PowerGen International ’99 comes at a time when success in the intensely competitive power development business requires a clear strategy that capitalizes on solid competitive advantages. Two aspects of Entergy’s strategy are to focus on core capabilities in nuclear operations and to build on our unique advantages in gas-fired generation. I discuss our approach here not as a blueprint for other companies – because it relies on distinctive Entergy strengths – but as an example of how one company is capturing value in power development.
Entergy intends to build its position and as a leading, national nuclear operator. Our nuclear plants rank among the industry’s best in reliability, safety, and cost efficiency. We are among a select group of premier nuclear operators that can create value by improving performance at nuclear plants. We do this by applying expertise in plant operation and achieving economies of scale across a large fleet.
In a competitive market, only a few companies have the scale of operations necessary to successfully operate nuclear plants. Companies with only one or two units will either be required, or will choose, to divest them. Opportunities abound in the USA with 103 nuclear units owned by 42 utilities. In July 1999, we closed on our purchase of the Pilgrim nuclear power plant – the first such purchase as the result of a competitive bidding process. Our goal is to buy five additional nuclear units by 2003.
Entergy believes that well-managed nuclear plants can be very competitive with other baseload generation. For example, in 1997, our Grand Gulf plant generated 10.8 million MWh at a production cost of under 1.5 cents per kWh.
We expect to create additional value in at least three ways: increased capacity factors, power uprates, and plant life extensions.
Entergy operates five nuclear units for our utility business. Last year, these units recorded a combined capacity factor of 90 per cent – compared with the national average of just under 80 per cent. If all US nuclear units were brought up to Entergy’s efficiency level, the increase in utilized capacity would be equivalent to adding 14 large units.
We are interested in poor-performing plants where we can apply our experience in turning around operations. For example, our River Bend plant was acquired in a merger in 1993. By 1995, we increased the plant’s capacity factor from a historical average of 59 per cent to 97 per cent.
We are also interested in plants that are operated by a utility that has only one or two units, which we can bring into a multi-unit operation. Entergy is particularly well positioned to pursue a variety of nuclear plants, because we already manage both water reactors and boiling water reactors, at multi-unit and single-unit sites.
In a competitive generation market, a nuclear plant is also worth more as part of a portfolio of generation assets, supported by energy marketing operations. That is one reason why we see our marketing capabilities as key elements in Entergy’s generation business. It is also one reason we think the nuclear business will be limited to a few companies with national capabilities.
A second aspect of our power development strategy is to build on Entergy’s strengths in gas-fired generation. Entergy operates the largest gas generation portfolio – 16 000 MW – in the USA. It is also the nation’s largest gas purchaser. And our service area sits on the biggest gas supply in the country. Louisiana has 20 per cent of the nation’s natural gas resources, with multiple pipelines and significant storage.
In October, Entergy and GE announced an agreement for the supply of 32 gas-fired turbines over the period 2001-2004. With the high demand for gas turbines for projects throughout the country, the acquisition of nearly three dozen turbines provides a competitive advantage in siting, permitting and completing future generation projects.
All the turbines will be used by Entergy Power Group, which is committed to developing about 1500 MW of power generation projects in each of the next several years. It is expected that more than half of the 32 turbines will be used by EPG in or around our four-state service territory.
Because many nuclear sites were planned for additional units that were never built, we are also looking at adding clean gas-fired generation at those sites. Because they would be built at an existing power plant and use existing transmission lines, we do not need to confront communities with siting new plants or power lines.
With a strategy based on strong competitive advantages we believe that Entergy can make money and grow in a very tough market for power development.