Do Industry Fundamentals Suggest a Strong Recovery?

Issue 3 and Volume 113.

Analysts and executives alike looked ahead to a post-recession world during two days of discussions at CERA Week, the annual energy industry event held in Houston February 9-13.

Some projects are on hold and capital expenditure budgets are being trimmed. Still other investments are underway as companies prepare for a resumption in demand.

With power industry fundamentals strong, could a boom follow the recession? Click here to enlarge image

For example, Alstom is moving ahead with plans for a $280 million nuclear and steam turbine manufacturing plant near Chattanooga, Tenn., although fabrication work on nuclear plant components almost certainly will be delayed due to U.S. nuclear market conditions, said Pierre Gauthier, president of the company’s North American operations.

The company also plans to build a plant in the Midwest beginning this year to produce 2 MW and eventually 3 MW nacelles for what will be Alstom’s entry into the U.S. wind turbine market. First orders for the machines could come in 2011.

“If you look at industry fundamentals they remain strong,” said Jed Bailey, CERA managing director of applied research. He said before the economy went into recession the United States was on the cusp of a new build cycle for the power generation sector. Renewable portfolio standards will continue to drive investment, although some of that spending is being deferred for a year or two. And, long-term baseload demand growth seems likely, even with the recent downturn.

Bailey said the power sector could see some $1.3 trillion in investment over the next 15 years. That’s down from $1.5 trillion estimated at the conference a year ago.

Lawrence Makovich, CERA vice president and senior advisor said that between 10 and 20 percent of planned capital expenditures will likely not be made in 2009. Executives of three utilities outlined capital spending strategies, which included some deferral but also a good amount of uninterrupted investment.

James Miller, chairman, president and CEO of PPL Corp., said his company has cut discretionary capital spending by around $300 million. The company had planned to double the capacity of a hydroelectric plant. That project has been postponed because it “doesn’t bring shareholder value right now.” At the same time, a $1 billion transmission tie line is proceeding, bolstered by favorable regulatory treatment.

Ralph Izzo, chairman, president and CEO of PSEG, said his company first announced a $300 million cut in capital spending, but then proposed a $1.8 billion increase, provided regulators agreed to a more favorable regulatory structure.

David Joos, president and CEO of CMS Energy, said the Michigan company would spend $1 billion on maintenance and environmental compliance projects while it would defer another $180 million in discretionary projects for generation, distribution and metering. Even so, those projects remain within the company’s five-year capital spending window, he said.

John Young, president and CEO of Energy Future Holdings, said his Texas-based company’s three new coal-fired power plants rank among the largest new-build programs in the country. Some $200 million in shareholder equity also remains on target for energy efficiency and demand-side management programs. Some of that money will likely support plug-in electric vehicle development. Young said the demand curve for plug-in vehicles is “almost a perfect match” for the state’s wind energy supply.

In an interview with Power Engineering magazine on the conference sidelines, Alstom’s Gauthier expressed concern that when the economy recovers demand will return “with a vengeance” potentially leading to supply chain disruptions. Parts of the U.S. need new electric generating capacity and large portions of the fleet need replacing or upgrading. He said Alstom worldwide has a 30-month order backlog at present. And while U.S. economic activity has slowed, no power projects in Canada have been postponed.

“The fundamentals for power are still there,” Gauthier said. “We may see a bust-to-boom situation.”

One concern expressed at CERA Week was a possible rush to natural gas-fired generation once the recession eases. Natural gas plants are relatively easy to site, have a reputation for environmental friendliness and enjoy relatively low fuel prices, at least for now. Those factors favor early investment in natural gas-fired generation. But concern persists.

“I wouldn’t make a long-term investment in gas assets based on today’s prices,” said Peter Rigby, a director at Standard & Poor’s. He expects demand pressure to come from power generators as well as industrial natural gas users as the recovery occurs, pushing up prices.

“We don’t believe the supply bullishness,” said George Bilicic, chairman of Lazard’s power, utilities and infrastructure business. “We see the long-term (price floor for natural gas) a lot higher.”

Expected greenhouse gas regulation will likely put upward pressure on natural gas prices over a still longer time period. Greenhouse gas costs have yet to be fully figured into the power industry economic model. Those costs could range from $500 billion to $1 trillion, said Jeffrey Holzschuh, vice chairman of Morgan Stanley.

“The industry has a market capitalization in that zip code,” he said.

CERA’s Bailey said rather than ask how long the recession will last, a better question may be what a company’s plan will be when the upturn comes.

The expectation of better economic times seems to be driving at least part of Alstom’s current sprnding plan.

“In the infrastructure business you have to look long-term, Gauthier said. “You have to roll with the punches” and when markets recover “you have to be there.”—David Wagman

Entergy Nuclear Spinoff in “Rolling Readiness” Mode

Entergy said ongoing financial market turmoil and a longer than expected regulatory approval process have led it to take a “rolling readiness posture” with regard to spinning off its portfolio of nuclear generating assets.

“This strategy enables Entergy to execute the spin-off following receipt of regulatory approvals and once the timing is right to access the credit markets, both on acceptable terms,” the company said.

Entergy’s 1,266 MW Grand Gulf station in Mississippi uses GE BWR technology. Click here to enlarge image

In November 2007 Entergy’s board approved a plan to separate the non-utility nuclear business from Entergy’s regulated utility business through a tax-free spin-off of the non-utility nuclear business. Enexus Energy Corp. was set up as a new, independent publicly traded company. Entergy and Enexus also intend to enter into a nuclear services joint venture.

Entergy said key board and leadership positions are filled and regulatory proceedings continue to advance. In Vermont, all scheduled procedural matters have been completed and a decision from the Vermont Public Service Board is pending.

In New York, all scheduled procedural matters have been completed and the administrative law judges said no further formal proceedings are warranted and that enough information is available for regulators to make their decision. In December, the administrative law judges said the parties planned to hold settlement talks. To date, those talks have yielded no agreement, Entergy said.

Also in late December, Enexus put in place a $1.175 billion senior secured revolving credit facility.—David Wagman

SME Adds Gas and Wind to Its Coal-fired Project

Southern Montana Electric Generation and Transmission Cooperative will seek permitting and financing to build an 80 MW natural gas-fired facility on the same site as the utility’s $900 million coal-fired Highwood Generating Station, whose permits have been challenged.

Tim Gregori, SME’s general manager, said that while Highwood has its permits in effect, they are under appeal before a state environmental appeals board. The project will continue despite regulatory uncertainty, he said.

“As with similar projects across the country, opponents have filed multiple appeals of every approval, including the air permit, which has led to significant delays and expense,” Gregori said.

The delays and associated regulatory uncertainty led SME to consider other options to meet its need for power by 2011, when a power supply agreement with the Bonneville Power Administration expires.

“SME has not abandoned the coal-fired plant permit or project, but is considering deferring that project for the time being while it pursues the gas plant option, in order to obtain a power supply source in the near term that will be owned by SME,” he said.

As a result, SME will add the gas-fired unit as well as 6 MW of wind power at the same site as the proposed coal-fired facility. The gas-fired unit will be ready for service by late 2011, he said. SME broke ground on the coal-fired facility this past fall.—Jeff Postelwait

A Generator to Match Resource Variability?

The conventional electric generator has never been ideal for generating power efficiently from wind. Its ability to do it efficiently with water often depends on having the steady flow of it assured with large hydroelectric dams spanning large rivers or in front of large lakes or reservoirs.

One approach that has not yet been applied commercially is a variable input electric generator that instantaneously matches optimum electric output to whatever input wind, tidal or wave power provides. A Vancouver-based start-up firm believes it has a technology that does just that. ExRo Technologies Inc. has developed what may be among the world’s first variable input electrical generators (VIEGs). ExRo believes its technology has the potential to lower the cost of wind turbines while providing double-digit efficiency gains over existing systems designed to maximize wind turbine performance.

In an interview with Power Engineering magazine, Jonathan Ritchey, ExRo founder and chief technology officer, said the variable input generator represents a completely different approach from methods currently used to harness variable energy sources.

“Generators have been designed to be efficient, but only if they get just what they need from the energy source,” said Ritchey. “And renewable energy can’t give them that. No matter what it is, it’s always changing and the two systems don’t match up.”

Instead, the wind industry has tried to adapt to the input-vs.-output mismatch by developing sophisticated pitch and yaw systems and more adaptable and forgiving gearboxes. Ritchey called these “compromised technologies” that don’t solve the problem so much as try to make the best of it.

Ritchey said gearboxes are three to four times the cost and weight of the generator system itself and prone to break down, creating high maintenance costs. He envisions a time when wind farms would operate optimally in many areas with different wind velocities, allowing them to better integrate with other power sources and grids, thereby increasing overall wind penetration.

“We know the industry needs a machine that can handle variability,” he said. “The current paradigm is that a wind generator has one sweet spot, one speed where it runs efficiently.”

One way currently used by utility-scale wind turbine manufacturers to deal with wind’s variability is to couple multiple generators with a gearbox that engages and disengages as wind velocity increases and decreases. This multiple generator approach gives the wind turbine a broader range of efficiency. One manufacturer can put up to six generators on a single wind turbine.

Rather than use multiple generators, however, the variable input generator uses multiple coils in parallel or in series.

“With the variable input generator, you can stack coils in series and get much higher voltages from the prime mover,” said Ritchey. He cites tidal energy as an example of a renewable with extremely low revolutions per minute, often under 10 rpm. Today, large gearboxes are needed to translate such low velocity into energy a grid can use.

“That’s not the right answer,” he said. “Our generator can reconfigure itself, switching from parallel to series and back and forth on the fly to accommodate the load and the prime mover by right-sizing and reconfiguring the machine.” To get high voltage off a slow-moving prime mover, ExRo can expand the number of poles on its generator without expanding the diameter.

ExRo’s approach is to divide the generator into multiple independent generators so they can be engaged and disengaged—not mechanically, but electrically. As the wind picks up and the machine realizes sufficient energy is available, it will engage the first coil set. That results in a little 3-phase generator creating a small amount of back torque creating resistance on the turbine and creating the maximum amount of electricity it can under those conditions. As the wind picks up it will continue to engage in more stages. Likewise, as the wind drops it will disengage those stages.

“This approach is not so much about keeping the power factor as close to your sweet spot as possible as it is staying close to peak efficiency through the whole range of operation, regardless of the application.,” he said.

ExRo plans to design variable input generators for a variety of uses. Beyond that, ExRo wants to go after the portable power market.

“Then we want to go after big wind,” said Ritchey. “That would be the big payoff, but we realize that will take time. It’s a big undertaking.”

The company also wants to explore braking generation for electric and hybrid electric vehicles because it can convert the variable input generator into a motor. “If I want low RPM and high torque, we can do that by placing coils in parallel configuration,” he said.

The company plans a 5 kW field test this spring. “We are very excited to see the results,” he said. “The field testing will show how compelling this is.”—Steve Blankinship

Business Briefs

Mitsubishi Heavy Industries signed an agreement with GE to study co-developing steam turbines for combined-cycle gas turbine power plants. The companies will integrate their technologies under the co-development and will aim to create a new generation steam turbine with high performance and high reliability. After closing the agreement for CCGT steam turbines, the companies plan to study co-developing a new steam turbine for nuclear power plants.

Sempra Generation completed its first solar energy project, a 10 MW photovoltaic power-generation facility adjacent to the company’s existing 480 MW El Dorado Energy power plant 40 miles southeast of Las Vegas, Nev. El Dorado Energy Solar is one of the largest operational thin-film, solar-power projects in North America and uses more than 167,000 solar modules on 80 acres of desert property. Sempra has entered into a 20-year power purchase agreement for the project’s entire output with Pacific Gas & Electric.

Utility regulators in North Carolina approved Duke Energy’s plan to place solar panels on hundreds of rooftops in the state. The $50 million plan will help Duke meet state requirements to generate electricity from renewable energy sources. Duke expects to generate 8 MW from panels at up to 425 sites within two years. Duke had already cut in half its original $100 million, 16 MW solar rooftop plan after objections from the utility commission’s staff that represents consumers.

PCL Construction Services Inc. won a contract to build a 600,000 wind tower manufacturing plant for Vestas in Pueblo, Colo. The new facility is slated to open later this year. Vestas opened its first North American facility earlier this year in Windsor, Colo. The Pueblo project is one of four Colorado production facilities and represents a $3 million capital investment. Vestas plans two other Colorado facilities to produce blades and nacelle assemblies.

A federal court has ordered the Tennessee Valley Authority to install scrubbers on six boilers at its Widows Creek plant, TVA’s second-oldest coal-fired station. The scrubbers will cost TVA at least another $158 million on top of more than $3 billion of pollution controls already planned by the federal utility.

Luminant and Mitsubishi Heavy Industries Ltd. formed a joint venture to develop Comanche Peak Units 3 and 4 using MHI’s US-Advanced Pressurized Water Reactor. The joint venture, known as Comanche Peak Nuclear Power Co., will fund project development costs before the combined license is issued. The joint venture will work toward licensing Units 3 and 4, each of which will be capable of producing 1,700 MW. Under terms of the joint venture, Luminant holds an 88 percent ownership share in the company and MHI has a 12 percent stake.

Personnel & Promotions

Richard M. Rosenblum became president and CEO of Hawaiian Electric Co. effective January 1, replacing T. Michael May, who stepped down as president and CEO in August. Rosenblum was formerly senior vice president of generation for Southern California Edison.

Timothy S. Laughlin has been named senior vice president in Sargent & Lundy’s fossil power technologies group with responsibility for the direction of new generation, retrofit and environmental services projects for several clients. Thomas J. Meehan has been named senior vice president in the fossil power technologies group, responsible for environmental retrofit projects. Steve R. Raupp has been named senior vice president in the nuclear power technologies group, responsible for power uprate and nuclear plant modification projects for several nuclear plants served from the Sargent & Lundy Chicago office.

Mike Rencheck, formerly senior vice president and chief nuclear officer for AEP’s Cook nuclear plant, has been named president and CEO of Areva NP. Prior to joining AEP, Rencheck was director of nuclear engineering and projects for Florida Power’s Crystal River nuclear station and earlier held nuclear operations positions at Public Service Electric & Gas Co.’s Salem nuclear station and Duquesne Light’s Beaver Valley power station.

Joseph N. Jensen has been named senior vice president and chief nuclear officer of AEP’s D.C. Cook nuclear plant, replacing Mike Rencheck.

Construction & Contracts

Wisconsin Public Service Corp. and enXco reached an acquisition and sale agreement for the 99 MW Crane Creek Wind Farm to be built in Howard County, Iowa. In the turnkey transaction, enXco will build the farm and turn it over to WPS. enXco will operate and maintain the 66 turbines, including 24/7 remote monitoring from its operations control center in Minnesota.

American Superconductor received its first order for a D-VAR system to meet dynamic reactive compensation requirements for a 220 kV transmission grid in Chifeng, Inner Mongolia, China. Reactive power compensation is necessary to stabilize voltage, relieve power grid congestion, improve electrical efficiency and prevent blackouts in power grids. AMSC expects to deliver the D-VAR system by mid-2009.

Interstate Power and Light said Iowa regulators set a lower return on equity and a lower construction cap than it requested to build the 649 MW hybrid coal-fired Sutherland Generating Station Unit 4. Iowa utility regulators set a return on equity of 10.1 percent. They also set a cost cap of $2,816 a kilowatt, excluding allowance for funds used during construction (AFUDC). The utility had asked for a 12.55 percent return on equity and a cost cap of $3,483 a kilowatt, excluding AFUDC.

Emerson Process Management received a contract from Basin Electric Power Cooperative to digitally automate its new 385 MW Dray Fork coal-fired plant in Gillette, Wyo. In total, the new system will manage more than 4,600 hard I/O points.

Babcock Power subsidiary Thermal Engineering International received a contract from Zachry Industrial to convert existing condensers, previously used in steam cycle gas/oil boilers at Topaz Power Group’s Barney Davis and Nueces Bay Energy Centers’ combined cycle gas units in Corpus Christi, Texas. The work includes modifying existing condensers, replacement of titanium tubes, new steam bypass lines, LP steam admission line, cathodic protection systems, new vacuum deaerators and main vacuum pumps. The new units will be rated at 679 MW and 677 MW peak capacities and go into service next year.

Siemens Energy will provide a turnkey 345 kV GIS substation for the 620 MW Kleen Energy combined cycle power plant in Connecticut along with the major rotating and plant control equipment for this project under separate contracts. The new plant needed the new substation to tie into existing transmission lines. The contract is valued at more than $26 million.

Mergers & Acquisitions

Covanta Holding Corp. purchased two biomass energy facilities from Ridgewood Maine LLC and Indeck Energy Services. Covanta acquired the two nearly identical facilities, in West Enfield and Jonesboro, Maine, for around $52 million. The acquisition adds 49 gross MW to Covanta’s renewable energy portfolio, bringing its biomass facilities to a total of eight.

Enercon Services Inc. acquired NISYS Corp. Inc., an engineering and consulting firm located in Duluth, Ga., that will become part of Tulsa, Okla.-based Enercon’s power generation services group.

Constellation Energy reached a definitive agreement to divest the majority of its London-based energy-related commodities business to Goldman Sachs. The sale is part of a plan to increase Constellation’s liquidity and reduce collateral requirements. Constellation is also pursuing the sale of its Houston-based downstream natural gas trading unit.

Siemens has informed Areva it will exercise the option to sell shares of Areva NP’s capital, 34 percent of which have been held by Siemens, thus ending all share capital ties. Once the transaction is completed, Areva NP will be a wholly-owned subsidiary of Areva.

Zachry Holdings has completed acquisition of Southerland Associates, an engineering, construction and fabrication services company based in Charlotte, N.C. The acquisition allows Zachry to develop a regional employment and craft training center in Charlotte to be in full operation early this year.