In the next 60 days, Calpine Corp. will leave its usual role as a major turbine purchaser to become a partner with GE Energy on a complex beta test of GE’s newest, most efficient combined-cycle turbine system for making electricity, according to Calpine Senior Vice President Bob Fishman.

The two companies have signed a letter of intent between to build a 775 MW advanced generation plant that GE will own and operate, and for which Calpine will market the output.

In an interview with NGI Tuesday, Fishman called the pending contract “one of the most detailed I’ve ever seen. We think we have run into the ground just about every conceivable business issue, so the drafting of the definitive agreement should be relatively simple.”

More definitive plans on the plant site and other operating details will be announced this week, Fishman said, indicating that the announcement of the pending deal was moved up so GE Energy could do it in conjunction with the “Power-Gen International 2004” conference in Orlando, FL, where GE Energy was exhibiting its advanced “H-System,” which it calls “the most efficient combined-cycle turbine design.”

“This is a lot more complex than just buying turbines,” Fishman said. “They’re buying the site from us, we will help them build it with engineering management construction services, we’re going to help them market the power, and we’re going to buy the plant back down the road, so there are a lot of moving parts to this deal.” The site is identified and will be announced “probably in about a week,” he said.

While no specific cost estimates are being made public, with GE holding the numbers closely, Fishman said it was publicly acknowledged that the price tag will probably be in excess of $500 million. Similarly, he said there are no numbers or percentages on how this state-of-art, but first-of-its-class turbine system will stack up regarding upfront costs, compared with existing combined-cycle plants now in operation.

“Only GE knows those numbers, and of course, ultimately, they have to decide how to price the machine in the marketplace. And since this is the first one, they really don’t have a reference point yet,” Fishman said.

Construction should start in the summer of 2005 with a 24- to 27-month construction period, followed by six or seven months of extensive testing before commercial operation. Start-up is set for June 2008, and Fishman said GE should be congratulated for taking the extra time, rather than “rushing a product into the marketplace.” He called it a “responsible way for a manufacturer to put a product into the market.”

GE said that for every unit of electricity produced with its H System, less fuel is consumed and fewer greenhouse gases and other emissions released, compared to existing gas-fired, combined-cycle systems. Major reasons for its new record efficiency levels are a combination of a special closed-loop steam cooling system that allows higher firing temperatures and use of GE engineer-designed single-crystal materials in a number of components to allow them to withstand the higher firing temperatures. Two GE 107H combined-cycle systems will be used in the plant.

“GE will purchase the project development rights from Calpine and will finance, own and operate the facility, while Calpine’s Energy Services group will market electricity from the facility under a long-term marketing arrangement with GE,” the companies said in a joint announcement. “Under the agreement, Calpine will sell the power through a variety of long, intermediate and short-term contracts.”

Eventually, Calpine will have an option to buy the plant and become its sole owner/operator, following what the companies called “an extended period of GE ownership” for which GE did not want to specify the number of years.

As one of the nation’s major power plant developers in the past decade, Calpine has been one of the major purchasers of gas-fired turbines, and its current fleet of power plants, totaling nearly 30,000 MW, is split between GE and Siemens Westinghouse turbines, the latter of which on Monday announced a major joint venture push in China.

Fishman said Calpine has tried some innovative approaches to augment power output in some of its plants in the Southeast, but the company has never really been a beta site before. “These technological break-throughs don’t happen that often, so we’re very pleased to be part of it,” he said.

GE has developed the 60-hertz H System as the world’s first combined-cycle system with the capability of reaching 60% thermal efficiency, what the company called “a milestone for the global power industry.” GE’s first 50-hertz H System, a 109H combined-cycle unit, entered operations in September 2003 in Wales, and has compiled more than 5,000 hours of successful operation, according to GE.

Noting confidence in making the North American launch of the H System with Calpine, GE Energy CEO John Rice said the successful experience at Baglan Bay Power Station in Wales makes the companies “confident that this project will be the next major milestone for the power industry,” adding that Calpine “provides a proven track record in development, construction and power marketing.”

Calpine CEO Peter Cartwright, a former GE nuclear engineer, said the H System project combines “GE Energy’s leadership in power generation technology and manufacturing with Calpine’s fully integrated energy expertise.” He predicted the project will be a “showcase” for the power industry’s future gas-fired technology.

Today’s most efficient combined-cycle plants operate at 57% or 58% efficiency, while the H System, the two companies said, moves beyond the 60% efficiency level, “providing a platform for continued evolutionary improvements” in the combined-cycle technology.

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