Distributed Generation,Coal/Nuke Generation Both Get Boost

With the over-abundance of proposed new natural gas power plants, calls for for more distributed generation and renewed interest in coal and nuclear generating plants emerged last week among various energy industry experts and firms bidding to fill developing niche markets.

"What we have is basically a two-lane road, and the marketers and everyone else want to use it as a six-lane highway," Edward Tirello, analyst for Deutsche Banc Alex. Brown, said describing the U.S. power grid. "But someone is going to have to spend an enormous amount of money to [make it happen], and no one is spending any money right now."

In the short-term, for instance, many old generating plants that were pushed hard last year won't be able to survive another summer of excess operations. And about half of the nation's existing generating plants will have to be replaced in the next 10 years. Beyond that there are enormous infrastructure challenges facing the restructuring electricity industry, Tirello told a NGI GasMart/Power 2001 audience. "There are a tremendous amount of bottlenecks."

Tirello endorsed distributed generation as a "great concept" that is available now. However, he questioned "where it goes first?" Fuel cells and micro-turbines are going to be increasingly attractive to businesses in California and other states trying to increase their reliability and quality of power. He also pointed out that business have thousands of MW tied up in on-site back-up generation units, which could be put into regular operation if they could be tied into the grid.

He said every major commercial building has some form of standby generation and increasingly they will try to "synchronize" them with the grid. He estimates that there are 100,000 MW of standby generation "just sitting idle."

Another industry expert noted in a separate GasMart/Power presentation that if recent energy industry history repeats itself, more than half of today's proposed natural gas-fired power plants will never be built. High gas prices could help prevent 40,000 to 50,000 MW of new generation from upgrading the nation's fleet of coal and nuclear electricity generating plants, according to a power plant consultant.

Offering a skeptical alternative view, Jason Makansi, president of the St. Louis, MO-based electric technology consulting firm of Pearl Street Inc., said he was concerned that a "panacea dilemma" has infected the power industry. Gas-fired generation --- both merchant baseload and distributed generation plants --- may be caught up in over-inflated expectations that they will be a cure-all for the nation's energy needs. In the past, coal, nuclear and cogeneration were similarly positioned and each time an initial flurry of project proposals were whittled down by market, political and technological realities.

Countering Makansi's sobering assessment was fuel cell proponent David Redstone, a lawyer, renewable energy advocate and editor of "Hydrogen and Fuel Cell Investor Newsletter." Redstone said it will still take a "long time before [fuel cells] force major changes in the natural gas industry, but they are going to come incrementally. It is more of a distribution issue than one of supply," said Redstone, who cited a half-dozen U.S.-based makers of fuel cells that are finding increased interest among distributors and furnace manufacturers in Europe and other overseas markets that could help accelerate the development of commercial products in the United States.

Both Makansi and Redstone think that the distributed power providers --- whether utilities, energy service firms or other distributors --- need to provide different products for the varying end-use niche markets. Eventually, he thinks the U.S. consumers will embrace hydrogen as an inherently "safe and clean fuel" the same way they overcame initial reluctance to the mass use of gasoline 100 years ago. "I don't see hydrogen being any different," he said, noting that more experience with it and optional ways to store it eventually could make hydrogen as common in the future American marketplace as gasoline is today.

Earlier in the month, the nation's leading maker of microturbines, Chatsworth, CA-based Capstone Turbine Corp., and the on-site generator part of Columbus, IN-based Cummins Inc. inked a three-year deal that could be worth $10-15 million during its first two years. Cummins will market Capstone's commercially available 30 kW and 60 kW microturbines as part of its stationary power systems. The deal seeks to marry Capstone's technological advantages with Cummins' worldwide market presence.

A new Cummins Power Generation line of products for backup generation will carry the insignia "Powered by Capstone Micro Turbine." Cummins will sell these new products worldwide, except for Japan and Mexico. The deal calls for 3 MW worth of Capstone microturbines (any mix of 30 kW and 60 kW units) the first year; 10 MW during the second year; and a yet-to-be-determined volume for the third year.

Gas is involved in pretty much all of the new electric generation planned," Makansi said. "About 50% of that is never going to be built for a variety of reasons. If you go back to the '70s, '80s and '90s in this industry, you find that each period had a panacea solution that...was over-subscribed with projects followed by a wave of power plant project cancellations.

"We saw this with coal-fired power in the late '60s and early '70s, nuclear in the late '70s, and cogeneration and independent power in the '80s, and we think we'll see this with the latest wave of merchant generation plant proposals. Everything in the generation business for the past 20 years has depended on natural gas prices and forward price curves, and the psychology of the market has changed over the last year, and it's going to cripple a lot of the merchant generation plants."

In addition, what Makansi calls "stealth capacity" from the unrealized productive potential of existing coal and nuclear plants will preclude the need for as much gas-fired capacity as is now envisioned.

"There is a lot of productivity in those assets that hasn't been unlocked," said Makansi, stressing that as deregulation progresses and industry consolidation narrows the numbers of plant owners, there will be a lot more productivity wrung out of these large baseload units. Modest 5% or 10% boosts in the nation's 105 nuclear plants can equate to thousands of added megawatts. (He estimates an added 35,000 to 40,000 MW could be developed from coal plant upgrades and 5,000 to 10,000 more MW from more efficient operation of the nukes.)

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