural gas fired combined cycle plants designed to produce power for less than three cents per kilowatt-hour. They are being built in high-cost regions such as California and New England that are establishing competitive pools which are open to new entrants.

A related trend is divestiture. California and several New England states have strongly urged their investor-owned utilities with strong generation systems to separate their generation and power delivery businesses. Several utilities have chosen to sell off their fossil-fired generation assets. Examples are New England Electric, Pacific Gas & Electric and Southern California Edison.

Regulators in those states feel that utilities with extensive generation systems will exert too much market power on their fledgling competitive pools, so they want them to divest.

The sellers report strong interest on the part of the buyers in their power plant fleets. New England expects to get more than the $1.1 billion book value of its fossil power plants through its sale. Prospective buyers are international energy firms, other U.S. utilities, international utilities, independent power developers and financial firms.

Power Industry Technologies

The most popular generating technology is the natural gas fired combined cycle, followed by conventional coal-fired steam technology and hydroelectric. Choice is driven by fuel or hydro availability in any particular country or region. Nuclear power, largely free of geographic limits, is a distant fourth, but is still being used for new generating projects by a handful of Asian countries, most notably China.

The combined cycle is favored because it offers low capital costs, less than $400 per kW, and high thermal efficiency, currently 55 percent or more. It is one of the most rapidly advancing generating technologies. Gas turbine manufacturers are introducing new designs in larger unit sizes that operate at higher temperatures, which leads to higher thermal efficiencies. They say that 60 percent efficiency is within reach in the near future in the combined cycle configuration.

Automation of electric distribution systems is spreading from the U.S. to Western Europe and, to some extent, Asia. Supervisory control and data acquisition systems, automated mapping, automatic meter reading, substation automation and other new control technologies are gaining in popularity.

Next move will be to automate, or at least improve the control of, high-voltage electric transmission systems. Adoption of competition, and the resulting pressure on transmission system reliability, is requiring much more sophisticated control of transmission system operations than has been common.

Environment

One of the most significant developments in the global power industry is rising pressure to curb emissions related to global warming. The power industry`s emission of carbon dioxide from fossil-fired power plants is an easily identified and regulated source of gases which are building up in the atmosphere and are reputed to cause global warming.

International conferences focusing on global warming are working out compromises between the developing and developed nations, whose disputes have blocked consensus agreements so far. Any compromise is sure to focus on fossil power plant carbon dioxide emission in developed countries.

Several developed countries, chiefly in Europe, are already moving to curb greenhouse gas emission and adopt other policies aimed at dealing with this problem. This environmental issue deserves close attention from all interested in the global power industry. p