Similarity #7: Transitioning owner/operators
Over the past five years, every surviving merchant gas-fired power producer had to evolve from being primarily a project development company to being an owner/operator of assets. A project's initial operating years typically were covered by LTSAs that made the gas turbine vendor largely responsible for O&M performance—for a price, of course. Later, facilities learned to at least break even by reducing annual production costs, including using non-OEM repairs and replacement components.
Over the next few years, wind farm owner/operators will have to adapt to wind capacity's increasing presence on most transmission grids. On more systems, that penetration will grow from insignificant to noticeable. Some describe this as a maturing of the industry: Wind turbine-generators will increasingly be required to behave like other kinds of power plants. As penetration grows, so too does wind's impact on the grid with respect to voltage regulation, ancillary services, and other grid requirements.
Similarity #8: Nervous insurers
In the mid-1990s, insurance companies became vocal and engaged about advanced gas turbine technology. Industry meetings focused specifically on this issue were organized as some insurers threatened to exit the sector or raise premiums to a degree that created the same result.
In some respects, the LTSA was a response both to the inadequate performance of early machines and persistent claims for damages and business interruption. Now it seems apparent, based on articles in wind energy trade publications, that insurance firms are becoming worried about advanced wind turbine technology.
Similarity #9: Financial engineering
You could spend all night over multiple pitchers of beer arguing whether the investor class drove the gas-power merchant business to its doom, whether overenthusiastic developers ignored the warning signs, or whether inexperienced electric utilities got in over their heads trying to become growth stocks rather than value plays. One thing is certain, however: Wall Street played a big role in the scene.
With the wind business, it already seems like déjà vu all over again. A top Wall Street firm has become a major and direct player in wind energy by acquiring two prominent developers. An international investment group has taken a huge stake in U.S. wind and is evolving into a top-five player on the development side. Another major Wall Street player recently announced a commitment of $250 million to develop wind. European investors have been prominent on the project finance side of the business. And, of course, the largest equipment supplier also has a hand in the game as a financial services company.
What is the relevance of this? For one thing, financial players usually are not in the business of owning and operating power generation facilities over the life of the plant. This makes them different from utilities, which generally must take a long-term, life-cycle view of their assets.
Similarity #10: The cure du jour
This last similarity is more amorphous but still pertinent. In the 1990s, the industry seemed to converge on the belief that gas-fired independent and merchant generation was the one option that could satisfy all the stakeholders in virtually every region of the country:
- Local communities wanted the tax base and the economic development but also an unobtrusive power station. The low physical profile of a combined-cycle plant met that need.
- Environmentalists wanted the lowest emissions—no sulfur or particulates and minimal NOx. They got their wish.
- Investors wanted short project schedules, low capital costs, and high fuel conversion efficiency. Advanced gas turbines based on the more-efficient Brayton cycle (compared with the Rankine cycle), and taking advantage of aero-derivative technology, filled the bill.
- Owner/operators wanted simplified plant designs, modularity, and strong vendor support because they intended to run lean and mean. Suppliers delivered.
- Natural gas companies, struggling at the time to monetize their gas bubble assets over long periods of time, wanted to sell their product in high volumes and play the so-called spark spread (the ratio of gas to electricity prices at any given time). They, too, were satisfied.
Not surprisingly, gas-fired capacity was embraced as the cure for all that ailed the electricity business, so the business climbed on the back of gas turbine technology. What was recognized, but not necessarily managed well, was that the ride was made bumpy by necessary sacrifices in key areas of turbine performance. For example, the materials needed to withstand high firing and turbine inlet temperatures pushed the envelope of metallurgy. This subsequently led to reliability and durability issues. What's more, raising firing temperatures to increase efficiency and specific power output was in direct opposition to another goal: lower NOx emissions. Dry low-NOx combustors and single-digit NOx limits essentially limited a site's fuel options not only to natural gas but also to gas with tight specifications. Fuel flexibility became a casualty of the move to single-digit NOx.
Today, it seems clear that wind turbine blades are straining the possibilities of materials technology, especially for such heavy components hanging several hundred feet in the air. New power electronics components are being added to address grid interface issues. Wholesale new designs, such as direct-drive machines, are being introduced to avoid persistent difficulties with "old technology" like gearboxes (Figure 2).
2. Bigger, faster, cheaper, better. The wind turbines being specified for projects in development today represent a decade's worth of cumulative design and technology innovations. Source: U.S. DOE
It's easy to see how wind generation could assume the mantle of the industry's cure du jour. Wind could even be considered a panacea: It has no emissions (including CO2), it helps farmers and rural communities, it burns no costly fossil fuel of domestic or foreign provenance, it qualifies for valuable renewable energy credits, it can be brought on-line quickly, and it appeals to the investment community. Although wind energy may not achieve the same capacity addition levels as gas-fired power in bygone years, it certainly satisfies many important constituencies today, and undoubtedly will in the near future as well.
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