Message-ID: <23248230.1075844050085.JavaMail.evans@thyme> Date: Wed, 1 Nov 2000 03:05:00 -0800 (PST) From: lorna.brennan@enron.com To: julie.mccoy@enron.com, steve.klimesh@enron.com, gary.sova@enron.com, rob.wilson@enron.com, lon.stanton@enron.com, david.marye@enron.com, courtney.barker@enron.com, sarabeth.smith@enron.com, john.goodpasture@enron.com, michael.ratner@enron.com, sebastian.corbacho@enron.com, yuan.tian@enron.com, mike.mcgowan@enron.com, chuck.wilkinson@enron.com, ld.stephens@enron.com, janet.bowers@enron.com, john.dushinske@enron.com, tim.johanson@enron.com, frank.oldenhuis@enron.com, bob.burleson@enron.com, rockey.storie@enron.com, penny.mccarran@enron.com, stephen.herber@enron.com, mike.ullom@enron.com, bill.mangels@enron.com, steve.weller@enron.com, michael.stage@enron.com, steven.harris@enron.com, jeffery.fawcett@enron.com, lorraine.lindberg@enron.com, kevin.hyatt@enron.com, christine.stokes@enron.com, tk.lohman@enron.com, michelle.lokay@enron.com, lindy.donoho@enron.com, dave.neubauer@enron.com Subject: WEFA Report on Future of Gas Turbines for Power Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Lorna Brennan X-To: Julie McCoy, Steve Klimesh, Gary Sova, Rob Wilson, Lon Stanton, David Marye, Courtney Barker, Sarabeth Smith, John Goodpasture, Michael Ratner, Sebastian Corbacho, Yuan Tian, Mike McGowan, Chuck Wilkinson, LD Stephens, Janet Bowers, John Dushinske, Tim Johanson, Frank Oldenhuis, Bob Burleson, Rockey Storie, Penny McCarran, Stephen Herber, Mike Ullom, Bill Mangels, Steve Weller, Michael G Stage, Steven Harris, Jeffery Fawcett, Lorraine Lindberg, Kevin Hyatt, Christine Stokes, TK Lohman, Michelle Lokay, Lindy Donoho, Dave Neubauer X-cc: X-bcc: X-Folder: \Michelle_Lokay_Dec2000_June2001_1\Notes Folders\Articles X-Origin: LOKAY-M X-FileName: mlokay.nsf Note: WEFA has made some interesting points in their conclusions of this study. Gas Turbines Headed for a 50% Meltdown High natural gas prices, performance issues and higher than expected maintenance costs, a general economic slowdown and several other key factors will combine to create a "near-term meltdown in the gas turbine market," according to a report by WEFA, Inc. Reporting on a study about to be published by the analysis and consulting firm based in Eddystone, PA, one of its authors predicted "a substantial short-term correction in the gas turbine market..which could render 50% of current North American projects uneconomic." Jason Makansi, principal of Makansi & Co., pointed to other factors, such as the inexperience of many generating companies with the hedging and trading skills necessary to optimize profits in the peaking market, the rise of "stealth capacity" from refitted or otherwise optimized coal and nuclear plants, "gas transportation bottlenecks and persistent issues with safety and explosions," and "a protracted quasi-regulatory quagmire." Under the heading of stealth capacity, "old assets are being purchased or merged into new electric economy organizations that will improve capacity factors at coal-fired plants from the typical 60-65% to perhaps 80-85% within five years." A major part of the gain will come simply from operating the assets to serve the market and not just a single service territory, Makansi said. He reported on the soon-to-be released study at WEFA's World Economic Conference last week in New York. The nuclear industry is experiencing a similar transformation. Several years ago predictions were that as much as one-third of nuclear plants would soon be retired. Today, with many units sold to new owners and re-licensed, it appears the retirement rate will be more like 5-10% and productivity for the remaining units will be increased. The WEFA report points to a "technological correction" for the advanced technology "F-Class" turbines going into most new plants today, as unexpected problems crop up with extended use. There are a host of problems in the technology area, which can be met, but at a cost: the new units may not meet emissions targets without impacting efficiency, heat rate and durability; fuel-switching is not living up to its advance billing; units may not perform as well at high ambient temperatures; overhauls are required more frequently than had been expected; maintenance costs also are exceeding expectations; and fuel quality is becoming an issue. "Variable O&M costs at some projects with F-class machines are running as high as $25,000 to $30,000 per start. Considering that some of these machines may exhibit several hundred starts in a year, you have a variation of that worn phrase, "a start here, a start there, pretty soon you're talking about real money!" "The bottom line of all this is that many of the claimed performance advantages of the gas turbine have been lost or severely eroded." Makansi also pointed to similar experiences with gas turbines in the U.K., Asia, Australia, and Chile. He predicted a turbine market correction "and an unavoidable plateau to work out technological kinks, modify designs and inject reality into business models. We believe all this will push consolidation in the generation sector of the electricity industry even faster." Makansi predicted about half a dozen major players will control 50% of the generation capacity in the U.S. within five to 10 years. Co-authors of the report include Robert Swanekamp, a principal of Competitive Power Resources; engineering consultant Jeffrey J. Fassett; and Kemm Farney, vice president, WEFA Electric Power Service. For more information go to www.wefa.com.