Optimism Abounds at Biggest POWER-GEN in History

Issue 1 and Volume 106.

By: Steve Blankinship, Associate Editor

The 14th POWER-GEN International Dec. 11-13 in Las Vegas broke every event record. Attendance approached 19,000, shattering last year’s record draw by more than 2,000. The fact that this POWER-GEN International was held at the end of a two-year period of economic downturn, amidst a bonifide recession, and following the most horrendous attack on American domestic tranquility in history, makes the record turnout all the more heartening and encouraging.

More than 2,500 people attended the POWER-GEN International keynote session.
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Although worries about the general economic outlook and its implications on the electric power industry were aired, weighed, and discussed at length, it was clear that most delegates and exhibitors believed the inevitable economic upturn would bring with it renewed demand for both new and rejuvenated electric capacity in the U.S. and around the world.

Insight Provided by Keynoters

The keynote session leading off POWER-GEN International 2001 featured Congressman Joe Barton of Texas, Anne Cleary of Mirant California and Mike Barnoski of ALSTOM Power Inc. Barton, chairman of the Energy & Air Quality Subcommittee of the House Energy & Commerce Committee, addressed the ongoing legislative stalemate preventing adoption of a national energy policy, then gave his views of a national restructuring of the electric power industry.

“America is the most powerful nation in the world for two reasons,” said the Texas congressman. “We have the best political system and the most powerful economy. That economy works because we have the most successful energy markets – markets that are the most open and free of any in the world and driven by a market-based system. We want to complement this system with a national energy policy.”

Congressman Joe Barton (R-TX) delivered one of the keynote speeches at POWER-GEN International 2001 in Las Vegas.
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He said that the bill that passed the House on August 4 addresses supply, demand, research and environmental considerations – all necessary components for a national policy. Yet it languishes in the Senate. “I think the Senate is the biggest mistake in the Constitution,” he said, “except for ceremonial purposes when you need someone to speak and look good.”

Barton said carbon dioxide is not a pollutant and if it is, every human is a mobile source polluter. He opposes a four-pollutant bill that includes carbon dioxide controls, but supports a three-pollutant bill controlling mercury, carbon monoxide and sulfur dioxide. “The U.S. is the Saudi Arabia of coal and we must use it,” said Barton.

“Regarding electric restructuring, we must be willing to legislate for the 21st century,” he said. “That includes level playing fields that do away with built-in market advantages historically enjoyed by investor-owned utilities as well as government operated or subsidized authorities, co-ops and municipals.” The House bill for creating a uniform system of electric power deregulation stipulates that co-ops and municipals with interstate transmission capacity will be included under FERC jurisdiction, as will such federal power authorities as the Tennessee Valley Authority and Bonneville Power Authority. Reliability standards will be modeled along those of the North American Electric Reliability Council and national interconnection standards, allowing for net metering.

Cleary, president of Mirant California, challenged the POWER-GEN audience to spread the word about the benefits competitive markets are already bringing to consumers and about the potential for even greater rewards. She said 2001 was a year when many successes of the open energy market were relegated to the back page. “Don’t let 2002 be the same,” she said. “Tell people about our successes.” She said too many pundits say competitive markets have failed. “Wrong,” said Cleary. “Competition has been a success. It would be a shame to let Enron and California define our industry.”

Cleary said California and Enron were less about competitive business markets than they are about the viability of different business models and public policies. “California showed the price you pay when you don’t exercise prudent business practices to hedge and monitor exposure. Enron’s failure was due to investments that went poorly and accounting problems – not due to competitive energy markets.” She said that nations that have put privatization on hold will change when they see our successes.

Cleary noted that more than 75 percent of the new generation capacity is being built in the competitive markets, and since wholesale competition has been introduced, technology has increased efficiency more than 20 percent. She offered the Pennsylvania-New Jersey-Maryland market as an example of competitive markets where consumers have saved $3.5 billion in electricity costs over the years. She said private companies are bringing California out of its problems and noted that Mirant had built and is running plants at record levels. She said private companies free up money for public funding needed for such items as water development and roads.

Mike Barnoski, president of ALSTOM Power Inc., shared with the POWER-GEN keynote audience a supplier’s perspective on the global energy market. He said that over the past 15 years, global power generation growth has been 15 percent. Demand growth was spurred by changing technologies over the decades, such as demand in the 1950s for lighting and home appliances, then surging in recent years with the need to power computers, telecom and Internet requirements.

In 1999, he said, worldwide generating capacity was 3,350 GW, while capacity in 2050 is projected to be 10,000 GW. But net capacity addition will not be the only force driving the industry. Worldwide, about 35 GW is approaching 40 years of operation and in ten years, more than 70 GW annually will hit the 40-year mark. ALSTOM predicts most of the world’s coal and hydro fleet will stay in service with money invested to keep them operational. ALSTOM also foresees a sharp drop in new turbine orders over the next five years, accompanied by a boost in the secondary market.

Retail Competition Settling In

The state of retail competition was discussed in detail during one of POWER-GEN’s two megasessions, Retail Competition: The Good, the Bad and the Ugly. Julie Blunden, vice president of Xenergy Inc. and a co-founder of Green Mountain Energy, reported that Green Mountain and New Power are the leaders in signing residential retail customers in Texas, which transitioned to full retail competition Jan. 2. The state has had a pilot program in effect since summer but glitches in the transitioning system have stalled participation. Although she predicts significant consumer benefits from Texas retail deregulation, it will be hard for providers to make any money in Texas due to intense competition and an excess of generation in a state with virtually no way of wheeling power to other regions of the nation.

Peter Esposito, senior vice president and resident council for Houston-based Dynegy, noted that legislative wheeling and dealing in Texas has left no margin for profits. Start-up costs for new competitors are enormous and the current system lacks allowances for forward contracting, a factor that led to the “black eye” that California got in its failed attempt to create a competitive electricity market. “Deregulation is not by any means what California had,” said Esposito. Noting that most people think it was California’s deregulation that caused electricity to go from 3 cents to 6 cents, he pointed out that it was many other egregious mistakes by California that doomed the state’s foray into competition. All of them led to an uncertain transition environment marked by constant rule changing.

Esposito also expressed concern that FERC, as a result of California’s botched experiment, might move toward the very kind of price control philosophy that scuttled the California effort. “We have seen equipment orders drop ever since FERC started talking about price caps,” he said. “FERC is now talking about price caps across the board.” He added that it appears Georgia is doing deregulation the right way, having successfully deregulated natural gas markets there. He said that model, despite the differences inherent to the gas and electricity industries, needs to be adopted for electricity.

Economic View from the Top

As it always does, POWER GEN International drew many of the power industry’s top executives, and a topic on all their minds was the economy and its effects on the products they make and market.

James F. Wood, president of Babcock Borsig Capital Corp. said, “The recession has masked the serious crunch of electricity in the U.S.” He said that although overbuilding may be occurring in some regions, when the economy rebounds – perhaps in the next year or so – demand will again exceed supply in many areas of the country. Babcock Borsig plans to introduce its Benson boiler technology, already installed on many European coal-fired plants, to the U.S. The Benson boiler, available in both sub-critical and critical configurations, is a single-tube, once-through unit, which has demonstrated installed efficiencies ranging from 40 to 44 percent.

Among issues posing potential obstacles to new U.S. coal-fired generation, Wood identifies labor and project financing. Because two decades have passed without major plant construction, he believes quality craft labor will be hard to find. He predicts that partnerships and alliances might offer one approach to solving labor problems.

“Project financing isn’t going to happen for a while,” said Wood. He believes the most likely prospects for building new coal-fired generation now appear to be the unregulated generating entities with strong balance sheets.

John G. Rice, president and CEO of GE Power Systems, sees changes in the gas turbine market, with the U.S. market expected to return to the more normal level. He said that even GE has been surprised at how long and how strong the growth spurt has been and the company has been preparing itself in the context of a business model for the expected correction. He believes the company’s diverse business portfolio will allow growth in other areas including oil and gas, technologies related to energy management, and various kinds of services.