At Power-Gen International in December, the message was clear: the power sector worldwide was struggling, and virtually every player in the industry was reassessing their strategy and looking for ways of maintaining growth.

The US market, in particular, has caused difficulty for energy companies and manufacturers. The economic downturn and fallout from the Enron scandal has brought the US construction boom to an end, and an excess reserve margin in most regions of the country has left little opportunity for growth.


Power generation market forecast: many 60 Hz market orders are at risk of cancellation
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According to Del Williamson, president of global sales, GE Power Systems, the market for power generation equipment in the USA will fall significantly over the next two years. The company is expecting its sales in this market to drop to $15-16bn, down from $21bn in 2002. Sales levels are expected to recover by 2005.

Alstom’s US sales have likewise fallen. According to Mike Barnoski, Alstom USA country president, the company’s business in the first half of 2002 stood up well to the problems in the US. Alstom’s power sector orders for that period were about 15 per cent lower than for the same period in the previous year, and the company is expecting to maintain this level.

Ironically, because of the problems that Alstom has experienced with introducing its GT24/26 range of advanced gas turbines, its gas turbine business has not been affected by the downturn in the USA – Siemens-Westinghouse and GE captured the lion’s share of the gas turbine boom. Alstom is not highly leveraged in the US gas turbine market, said Barnoski, with gas turbine orders accounting for just five per cent of all power generation orders in the US (compared with 24 per cent worldwide).

Alstom’s boiler business has been hit by the US downturn, however. In the USA, boilers account for 39 per cent of Alstom’s orders. As the market for gas turbines has fallen, so has the market for heat recovery steam generators, said Barnoski.

Assessing the global market for power generation equipment, Alexis Fries, president of Alstom Power, said that the ten years of growth driven by the Asian and then the US market has come to an end. Speaking at Power-Gen International, he said that around 40 per cent of orders in the 60 Hz market were at risk of cancellation, and that the excess stock now present in this market was “causing a strain”.

Fries stated that market conditions will improve in 2003-2004, however, driven mainly by the 50 Hz market and regions such as China and the Middle East. The fundamental drivers of growth opportunities would, said Fries, come from economic growth, market liberalization, and environmental legislation.

Recognising how the slump in the US is affecting business, manufacturers such as GE and Alstom are adjusting their strategies and looking for new growth opportunities. Alstom, for example, has reorganized its power business to create a single turnkey segment for steam and gas turbine power plants, and a single turbomachinery segment. This, said Fries, will reduce costs, improve focus and allow savings through the exploitation of synergies such as resource optimization, the implementation of a common, project execution and risk management process, and improved factory optimization.

GE has recognised the need for flexibility in a difficult market. For example, instead of taking termination monies, it is ‘trading’ cancelled gas turbine orders for new orders of other equipment. However, it will continue its acquisition strategy, says Williamson, making a projected $2-3bn of acquisitions over the next 2-3 years.

Both GE and Alstom have also recognised the growing importance of the service side of their business, and both see great growth potential here. Fries noted how customers are recognising the need to enhance the life of their assets – especially in competitive markets. Barnoski estimated that in the last three years, Alstom’s customer service segment has grown by ten per cent per year, and expects that this unit will soon account for half of its business.

Fries also sees good growth potential in the retrofit and refurbishment business, especially in the USA. Here, the last power plant construction boom was in the 1970s, and many of the plants are now ready for refurbishment. Plant owners in the US have a strong interest in lengthening the life of their assets, says Fries, as such plants can be dispatched at low cost. “We want to take a share of this market,” said Fries.

Environmental drivers are also creating opportunities for growth. Williamson believes that GE Wind, the company it purchased from Enron in 2002 as a $0.25bn business, will become a $1bn business in 2003. For Alstom, environmental drivers are good news for its environment business, which includes FGD, DeNOx and dust removal equipment. Environmental drivers will also help to grow the market for biomass-fired steam plants and advanced firing equipment, says Fries.

Nevertheless, a number of challenges remain for manufacturers to overcome, said Fries. These included investment risks in Asia and Latin America, excess 60 Hz stock on the market at discount prices, and the tendency of emerging economies to question the benefits of market reform and liberalization. He said that Alstom would benefit from its global presence and broad product offering.