The beginning of the year is always a good time to reflect on the previous year and look forward to the coming year. And there are few better places to get a feel for where the industry might be heading than at Power-Gen International. The size of this year’s event in Las Vegas was probably a reflection of the booming US market, but surprisingly there was more than just a feeling that the American express train will slow down more quickly than many had originally thought.
During the opening keynote, Texas congressman, Joe Barton, delivered an interesting, if at times misguided, speech on the US energy market. Barton began by asking how far the US would get this year on national energy policy and electricity restructuring legislation.
But before he went into detail, he first graciously shared with us his views on the importance of market opening. “The USA is the most powerful nation in the world: economically, militarily, intellectually – anyway you want to cut it.” (I thought the “intellectually” part could be open to debate). “We are the most powerful nation, firstly because our political system is a democracy and secondly because we have the most powerful economy.
“We have the most powerful economy today because we have the most successful energy market. And we have the most successful energy market because it is the most open and free market compared to any other industrialized nation.” If some of the earlier points were debatable, now the senator was clearly on shaky ground. There were other points of contention when he expressed his views on CO2 and global warming. He said there was no scientific evidence of global warming and that he did not recognize CO2 as a pollutant. I knew I would find it hard to share the views of any politician who wore a flag as a neck-tie.
Mike Barnoski, president of Alstom Power Inc., picked up on the deregulation issue. He said that the US was “in a pause condition and is evaluating it.” In addition to assessing the impacts of deregulation Barnoski looked at the wider issues that have affected the US market. He noted: “Over the last 12 months there has been electricity price volatility; fuel price volatility; and regulatory and environmental uncertainty. Financing markets are getting tighter and the cost of connections are affecting project economics. Meanwhile, the crisis in California seems to have disappeared and there is the ongoing recession.” These are all having a serious impact on electricity demand in the US.
According to Alstom, the power sector accounts for 50 per cent of its revenue and last year the US represented 30 per cent of this with orders being 27 per cent up. But in spite of this good news, the company is predicting a rapid slowdown in the US. At its press conference, there was even talk of zero growth in US electricity demand this year.
With many of the generators having over-bought on gas turbines at the height of the boom and during the time of the energy crisis, the indications are that the American express train is coming to a halt. There have even been rumours that manufacturers have seen orders cancelled as a result.
John Rice, GE’s CEO commented: “No question. The US will return to more normal order patterns but we have expected this. It will probably happen from the ’03 timeframe. However, we have had very few cancellations of orders. Some of our big customers have said ‘we want to move things around a bit’. For example, there has been movement [of equipment] by customers who have a series of projects but this has to be expected given the economy and September 11th.”
With the US power market coming off the fast track, many manufacturers and developers will soon be looking elsewhere for business. “Asia will be an important market over the long haul although in the short-term it will probably not go back to what it experienced in the early/mid-90s.” said Rice. In particular, China’s will be a significant growth area especially with its entry to the WTO and the development of the East-West gas pipeline.
So as the express train prepares to turn east again, the industry will have to prepare for some tough tests ahead. I thought Vegas might provide a tough test for my own American Express. Fortunately, the credit card survived, and I made it home without losing my shirt at the Black Jack tables.