Gas Power Generation Thrives, Turbine Manufacturers Struggle

The amount of electricity produced by gas-fired power generation has been increasing steadily in the U.S. for more than 25 years. The Energy Information Administration (EIA) reports that in 1990 about 372.8 TWh of electrical energy—roughly 12.3% of the total consumed in the U.S. that year—was supplied by gas. Coal generated 1,594.0 TWh (52.5%), while nuclear power contributed 576.9 TWh (19.0%), and conventional hydro added 292.9 TWh (9.3%).

Since then, the amount of power supplied by gas-fired generation has increased year-over-year in all but four years. Yet, even as gas gained market share, many industry observers continued to underestimate its momentum.

As recently as December 2013, the EIA projected that coal would remain the dominant fuel until 2035. However, in April 2015 gas-fired generation exceeded coal for the first calendar month ever. It seemed like an anomaly at the time, and many experts predicted coal would wrest the crown back long term, but that’s not how things have played out. When the year ended, gas’ share of 2015 generation was within a half percentage point of coal. Gas continued its charge through 2016, taking a 33.8% share to coal’s 30.4%. Through the first three quarters of 2017, gas again leads coal, though not by as wide a margin (31.8% to 30.2%).

Difficult Times for OEMs

Considering the trajectory that gas-fired generation has taken, a person might presume that gas turbine original equipment manufacturers (OEMs) would be reaping the rewards, but that’s debatable. Recently, two of the largest OEMs—GE and Siemens—have been forced to restructure their power businesses.

Two years ago, GE completed its acquisition of Alstom’s power and grid business. The deal was considered a wise move by some on Wall Street at the time. A post on TheStreet.com—a website founded by Jim Cramer, the high-profile host of CNBC’s “Mad Money” program—proclaimed the Alstom acquisition was GE’s “best deal in a century.” Cramer himself was quoted in the story as saying, “This acquisition is a brilliant one because the world is going to switch to cleaner power plants, and now GE has a hammerlock on the business.”

In fact, GE wasn’t the only company courting Alstom. Siemens and Mitsubishi Heavy Industries (MHI, the parent company of Mitsubishi Hitachi Power Systems—another big player in the gas turbine market) joined forces to make a strong bid for Alstom too. If their proposal had been accepted, Siemens would have taken on the company’s gas business, while MHI would have formed three joint ventures with Alstom, participating to varying degrees in the company’s steam and nuclear, grid, and hydro businesses.

GE ended up winning the war for Alstom, but the deal hasn’t worked out as planned. During a November 13 presentation to investors, GE CEO John Flannery said, “Alstom has clearly performed below our expectations, clearly.” In late September, GE sold its electrification solutions business to ABB, and a week later GE Water and Process Technologies was sold to SUEZ. The board of directors in November cut GE’s dividend in half—a move that is never taken lightly. On Pearl Harbor Day, GE said that it would reduce its global workforce by about 12,000 positions. The company’s stock price has fared poorly all year, down more than 44% through December 8.

Siemens, too, is struggling. In mid-November, the company announced it would cut 6,900 jobs. It also announced a consolidation plan for its Power and Gas, Power Generation Services, and Process Industries and Drives divisions. The company’s stated goal in doing so was to increase capacity utilization at production facilities, drive efficiency, and enhance expertise by bundling resources.

“The power generation industry is experiencing disruption of unprecedented scope and speed,” Lisa Davis, member of the Managing Board of Siemens AG, said in a press release announcing the changes. “Today’s action follows a nearly three-year effort to right-size the business for this changing marketplace.”

Intense Competition

Yet, Mitsubishi Hitachi Power Systems America (MHPSA) CEO Paul Browning remains optimistic. “Are we looking for ways to reduce our cost structure and be more efficient as we see our competitors doing the same thing? Yes,” Browning told POWER, specifically referring to North and South America, which are the markets he is responsible for, “but I would say it’s more to make sure that we’re maintaining a competitive cost position than it is because we see some fundamental reset in the market.”

Ansaldo Energia is another formidable player in the gas turbine market. It was able to acquire Alstom’s heavy-duty gas turbine business, which included F-class and H-class products, when the European Commission and U.S. Department of Justice forced GE to divest those lines in order to gain approval for the Alstom acquisition. Ansaldo completed the first phase of a comprehensive validation program for its GT36 gas turbine (Alstom technology) earlier this year.

During a recent power-industry conference, MHPS revealed that its M501JAC gas turbine with a combined cycle output of 575 MW had achieved 64% efficiency and 99.5% reliability. Not to be outdone, GE announced that its 9HA.02 gas turbine had also exceeded 64% efficiency and could be quoted with an output of 826 MW in a 1 x 1 combined cycle configuration. Siemens took the opportunity to present a new product—the HL-class gas turbine—to the U.S. market. The HL-class is said to have efficiency greater than 63% “with a clear roadmap to 65%.”

“Efficiency is still a key driver,” Hans Maghon, program director for the HL-class development, told POWER at the event. “When you run a combined cycle power plant, 70% of your cost is fuel, so efficiency is key for the customers.” In this market, efficiency is also key for OEMs, in more ways than one. ■

Aaron Larson is POWER’s executive editor.