|The GT24 and GT26 gas turbines are optimised for combined-cycle applications
Demand for gas turbines across much of the globe is booming because of favorable regulations and the availability of fuel. Generators are keen to switch from polluting coal and see gas turbines as a quick and flexible alternative with a low capital outlay.
Traditional drivers of demand for gas turbines, such as the oil & gas and mineral sectors, are also growing strongly, while more and more investment is coming from fast-developing economies.
Since the 2008-09 financial crisis, the gas turbine market has rebounded, reaching a likely $56 billion in 2013, with over 70,000 MW of new units expected to be sold, according to the US analysts McIlvaine. About a third of this kit will go to on-site or distributed generation applications, demand for which is driven by various factors, including policies in developed nations that are designed to encourage a more sustainable and efficient generating sector, such as Germany’s CHP support scheme.
Gas turbine use is also encouraged as part of environmental policy as a way to provide a relatively low-carbon backup to variable solar and wind power. However, competition from decentralised renewables represents a major constraint on the expansion of the on-site gas turbine sector, especially in the long term – unless the use of synthetic gas or biofuels becomes more mainstream. In the developing world, meanwhile, ballooning electricity demand is creating an expanding market for on-site gas turbines as backup for intermittent grid supply. This tends to be more limited in countries where power prices are subsidised, such as China, Indonesia and India, but such policies look increasingly unsustainable, and further demand for on-site gas turbine capacity could result
|The SSGT-750 gas turbine-generator package
For industrial and residential users the economics of a gas turbine installation dramatically improve if the exhaust heat is used to produce steam. On top of that, innovation by manufacturers has kept gas turbine efficiency on the rise. The latest models have energy conversion rates of above 60 per cent.
At the same time, the shale gas boom is showing signs of making the fuel that gas turbines run on cheap and plentiful. Although the bonanza is still confined to North America, recent major deals show that it is very likely to expand into areas such as China, India, Eastern Europe and the Middle East. It was only in March that Shell committed to invest $1 billion annually in the development of Chinese shale reserves, in partnership with China National Petroleum Corporation. And GE says: “We feel strongly that we are at the beginning stages of a global natural gas megatrend in which improved availability of natural gas will have a profound effect on the energy industry.”
And even where shale has less impact, ample gas supplies elsewhere will increase availability of liquefied natural gas (LNG), as can be seen by US and Canadian LNG export deals signed recently with the UK’s Centrica, India’s Gail and Japanese buyers. There may be a period of higher prices in resource-poor nations due to the unforeseen demand for LNG from Japan after the nuclear disaster at Fukushima, but international LNG prices are likely to soften from a few years hence, according to predictions by most analysts.
Groups including the International Energy Agency (IEA) are predicting a doubling of consumption of natural gas over the next 20 years as the LNG market begins to deliver to many regions for the first time. It is that increasing availability, plus the fast-growing power needs in emerging economies, concerns over nuclear energy in the wake of Fukushima, and tighter emissions rules that favour gas turbine use. Siemens has confirmed that it expects installed gas turbine capacity to more than double by 2030, with more than 70 per cent of this new capacity in the US, Europe, China, India, Russia and the Middle East.
Even when viewed from a purely environmental perspective, efficient gas turbines represent the least damaging of all types of power generation driven by fossil fuels. Turbines are also able to run on synthetic gas or biofuels, meaning they are likely to have a place even in a zero-carbon economy of the future.
Siemens says a “genuine boom” in the gas turbine market is underway in some regions, and that it is expanding its gas turbine factoryin Charlotte, NC, US, as well as building new ones in Saudi Arabia and Russia. GE recently clocked significant sales growth and predicted booming demand from global power companies, as utilities increasingly generate baseload electricity from natural gas.
|GE continues to have the largest share of the market
However, GE does strike a cautionary note. “The gas turbine new-unit segment continues to be very volatile, with large swings year-over-year,” it says. And according to McCoy Power Reports, worldwide demand for gas turbine ordered capacity declined by almost 25 per cent in 2012 relative to 2011, although 2011 was a record year, and the figures disguise the strength of some regions and weakness in others, primarily Europe.
Nontheless, last year Siemens said it would spend more than $1.3 billion to expand production of gas turbines. While GE has also been backing gas, positioning itself with acquisitions in the energy sector that were worth $11 billion in 2010-11. Alstom also recently launched an upgraded version of its GT24 gas turbine in response to what it said was increasing demand worldwide.
According to Forecast International, the average annual global gas turbine revenue stood at close to $12 billion between 2000 to 2011. This figure is expected to grow to in excess of $17 billion for the period 2012-20. GE is projected again to have the largest slice of the market in terms of value, with a 43 per cent share, as Figure 1 shows, while Solar Turbines will produce the highest number of units, with over 30 per cent of the market, says Forecast International.
GE has had an average market share of 44 per cent since 2003 for plants of 20 MW or more. However, in recent years Siemens has nearly doubled its market share to over 40 per cent for units over 100 MW. Another major player in the market is Japan’s Mitsubishi Heavy Industries (MHI).
The gas turbine market is fully mature, which means that manufacturers can only upgrade models through incremental improvements in efficiency, which is one reason why maintenance is becoming an increasingly important aspect of the business. The networks required to support this is further increasing the investment necessary to become a major established player, raising barriers to entry to the market, so new entrants are rare. There were none in 2012, according to Subha Krishnan of Frost & Sullivan.
|Source: Forecast International|
A GE spokesperson points out that some consolidation has been ongoing, with MHI teaming up with Hitachi and Pratt & Whitney, and Ansaldo seeking a buyer, “with some very interested suitors”.
Armen Badalov of Pace Global, an energy consulting and management company that is now part of Siemens, agrees, stressing that in the market in Russia, where he is based, a presence on the ground is essential and does not come cheap. This is where Russian companies or large international producers with local offices have the advantage.
Regine Mowill of OPRA Turbines, says her company has partly managed to get around this by specialising to meet the needs of a niche market. “By concentrating on the 1-5 MW market we avoid tackling our bigger competitors head on,” she says.
Positive cogen outlook
Among the leaders in distributed generation, is Germany, which is commited to CHP through an energy-efficiency-driven support scheme. This pays a guaranteed premium to market prices for CHP-generated power and has strongly encouraged investment. In 2012 these premiums were increased through an amendment to the CHP law.
CHP plants based on gas turbines generated 12 per cent of the country’s power in 2010, but the government aims to raise that to 25 per cent by 2020. Other countries are increasingly following suit, incorporating decentralised cogneeration/CHP, in particular, into their national energy strategies.
In the UK, around 5.5 per cent – or 4.5 GW – of total capacity comes from distributed gas or fuel oil turbines, according to The Policy Group, which also expects cogen systems in Britain to almost double in capacity to 8.6 GW by 2020.
Poland also has a bright CHP future, according to analysts Delta-ee. Estimates for shale gas reserves are large, and ExxonMobil is among the investors in the country, although early exploration has been disappointing. Poland has a fast-growing economy and power demand, as well as a relatively favourable policy towards decentralised energy.
Elsewhere in Europe, the financial crisis is having an impact. The Netherlands has seen a sharp slowdown, according to the industry association COGEN Europe, and sectors such as microgeneration have stalled outside Germany.
Sub-Saharan Africa could see cogeneration meet between 1 per cent and 20 per cent of electricity demand, with growth driven primarily by energy shortages, according to Frost & Sullivan. In South America, where there are frequent grid disruptions, Brazil actively encourages cogeneration, resulting in over 1200 MW of new gas-fired on-site capacity since the 1990s.
Europe’s gas challenge
Away from CHP, Pace Global’s Badalov says European regulators will soon have to develop a new market design to support gas-fired plants in Europe, which are increasingly under pressure from the European Union’s push towards renewable energy, and because collapsed carbon prices (currenlty trading at under €10/tonnes) in its Emissions Trading Scheme benefit coal-fired generation. Some modern European gas turbine plants are proving uneconomical under current regulations due to underuse. No where is this seen to greater effect than in Germany. “Germany’s energy transition is an example of how quickly the system must adapt to new challenges, leading to requirements for different technical and commercial solutions,” says Siemens.
Any new rules would need to be designed to maintain reserve plant and provide long-term incentives to encouragethe construction of more efficient new capacity. “In the longer term [European market conditions for gas turbines] should be better because of this need for backup to renewables, but I don’t see any pick up at the moment,” says Badalov. He adds that investment in gas in Europe has been held back by a lack of clarity among policy makers over what Europe wants to do with its gas supply.
Russia’s true potential
Siemens says one of the fastest-growing markets for its products is Russia. Alexander Perevozchikov of Pace Global says recent reforms there have made the market more dynamic, encouraging private generation and the modernisation of generating equipment.
The wholesale power market has supported investments in new generation through vested contracts for power generators, guaranteeing return on investments versus obligations to add a certain amount of new capacity. As a result, although the market continues to be strongly regulated in terms of price, it has rendered the mechanism of investments support.
The Russian market for on-site generation is strongly incentivised by environmental regulation, which this year introduced severe penalties for flared gas – this year it will be about 2.7 times greater than in 2012, and will double that in 2014.
“New owners of utilities are contractually obliged to invest in new [replacement] capacity, and it is all gas fired,” says Perevozchikov. “The main driver is the asset contracts signed by generating companies,” he says, referring to the contractual obligations owners of generating assets have taken on. “There is a guaranteed return on investment, although there is some disagreement over whether it should be market-based on not. We have not yet moved to competitive pricing.”
Perevozchikov adds that Russia also has a lot of new housing, which is creating a great deal of demand for distributed power at the small end of the market, and for CHP. “Non-utility growth is strong,” he says. Much demand from the industrial sector is for cogeneration, he adds, “but frankly it is not very active at this stage – those of the largest metal smelters and mining operations that wanted to develop on-site cogen did it several years ago”.
Perevozchikov says some manufacturers who work through trade partners have made little headway in the Russian market.Sales are dominated by those with established service and sales networks in the country, along with a few Russian manufacturers. He adds that local turbines tend to have a lower fuel quality requirement, and higher tolerance of factors such as extreme weather, which has provided further niche markets for local producers. “A lot of demand from the oil & gas and mineral sector is remote, and cannot be supplied by the grid.”
Mowill of OPRA Turbines says her company has designed for fuel flexibility, which has proved particularly advantageous in markets such as Russia, where waste and flared gases were fuel options. Mr Badalov agrees, noting recent legislation that banned the flaring of gas, leaving some companies with little choice but to use it to fuel gas turbines to generate power.
Asia-Pacific’s efficiency boost
Environmental regulations and a drive for efficiency is behind the growth in the Asia-Pacific region, according to Frost & Sullivan. “Both utilities and independent power producers invested heavily in combined-cycle power stations during 2012,” says Frost & Sullivan’s Krishnan. The value of the Asia-Pacific gas turbine market is expected to reach $13.16 billion in 2016, from about $11 billion in 2011, of which roughly two thirds was for grid power and a third for industrial power, according to Krishnan.
Siemens says East Asia has been a good example of a market in which improved efficiency has expanded sales. “South Korea is one of the biggest importers of expensive LNG, and one of the most active gas power plant markets,” the company says. “This will continue for the next few years. Other markets in Southeast Asia have similar requirements. These countries with high gas prices are looking for the most efficient technology.”
Southeast Asia has shown limited support for renewables, leaving gas turbines relatively free of competition in distributed power, according to Krishnan. In East Asia, she says, much of the current uptick in demand is down to the aftermath of Fukushima in Japan and a major power outage in South Korea in 2012.
In China, it is the need for electricity that is driving gas turbine demand. But a limited supply of gas and a high demand for it from industrial sectors have kept a lid on the market so far. This is expected to change as gas imports and domestic production rise – especially if the country’s early moves into fracking and coal bed methane prove successful. China’s average annual gas turbine revenue was $1.12 billion in the period 2000-11. Expectations are that this will grow to $1.35 billion between 2012 and 2020.
North America cogen focus
In 2013, the US will buy 16,000 MW of gas turbines, bringing its total installed base to over 300,000 MW, according to the analysts McIlvaine, while total spending on upgrading power plants to meet tighter emissions rules could be as much as $100 billion.
“Driven by plant retirements, shale gas availability and the abundance of natural gas at low cost, as well as environmental factors and technological advances, gas power plants are the technology of choice for the next decades in the US,” says Siemens. GE forecasts that there will be more US power plants fuelled by natural gas than by coal by 2017.
CHP represents about 8 per cent of US generating capacity. Last August, President Obama set binding targets to double the number of cogeneration plants by 2020, accelerating investments in industrial energy efficiency to help manufacturers generate up to 40 GW.
The full implications of the shale gas boom in North America and the potential global expansion to follow have yet to be fully realised. The possibility of cheap and plentiful gas could mean a bright future for gas turbine manufacturers. With natural gas as an alternative to coal, as back-up for renewable energy resources or in distributed generation applications, the global future of gas turbines is looking positive.
Jeremy Bowden is a freelance writer.
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