In the Period 2001-2010

The feverish pace of gas turbine orders has been ongoing for a few years now, and it shows no signs of weakening. The worldwide market is healthy and shows substantial signs of confidence, while the industry itself continues to reorganize. ABB has exited the power production business altogether after a brief period in which it teamed up with Alstom. Now ABB is entirely out of gas turbine production, focusing on what it perceives as higher value segments such as control systems and software for the plants themselves. Alstom Power has picked up the entire product range of what consisted of its own products as well as of those put together by ABB in Sweden and Switzerland.

Meanwhile, GE continues enjoying an unprecedented amount of success in both North America and overseas – so much so that it felt comfortable about cutting Dresser-Rand loose as a packager. GE has acquired Stewart & Stevenson and Nuovo Pignone, and if it fully acquires Honeywell, it will have gas turbine products whose power range starts at 75 kW.

As for Siemens and Westinghouse, the merging of the two cultures appears to have taken place rather smoothly, with each taking advantage of their combined expertise in both gas and steam turbines, which can be plugged in the cogeneration market quite effectively in this age of getting the most for your money with optimum investment.

Two trends stand out in the current power generation market with regard to the equipment size. On the one hand, there is a trend for units of 125-180 MW and larger that generate electrical power for a community, taking advantage of the sheer volume. On the other hand, there is the trend for independent power production spurs the construction of localized, small-to-mid-size power generation units of up to 50 MW. At the low end of the power spectrum are the microturbines and mini-turbines, gas turbine machines whose power outputs are 20 kW to about 450 kW.

This new product group of microturbines and mini-turbines will rapidly gain in importance over the coming years. Since power generation is moving increasingly toward the end-user as a result of industry deregulation, the end result is that the old-line utilities will have more competition and less and less control over where the users draw their power from. Microturbines appear to be a near-ideal solution for installation in private residences and in small businesses tha need continuous power at the lowest possible price.

While gas turbines are clearly in the eyes of the public in today’s world, new technologies even beyond microturbines/mini-turbines are emerging, most notably fuel cells, some of whose power outputs start at 1 kW for residential use. In addition, we should not "count out" electrical power generation by nuclear power plants. Both fuel cells and nuclear plants produce virtually emissions-free electricity. Also, the use of coal as a fuel has recovered its image, especially given the advances in the Clean-Coal arena.

Overall, in the decade extending through the year 2010, Forecast International projects that over 18,800 gas turbine machines (outside the microturbine/mini-turbine arena) will be built for electrical power generation, with those machines having a value in excess of $364 billion. O the 18,800+ machines, General Electric is projected to have at least a 42-percent share of total units produced. We foresee gas turbine production reaching a peak in the year 2006, then dropping by about 10 percent through 2010. However, we also expect that the total units produced in 2010 will be 16 percent higher than those produced in 2001.

Some General Comments

Not too long ago, America woke up and realized that it was running out of electric power. With a growth in the population, a multi-fold increase in electrical power-hungry electronics, and a long cycle of hot summers and warm winters, demands on the providers of electric power have grown almost astronomically. The providers of electrical power had long believed that if we all practiced energy economy, they would not have to add new capacity in the form of power plants. Well, time has told the tale: energy shortages in California have forced blackouts at the worst, and brownouts/ rolling outages at the best; environmentalists and other unenlightened citizens have campaigned against new nuclear power plant construction and upgrading/ uprating of the current 100+ current plants; power is being procured (when available) from sources farther and farther away; and the conventional and seemingly always reliable hydroelectric-generated power is not too effective if there is a meager snowfall total in the winter. The overall power need now spans the gamut of generation, from base-load to peaking to stand-by.

When the need becomes critical, new electrical power generation capacity can come from several sources: fossil-fuel-burning machines, such as gas turbine machines (including microturbine and mini-turbine machines of under 200 kW) and diesels; hydroelectric; nuclear; solar; wind; from conventional power plants that burn coal, food waste and bagasse; and from other much more exotic means such as geothermal, ocean currents, and fuel cells.

Fuels cells, despite their immense appeal by virtually eliminating harmful emissions, are still considered to be in the demonstration stage, but we feel they will be here in large quantities from about 2008; wind power, while commercially available, is not available everywhere, its overall efficiency is about 50 percent, and it is expensive in the near term on a dollar-per-kilowatt-hour basis; nuclear power plants and hydroelectric plants are very expensive and require a very long period of hearings, financing, approvals, and construction; solar power is very appealing, but it’s somewhat akin to wind power – it is not available everywhere, and it too is expensive on a dollar-per-kilowatt-hour basis.

What’s left? Well, not too much. Above the level of microturbines and mini-turbines whose efficiencies range about 20-28 percent, those which we consider to be true gas turbine machines range in power output from about 200 kW to the super-high-power machines of 250-350 MW. Today, gas turbine machines have simple-cycle efficiencies of at least 30 percent and some are approaching 45 percent in simple-cycle, and some are at 60 percent in combined-cycle.

Production of gas turbine machines above 200 kW for electrical power generation has followed a sine-wave pattern in the recent past: it ramped up to a then-high in 1996, dropped slightly in 1997, more in 1998, and then had a hefty growth in 1999 and 2000. We estimate that gas turbine machine production in 1998 was just over 750 machines; production in 2000 is estimated at just over 1,200 machines. Looking just at North America, production of gas turbine machines ranged from a pitiful 20 or so machines in 1996 to about 600 machines in 2000. We see total worldwide production rising to about 2,075 machines in 2006, and then dipping to about 1,875 machines in 2010, and then dropping for a while until the new capacity/capacity increase sine-wave pattern takes effect. Also, at about that time, microturbines/mini-turbines and fuel cells will have become commonplace. The sine wave should be stretched out in comparison to the previous wave.

What have we seen in the past? While gas turbine machines continue to be ordered and fabricated for electrical power generation by their normally intended end-use type of service (continuous duty, stand-by duty, and peaking duty) the lower-powered gas turbine machines, those up to about 3.5-4 MW, have traditionally been employed in stand-by duty. As we move up the power spectrum, the normal-use shift toward continuous duty becomes more noticeable at the power level of 20-30 MW. At the power level of about 120-125 MW and larger, virtually all gas turbine machines ordered are intended for continuous generation duty. That trend seems almost inviolate, and we expect it to continue for the near term.

Given the urgent need for new baseload capacity as well as for current power plant capacity additions, Forecast International feels that the worldwide demand for the latest-technology, high-technology gas turbine-based power plants will result in the increased production of the super-large gas turbine machines, those of 180 MW and larger. Production of those machines could grow from over 110 machines in 2001 to 200 machines per year in the 2009-2010 period. Several regions and countries are likely to be the main procurers of these mega-machines, including China, North Korea, and the Middle East, and the Mercosur nations.

With combined-cycle installations approaching and just about touching 60 percent for net plant efficiency ratings, we do not believe that gas turbine machines will continue to get larger and larger in terms of power output. With a gas turbine machine having a firing temperature of about 2400°F (1316°C), we were at about a 56 percent level in net plant efficiency in combined-cycle configurations; at about 2500°F (1316°C), we were at about a 57.2-57.3 percent net plant efficiency; and at about 2600°F (1427°C), we were very close to a 60 percent net plant efficiency. Any technological advances above that 60-percent level will be small, and incremental, and will take more time to be introduced – but they will be introduced. What is "left" to do or accomplish with the gas turbine machine itself, we feel, falls into the areas of yet-improved combustion, more exotic heat-resistant alloys, improved metallic- or ceramic-based blade and vane coatings, more sophisticated cooling schemes, improved steam/ water injection techniques, and increased use of fuel preheating. It should be noted here that some advances, however, can take their toll on the gas turbine machines, actually placing the machines under even greater stress.

A great concern with the newer technology machines is that early and often well-publicized failures can and have caused the OEMs to suffer in terms of cost, delays, and reputation. So, when the OEMs come out with another new product or product improvement, they do so under an atmosphere of intense scrutiny.

Here is a facet of the gas turbine industry that we believe will gain momentum: utilizing "used" gas turbines for to satisfy an urgent requirement for new peaking capacity. Using gas turbine machines fabricated for other projects could be a viable option as it would dramatically shorten a project’s development schedule. An example of this scenario is when a power plant in Georgia, needed gas turbine generators for operation in the summer of 2000, it bought three 50 Hz machines that had been operating in a power plant in Argentina. GE Aeroderivative and Package Services converted the three machines from 50 Hz to 60 Hz operation. Another example is Colorado Springs Utilities which, in order to get around the increasingly lengthening time from order to erection of new gas turbine machines, acquired two new GEPS Frame 6B machines that were in storage for about six years.

What’s going to happen with the number of gas turbine manufacturers? The number of primary players in the gas turbine industry, while continually fluctuating, will likely decrease. Streamlining of the number of firms has already taken place: Siemens acquired the Westinghouse gas turbine line; AlliedSignal took over Honeywell but has kept the Honeywell name (the Vericor Power Systems joint venture with MTU has assumed the turbine machine-building responsibilities); Alstom has bought out the ABB Alstom entity; GE has absorbed the Stewart & Stevenson and Nuovo Pignone packaging operations, all the while disassociating itself from Dresser-Rand; and Rolls-Royce acquired Allison (though not too easily). Among the major or near-major gas turbine manufacturers that are still "out there" are Pratt & Whitney Power Systems (PWPS), Fiat Avio and Honeywell. And, as we all know, GE is feverishly trying to acquire Honeywell in a manner that will be acceptable to all parties in North American and Europe. Perhaps Fiat Avio or/and Pratt & Whitney Power Systems (PWPS) is being eyed as an acquisition. Maybe PWPS or UTC will buy Honeywell.

A Look at the Competitive Environment

In the decade extending through the year 2010, Forecast International considers the following to be key factors in the Gas Turbine-Powered Electrical Power Generation marketplace.

Gas is the Deity. Natural gas continues to be the fuel of choice for new power generation applications worldwide, and we are seeing an increasing amount of old coal-fired plants being converted to burn natural gas. The environmental advantages of natural gas versus coal are overwhelming, and, as such, it is not surprising that virtually all new electric power generation facilities being built have specified natural gas as their primary fuel (we should say here that CNG/LNG also has become a major first-choice in some plant designs).

And the "Boom" Goes On. The US will continue to witness a dramatic, near-astronomical growth in power generation capacity over the next few years. The rush of orders for gas turbines is expected to be so high that, for some gas turbine manufacturers including GE, Siemens and UTC PWPS, their production lead-times for select models will continue to be two to three years.

As for the other parts of the world, the Asian region has yet to fully recover from the dismal conditions of 1997/98. Countries whose economies are in various stages of recovery include Japan, South Korea and Malaysia.

European economies are in a growth stage, and further buildup will come once deregulation is fully implemented. The former "Eastern European" market has yet to as buoyant as expected a few years ago, but rebuilding and expansion of this region’s power generation infrastructure will be truly formidable.

Central/South America will be one of the "silent giants" in terms of market potential for power generation. Unquestionably, chief among the countries in this region that need huge amounts of new electrical generation are Brazil and Mexico.

Efficiency Improvements Driving Market. Large industrial machines – 180 MW and larger – are already breaking the 38 percent simple-cycle efficiency mark. Natural-gas-fired combined-cycle installations powered by high-efficiency machines have net plant efficiencies approaching, if not exceeding, the 60 percent mark. The recent wave of 40-45 MW aeroderivative gas turbine machines have simple-cycle efficiencies quickly approaching 45 percent.

Combined-Cycle Plants Rule. The commercial acceptance of Industrial Generation Combined Cycle (IGCC) is expected to grow, as fuel flexibility and environmental pressures become increasingly important issues worldwide.

Deregulation = Competition = Efficiency. In both the US and a number of other countries worldwide, the electricity industry, including power generation, is in the process of being deregulated. This means that the responsibility for producing electricity is moving downstream to smaller and smaller units, in most cases to Non-Utility Power Generators. This trend also supports the emergence of the more and more "Microturbines" and "Mini-Turbines" as well as fuel cells.

NUGs/IPPs. Of prime importance to equipment firms serving the power generation industry is the ability of NUGs/IPPs to offer a financially viable and highly reliable alternative to central station capacity. At the same time, retail and wholesale customers have become increasingly market-savvy regarding the price and availability of different power options.

Deregulation Makes Power Exportable. Increasing amounts of power are being obtained from power producers outside one’s own national borders. At the current time, up to about 25 percent of new power projects being built are independent power producers (IPPs).

Reliability of Power Supply Key in New Market The infrastructure for the delivery of power from the producer to the consumers is being strained by the increased competition in the supply side of power. In most countries the networks have not been built with multiple producers in mind, and certainly not to accommodate the volumes being demanded year by year. Distributed power generation does alleviate some of the transmission issues, bringing the production site closer to the end-user, but the network in most cases still is going to need reinforcement and rebuilding. Also, the issues of interconnecting IPPs to networks originally built for major utilities are yet to be fully resolved in countries that are undergoing deregulation.

Corporate Consolidation. A number of primary players in the gas turbine industry are being reshuffled in order to improve their financial performance. Streamlining of the corporate focus is being exercised across the board, with Westinghouse getting out of the power business in favor of Siemens, and more recently Honeywell, which took over former AlliedSignal, distancing itself from gas turbines as well (the Vericor joint venture with MTU has assumed those responsibilities).

Polarized Order Pattern. With the realization that the current supply of power generation facilities may be inadequate to meet the projected demand for electric power in the next two decades, many utilities worldwide have ordered gas turbine machines and multi-machine electric plants. A very popular power class for machines is large machines with power outputs of 125-180 MW, with a large share of those machines being used in a cogeneration capacity. Many machines will be acquired by independent power producers (IPPs), and the majority are for efficient combined-cycle plants involving gas and steam turbines with plant outputs of around 500 MW.

A second popular class is for machines of about 20-50 MW. The increasing popularity of decentralized CHP systems of 50 MW or less has made the gas turbine machine a very real alternative prime mover, as opposed to diesel engines.

At the other end of the scale, orders for the lower end of the power band (units 3-10 MW) are also expected to increase about 25-30-percent during the decade.

Key Factors

Independent Power Producers (IPPs). Particularly in the US but also in other markets, both wholesale and retail customers are looking well beyond their regional utilities to obtain power. In this regard, Independent Power Producers are the most rapidly growing source of power. Deregulation and customer choice will continue to strive to drive electricity prices lower and promote the spread of IPPs. In overseas markets, the privatization of national utilities is expected to continue and will bring the natural forces of competition to play to improve market efficiencies.

Fuel Cells the "Next Big Thing." Public awareness of fuel cell technology has increased substantially. Fuel cells, in fact, might be the next major revolution in power generation, picking up where microturbines will likely leave off. In other words, while microturbines will be "just another form of turbines," only in smaller size, fuel cells will bridge the gap by being a truly emissions-less power source while having enough capacity to service applications with steady-state electrical requirements (as opposed to batteries, which are better for backup sources).

Fuel cells are particularly suitable for retail customers such as private households, where the power consumption requirement is 1-2 kW through 3-10 kW. Fuel cells generate power electrochemically from hydrogen or methane, without combustion and without emissions.

Ongoing Globalization. US utilities will continue to acquire regional electric distribution companies as privatization proceeds in other countries. Conversely, utilities and power generation entities abroad will seek to acquire interests in the US. Also within Europe, cross-border activity concentrating power production capabilities in fewer sets of hands is speeding up, thanks to the larger and more self-confident European Union which functions as an excellent framework for companies seeking to optimize their production and distribution capabilities. This trend has been particularly evident in Scandinavia, and is expected to continue there and elsewhere.

Search for New Energy Sources Continues. The search for new oil sources has intensified, particularly in offshore areas. The Caspian Sea region, the Gulf States, and Venezuela are expected to see their share of world oil markets grow markedly in the next 15 years. Some sources feel that global oil demand will grow 2-2.5 percent annually for the next 15 years.

Coal-Power Conversion Picking Up Speed. Coal is increasingly giving way to natural gas in power and steam generation in Europe. Despite this continent’s long tradition of using coal as major fuel source for public utilities, the cleaner burning and more efficient natural gas is used for firing new-design gas turbines of higher efficiencies. Such machines will be procured to repower facilities having older, less efficient units (e.g., Frame 3s, 5s). Repowering is cost-effective and avoids many of the permitting and licensing problems associated with greenfield plants. The coal industry is not disappearing altogether from countries such as Germany, the Czech Republic, Poland or even the UK, but coal is increasingly seen as a major pollutant for whom the time has come to step down. Meanwhile, nuclear power is being abandoned as an alternative energy form because of the perceived risks involved in storing used fuel, thereby leaving the doors wide open to gas turbines.

Although regulated utilities own virtually all potential repowering projects, competitive pressures are expected to encourage non-utility participation in repowering (e.g., IPPs, etc.).

Deregulation, which started in Scandinavia and the UK, is picking up speed all across the continent. In fact, the rising competitiveness of the market is driving the shift from coal to natural gas.

Additional agreements are expected whereby one firm will market another firm’s machines, especially when the agreement includes machines whose power output supplements the other firm’s product line.

For the near term, the generation market should be dominated by large-scale cogeneration facilities in the industrialized nations, notably in Europe, Japan, and the US. Traditional non-users of cogenerated power, the oil and gas industry in particular, have begun to accept the concept for a variety of applications, including enhanced oil recovery, platform electric power, and refinery electric power generation combined with process systems. The deregulation of the energy industry in the US has resulted in a shift of major industries to cogenerated power. This shift allows – along with the advancement of technological developments and conservation – the utility industry to delay the time at which it must add large quantities of new base-load power to the electricity grid in North America. In Europe as well as in the US, steam-injected utility gas turbines should increase dramatically in quantity where combined cycle may be considered too expensive or complex to install. Several GE models use/will use the STIG cycle.

In the standby/emergency power market, the trend is expected to continue shifting to cogeneration, notably in Europe and the Far East, with the US lagging behind. Japan will continue to be a strong market for standby sets and for new cogeneration installations.

A Look at the Numbers

The Gas Turbine-Powered Electrical Power Generation marketplace is composed of distinct submarkets. Some submarkets have distinct subsectors depending on the ultimate use of the machine, such as offshore platforms as opposed to land-based use, and base-load power generation as opposed to peaking duty. Each of the sectors are affected by slightly differing market conditions that become translated into sales activity and eventually into the production of the gas turbine engines/machines.

Gas turbine machine production for electrical power generation in the decade extending through the year 2010 is projected by Forecast International to total 18,883 engines/machines, having a production value of just above $364 billion in 2001 US dollars (excluding microturbines/mini-turbines).

In Table 2 is the Gas Turbine-Powered Electrical Power Generation marketplace in the 2001-2010 period, broken into power classes. (Note: in the power classes identified in the Table, the word "to" means "up to but not including.")

Key Factors, Trends and Issues

In the decade extending through the year 2010, Forecast International considers the following to be key factors, trends and issues in the Gas Turbine-Powered Electrical Power Generation marketplace:

• Technologies. During the next decade, technologies that will rapidly gain acceptance and popularity include coal gasification, pressurized fluidized bed combustion and IGCC.
• New Opportunities. New opportunities abound in the supply and demand for electricity. One need only look at California’s energy problems and note how different it might have been if they had distributed generation on a massive scale -- or less cumbersome regulations.
• Role of Society. Society’s needs will determine energy’s future. Beyond deregulation, a major issue is how best to regulate the electric industry for the long-term benefit of a nation’s people.
• Nuclear Comeback? In the very near future, the much-maligned nuclear power will re-emerge as a serious technology-of-choice for new electric power generation – and several utilities are now examining the conditions and requirements for investments in new nuclear capacity; a few have drafted plans for new power plants fueled by nuclear material. With advances in the design and safety of new reactors, nuclear power’s environmental benefits will finally become realized.
• Microturbines/Mini-Turbines. The world of microturbines/mini-turbines is almost on top of us. These machines, from about 20 kW through about 450 kW, are rapidly available for private homes as well as for small businesses – groups that cannot rely on a public grid. These machines will also be accepted as part of a power package for commercial vehicles, most notably city buses.
• Natural Gas. Natural gas will be the preferred fuel for new central and distributed generating capacity into the 21st century. To "natural gas" we should add CNG and LNG. We should, however, put in a weighty caveat: will we have sufficient volumes of reliable-sourced natural gas to fuel all the gas turbines that will be/need to be built?
• Deregulation. Deregulation, along with its accompanying regulatory and legislative changes, holds the key to today’s widespread innovations in the electric utility industry.
• Company Survival. The companies that will best succeed in the global power marketplace in the next decade will be those that best understand the implications of the current power "game." A few mega-companies will lead the industry.

• New Ways of Doing Business. The demand for electricity will continue to grow and new power plants will be built to provide the power. However, companies that build and supply the plants will need to adopt to new methods of doing business, including buying/building their own pipelines, acquiring upstream and downstream operations, having computerized systems for fuel supply, and even owning/operating their own CNG/LNG oceangoing mega-tankers.