High natural gas prices, performance issues and higher thanexpected maintenance costs, a general economic slowdown and severalother key factors will combine to create a “near-term meltdown inthe gas turbine market,” according to a report by WEFA, Inc.

Reporting on a study about to be published by the analysis andconsulting firm based in Eddystone, PA, one of its authorspredicted “a substantial short-term correction in the gas turbinemarket…which could render 50% of current North American projectsuneconomic.” Jason Makansi, principal of Makansi & Co., pointedto other factors, such as the inexperience of many generatingcompanies with the hedging and trading skills necessary to optimizeprofits in the peaking market, the rise of “stealth capacity” fromrefitted or otherwise optimized coal and nuclear plants, “gastransportation bottlenecks and persistent issues with safety andexplosions,” and “a protracted quasi-regulatory quagmire.”

Under the heading of stealth capacity, “old assets are beingpurchased or merged into new electric economy organizations thatwill improve capacity factors at coal-fired plants from the typical60-65% to perhaps 80-85% within five years.” A major part of thegain will come simply from operating the assets to serve the marketand not just a single service territory, Makansi said. He reportedon the soon-to-be released study at WEFA’s World EconomicConference last week in New York.

The nuclear industry is experiencing a similar transformation.Several years ago predictions were that as much as one-third ofnuclear plants would soon be retired. Today, with many units soldto new owners and re-licensed, it appears the retirement rate willbe more like 5-10% and productivity for the remaining units will beincreased.

The WEFA report points to a “technological correction” for theadvanced technology “F-Class” turbines going into most new plantstoday, as unexpected problems crop up with extended use. There area host of problems in the technology area, which can be met, but ata cost: the new units may not meet emissions targets withoutimpacting efficiency, heat rate and durability; fuel-switching isnot living up to its advance billing; units may not perform as wellat high ambient temperatures; overhauls are required morefrequently than had been expected; maintenance costs also areexceeding expectations; and fuel quality is becoming an issue.

“Variable O&M costs at some projects with F-class machinesare running as high as $25,000 to $30,000 per start. Consideringthat some of these machines may exhibit several hundred starts in ayear, you have a variation of that worn phrase, “a start here, astart there, pretty soon you’re talking about real money!”

“The bottom line of all this is that many of the claimedperformance advantages of the gas turbine have been lost orseverely eroded.” Makansi also pointed to similar experiences withgas turbines in the U.K., Asia, Australia, and Chile. He predicteda turbine market correction “and an unavoidable plateau to work outtechnological kinks, modify designs and inject reality intobusiness models. We believe all this will push consolidation in thegeneration sector of the electricity industry even faster.” Makansipredicted about half a dozen major players will control 50% of thegeneration capacity in the U.S. within five to 10 years.

Co-authors of the report include Robert Swanekamp, a principalof Competitive Power Resources; engineering consultant Jeffrey J.Fassett; and Kemm Farney, vice president, WEFA Electric PowerService. For more information go to www.wefa.com.

Ellen Beswick

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