US shows no signs of slowing

Orders for gas turbine units for delivery to the US market increased tenfold in 1998 compared to 1997, and this incredible boom shows few signs of slowing down this year. PEi takes a look at the cause of this rush of orders in what has become the hottest market in the world. Siân Green reports.

Siân Green

This month`s news of further capacity additions in the USA is nothing unusual – the past 12 months have seen many utilities and developers announcing new capacity all over the country. More unusually, we should perhaps be concerned over where these developers will get their gas turbines. The answer? They may have already bought them – and maybe as early as last year.

The fact is that the US gas turbine market is a healthy one. So healthy, in fact, that the main US equipment suppliers – Siemens Westinghouse and GE – are unable to take any more orders for gas turbines scheduled for delivery before 2002. Their factories and their order books are full.

Orders for gas turbine units for delivery to the US market increased tenfold from 1997 to 1998. In 1998, for gas turbine units sized 10 MW and larger, orders were placed for around 31 000 MW, with 237 units sold by all manufacturers. In 1997, only 3170 MW of gas turbine capacity was sold. Siemens Westinghouse took more orders in 1998 than it has ever taken. It sold 64 gas turbine units into the US market in 1998 representing 10 560 MW, compared with only 1000 MW in 1997. The company`s order books have been dominated by orders for baseload capacity, although orders for peaking units have remained high. GE Power Systems sold some 17 916 MW of gas turbine capacity to the US market in 1998.

Siemens Westinghouse also says that the number of orders taken in 1999 has so far matched that of 1998. “It`s proceeding at about the same pace as last year,” said Bill Trappen, manager of market analysis at Siemens Westing- house. “We didn`t expect it to continue but it has.”

The cause of this boom is straightforward enough. Over the past few years, capacity additions to the grid have fallen behind load growth. This led to low reserve margins in some regions, the dangers of which were illustrated by the market chaos in the Midwest last summer. Uncertainty over deregulation is also to blame; utilities and developers were reluctant to buy and install new capacity when they were not sure how the market would be structured in a few years` time.

Deregulation in particular has been a driving factor, with many developers keen to get an early start in the competitive market with merchant capacity.

This means that the major US large gas turbine suppliers are booked up in terms of their gas turbine manufacturing capacity. Craig Weeks, Siemens Westinghouse president for the Americas, stated at the company`s recent Product Application Workshop in Orlando that its capacity for gas turbine production is committed for orders up to 2002 in spite of an increase in manufacturing capabilities.

Siemens Westinghouse is currently examining ways of increasing its manufacturing capability, according to Trappen, including shifting some of the work to its Berlin facility. However, a major limiting factor for the OEMs is their own suppliers. There are parts of gas turbines which neither Siemens Westinghouse nor GE produces. The suppliers of these parts are also struggling to keep pace with demand, although they have recently announced new capacity expansion.

This phenomenal growth has also created some unusual practices. Some developers have purchased gas turbines with no particular project in mind. This began in 1998 as developers began to see how the markets would develop. It shows how important it was to some players to secure capacity early with little risk; if they find out that they no longer need the unit then it can easily be sold on. Having a gas turbine unit readily available gives a developer a significant advantage in the market at this time.

But the question on everybody`s lips is how long can this last? At Siemens Westing- house`s Orlando workshop, the mood was certainly upbeat. According to Weeks, the USA needs to sustain buying levels in order to maintain the reserve margin at around ten per cent. This, he said, was largely due to ageing capacity in the USA. His outlook for the medium term was therefore positive: although the number of gas turbine orders would fall, demand would remain strong.

Others are more sceptical about the current market situation, however. One workshop delegate from a large international developer felt that many projects scheduled for construction in the US would fail to make it off the ground purely for logistical reasons. It is entirely feasible to think that there could be shortages in available resources to commission and install as many units as are being purchased.

But both GE and Siemens Westinghouse seem prepared. “We are planning and staffing up in those areas and hope to be able to commission them with a minimum of problems,” said Trappen.