Steam turbines: Spain, the place to be this year and next


April 11, 2001—The Spanish market for steam turbines is on a turning point. Whereas the power construction market was ailing for more than a decade, the free market now offers a unique opportunity for energy producers to benefit from increasing electricity demand and thus a unique opportunity for steam turbines manufacturers to get orders for the plants to be built.

This situation is happening mainly because of the lucky combination of two factors: advanced stage of deregulation and energy demand boom. The EU’s Internal Electricity Market Directive stipulates 33 percent of electricity sales to be opened to competition by 2003. Other than most member states, Spain already has surpassed this requirement. Both privatized utilities and IPPs are subjected to a competitive market regime including a free-price mechanism. Meanwhile, Spain is one of the most dynamic economies in Europe. It is enjoying a period of rapid economic expansion, with four consecutive years of gross domestic product (GDP) growth rates hovering around 4%. As often happens, Spanish economic growth is accompanied by increasing demand for energy, and electricity in particular.

This increasing need of electricity in the short term stimulates the construction of ‘bound-to-be-profitable’ power plants in the deregulation context where conditions are particularly favorable.

As a result, steam turbines manufacturers can expect lots of orders in 2001 and 2002, especially in the 100-300MW sector. The boost in the construction market is indeed oriented towards Combined-Cycle Power Plants (CCPP) and generally speaking this kind of plant require steam turbines in this output range.

Endesa, Iberdrola and other power companies have submitted so far applications for 26 CCPP facilities, accounting for a total capacity of 17,280 MW. It can not be taken for sure that each plant for which an application has been submitted will actually be built. But according to investors and power plant suppliers, about two-thirds of the planned capacity can be expected to be realized within the next six years. Therefore, we can expect about 17 CCPP of around 650 MW to be built in the coming six years, which represents approximately 17 steam turbines in the 100-300 MW range. Such high demand will impact prices and we have already seen steam turbine prices in the output range of CCPP facilities increase over the last year. This in turn will tend to attract competitors who have not traditionally been active in Spain or Europe.

Concerning smaller ranges, autoproduction in Spain is increasing very rapidly as more companies choose to build their own on-site installations. The quantity of electricity sold to the grid already comprises a considerable proportion of total generation, and is set to increase further still. Most autoproduction is carried out using combined heat and power technology, with some renewables. This should drive below 100 MW steam turbines market at least in the short and medium term.

Finally, in the over 300 MW output range, few orders could be made in the coming years. While the quite new nuclear installed base should not require replacement, orders could happen in other areas, namely super critical power plants that require large steam turbines able to stand very high temperatures.

Frost & Sullivan believes that Spain is definitely the place to be in Europe in the coming years for steam turbines manufacturers with close to $200 million in orders per year.

© 2001 Frost & Sullivan, All Rights Reserved.