Heather Johnstone, Senior Editor
PEi: Parsons Brinckerhoff (PB) reported strong revenue growth in 2008, up 39 per cent on 2007. The energy sector currently represents 25 per cent of PB’s business, what was the revenue growth in PB’s Energy business, especially in the power business last year, and what growth do you expect to see this year?
DR: It is more important to look at the global PB figures because PB is a global company we have the international business and we have the Americas business. Putting the growth in 2008 into perspective at the global business level, we actually saw a revenue growth of 26 per cent year-on-year.
The contribution from PB’s power activities to that growth represents approximately a fifth, clearly showing that a significant component of this growth has been down to the company’s power activities over the last financial year. What is more important is looking to the future, and whilst you cannot be certain of the future I am of the opinion that year-on-year in the power sector we are probably looking something in the order of ten per cent growth as a minimum, so there is still a fairly healthy growth aspiration for this year, which we are still in pursuit of.
Langley site, in County Durham, consented by Parsons Brinckerhoff in 2005 on behalf of EDF Energy, with 2 MW MM82 REpower wind turbines, recently constructed.
PEi: Do you share growing concern that if the global economic slowdown continues, power infrastructure projects could be cancelled?
DR: Yes, it is a big concern because the power sector will not be immune to the problems in securing financing. I am pretty sure the power sector will experience some difficulty in getting finance in place for large power infrastructure projects.
Some of the projects will not get out of the ‘starting blocks’ because of this, however, the fittest of projects will survive and there are a number of mitigating factors that come into play in the power sector that, from my perspective, are different from other sectors.
One way to look at it is, existing projects that are currently under construction have a lot of momentum associated with them their supply chains are very long, they look out over a number of years and many of them have their funding already locked in.
Because they are long-duration projects they will be in a space where they will continue to be delivered. So I think existing projects that have their funding already locked-in will not have a problem.
Looking to new projects there are a couple of things that are very important. Firstly, I believe the demand for power in the developed world will not diminish. And that from any fiscal stimulus from governments, at least some will find its way into power projects because energy lies at the heart of any economy’s ability to survive. In the longer term any fiscal stimulus will help to modernize the developed world’s existing power asset base.
In the developing world, I believe that the demand for energy will also continue to grow, although possibly at a slower rate than previously seen, as people in these countries continue to seek to achieve a higher standard of living. This will bring their governments under greater pressure to make available the benefits of energy to the large communities.
All this means that funding mechanisms will come under greater strain, so that in the longer term only the financially fit projects will survive, i.e. only those achieving the best returns on investment meaning it will be a testing time for both developers and builders of power plants.
Having said all that, the demand for energy worldwide will be so strong that ultimately large power projects will continue to be built.
PEi: Your company supports the entire power project process, from initial planning and feasibility studies to start-up operation and maintenance, but what services are proving the most popular at present?
DR: What I see is, across the range of power business services PB offers, we still have healthy demand, so whether it is in initial planning and feasibility services or at the construction end of the business, we are seeing strong demand across the whole spectrum of the services we offer.
In more specific detail, the intensely loaded areas I have witnessed are in feasibility studies and environmental assessments, especially in some of the renewables activities, such as biomass in the UK that we have underway. Returning to the financial situation we discussed, I have a sense that the current economic climate is playing an important role in driving this demand for feasibility studies and environmental assessments. And it’s all linked into the idea that it will only be the fittest project that will be moved forward.
PEi: Are you seeing an increase in interest in your risk assessment services, as investors in power projects look to minimize their exposure to risk?
DR: I would say that risk assessment services really fall under the heading of feasibility studies, and within these studies there is a whole raft of risk assessment services activities undertaken in terms of considering options.
As I alluded before, we are definitely seeing an increased amount of effort being put into feasibility studies. Organizations that are considering new projects, many of which can be significant, i.e. multi-million pound projects, are being quite careful and diligent when it comes to feasibility studies, and taking great care with which projects will make it through to construction. Again this drive this is clearly linked to the amount if liquidity and the amount of finance that developers are able to secure from the marketplace, because the cost of finance is significantly different from what it has been in the past.
PEi: I was interested to read that one of PB’s goals is to grow its integrated O&M services. How does PB intend to achieve this, specifically in the power sector?
DR: I would characterize PB’s O&M services as being very much work in progress at this point in time. We know that in some of the markets PB is in we do provide value-add services for O&M capability.
The approach we are taking with O&M is very much about us being in the position of growing our niche markets and trying to organically grow our O&M business. I do not see us getting to the point of immediately going for O&M contracts at large power plants across the globe, but having a niche value-add onto some of the services we already provide, which gets PB into the O&M space, is highly attractive to us.
One example is in our quality inspection business, where a large part of what we do is to provide support for planned shutdowns and planned maintenance activities in large power plants; and some of those inspection services could be taken into a more dynamic O&M setting for the power plant operator. It would be a very natural progression for our services to migrate in that sort of way, thus allowing us to organically grow our O&M activities.
The second example relates to our power plant testing business, where we carry out some specialist testing of power plant in support of the O&M regimes that operators have in place. Again we can see an opportunity for us to enhance the O&M offering of our power plant testing.
Where we can see value in organically growing some of our existing business streams into the O&M space then that is where we will deploy our strategy to achieve this.
We do not have a strategy to move into massive O&M of power plants because we believe that the power plant owners are the best people to do this.
PEi: Which geographical region or regions is/are showing the most growth and potential growth for PB, and similarly, in which technology sector or sectors, i.e. coal or gas power generation, renewables or T&D?
DR: If we look at coal as one of the prime sources of energy we are without doubt seeing very strong continued growth in the South African, Indian and Chinese market space, and this is being driven by these developing countries’ demand for energy. Coal is in ready supply and is a well-tried and tested technology in these countries, and these countries have their own design capability to establish the design basis for these power plants. PB in each of these countries is providing a host of services from feasibility studies, and design review, to procurement, construction management and supervision.
With gas as the primary source of energy we are still seeing strong demand in the Middle East and in Europe for new gas plants. We expect the demand for gas fired generation to continue to be strong, even in the UK, where, within the last few months, three new stations were permitted. Also the price of gas, at least in the short-term, is helping it continue as a dominant player in the generation space.
In the UK, we are seeing a lot of interest in biomass generation, with a number of developers expressing interest and taking projects through to feasibility phase.
Like many others, PB is keen to see how nuclear plays out in the UK, as it’s an area of potential growth for us, specifically in regard to balance of plant, turbines and auxiliary equipment, which fall within the heartland of PB’s capabilities.
On the renewables front, we are seeing strong demand in the UK, Europe and Australia, and our renewable teams are busy supporting projects in the developed technologies such as onshore wind. We also see some interest in offshore wind, especially in the UK, as well as tidal energy and, to a lesser extent, photovoltaics in Europe. I am convinced that renewable energy will be a fundamental building block for PB in the future and without doubt which will see PB becoming involved in technologies that have yet to be imagined.
PB is active in T&D project across the globe. For example, we are very active in the African continent, in countries such as Kenya and Ethiopia. Closer to home PB recently won a landmark project to be put in place the second subsea link between Ireland and the UK mainland. It is a DC interconnector project and represents one of the most important transmission-related projects seen in a UK setting for some time. Transmission activities are very strong right now and I believe they will continue to be so for the next five to ten years.
PEi: PB works extensively in the developing world as well the developed world. Looking to the future, do you see the greatest opportunities for the growth of PB’s Energy business in the developed or developing world?
DR: I firmly believe that PB’s growth opportunities will come from both, because when we look at things we do not segregate into the developed and the developing world. Instead we look at where the interesting and exciting opportunities are. These can exist in either area, so we do not preclude one or other from our thinking.
PB is fortunate in so far as we are an international business with a global footprint, so we are well placed to take advantage of the developed world and developing world opportunities.
The continual challenge we face is how do we best leverage the technical capability we have located in one geography into another geography, and in this we are no different from any other international business. However, having done this type of work for many years PB does have the versatility, which means it is able to play one geography’s strength into another geography with relative ease. PB will continue with this strategy in the future.
PEi: One region that PB has been operating in for a number of years is the Middle East, a region that has experienced extraordinary infrastructure growth over the last 10-15 years. However, recently several large independent water and power project have been delayed. This is being attributed to an increasing difficulty in securing financing. Is PB concerned, at least in the short-term, that its Energy business will suffer in this region?
DR: I think any business that is engaged in the Middle East is concerned about the implications are of the current global financial markets, and I doubt there is a company operating in this region that has not been impacted because of liquidity issues.
Yes, we have seen some of the IWPP projects delayed, but I see this very much as a ‘taking stock’ situation, and in the longer-term things will sort themselves out.
In most of the Middle Eastern countries there will continue to be the demand for both power and water, so what we are seeing is a bit of a hiatus until such time that the financial markets sort themselves out and developers can satisfy themselves that their returns are in-line with their expectations.
So, in the short-term, yes, there are some concerns about which projects will continue and which will not, but longer-term I think we should be confident that the ‘fit’ project will survive, with a number of these being in the Middle East, and ultimately we will be in better shape for that.
PEi: In helping the world to meet its growing energy demand (expected to double by 2030), how important will it be to improve the energy efficiency of our power infrastructure?
DR: Initially you think doubling energy demand by 2030 can be met by doubling capacity, but clearly efficiency and effectiveness will be of greater importance over the next 20 to 30 years than seen in the past.
The electricity industry worldwide, although motivated to install new capacity, it is also motivated through legislation to do this in the most efficient way. However, as an observer I do question how effective and robust the legislation is that encourages the electricity industry to drive as hard at the efficiency side as it does on the revenue generation side associated with energy.
My guess is that over the next ten years we are likely to see more emphasis on legislation that drives energy companies to be more proactive when it comes to energy efficiency, and smart energy companies will be the ones that pick up on that legislative drive.
To a certain extent you can see some of that happening already in the UK, for example, where the regulator [Ofgem] is taking a very strong stance in terms of energy efficiency.
We will see a lot more of this in the years ahead, and it will be the smart energy companies that jump onto a proactive curve in terms of energy efficiency rather than a reactive curve.
The Ethopia-Dijbouti construction team at the Adigala 230 33kV substation
PEi: Investment in energy infrastructure projects is a key part of the recent €5 billion ($6.63 billion) economic stimulus package from the European Commission. Do you believe it will have the desired effect?
DR: I do think it is positive move, but my personal opinion is that it is not large enough to have the necessary impact. I am quite keen to see how it will be directed, but I suspect it will be so diluted that its impact will not be as effective as it could be.
I could of course be wrong, but if it was a factor of four or five times, its impact would without doubt be more tangible.
PEi: Do you favour a carbon market or carbon tax?
DR: I am very much a believer in having an effective carbon market, with carbon treated in much the same way as any other commodity. Clearly in the market value assessment of that, all the environmental impacts should be factored into the price of carbon, and I think that is where all the difficulty lies right now.
I would very much see the introduction of a carbon tax as a blunt instrument to achieve that. I would really like to think that the work and effort that has gone into the EU ETS to date could be supplemented with something that would give rise to carbon being traded as a commodity, rather than us jumping to the point of putting in place a carbon tax.
I believe the economic brains and the environmental brains that we have around us should be able to come up with an effective carbon market that moves the ETS into the space that it needs to be in. I do not believe a carbon tax is the instrument that should be used.