PEi: Although a global company, Ansaldo Energia in recent years has intensified its activities in the Italian power generation market. Why is Italy an attractive market for both foreign and domestic OEMs?
Carlo Luzzatto (CL): Further to the cancellation of the nuclear programme in 1987 and emerging from more than a decade of minimum investments in new plants, around the turn of the century, Italy embodied the perfect environment for OEMs serving the power generation industry: low capacity reserve with high black-out risks, a new regulatory framework (the ‘Bersani law’), which basically started the liberalization and privatization of the power sector, and a reasonably priced and secured natural gas supply.
During the course of the first decade of this century, such a scenario has so far translated into more than 27 GW of installed capacity, with another 7 GW forecast by 2010. Clearly, Ansaldo Energia was ideally positioned to play a significant role in the development of the Italian power generation infrastructure primarily by offering the market the best possible combined-cycle technology.
PEi: What are the key aspects of the Italian power generation sector that make it different from the power markets of other European countries?
CL: The power generation sector in Italy is heavily dependant upon natural gas, which has overtaken oil as the main fuel in power plants. The role of coal remains limited, and nuclear is absent. Finally, hydro plays an important role, although new investments are mainly earmarked for revamping and mini-hydro.
The fuel mix has favoured a steady increase in the average efficiency of the Italian generation fleet and lower greenhouse gas emissions. At the same time, however, the high price of natural gas is driving up the cost of electricity in the country à‚— up to +30 per cent compared to most other European Union countries. This particularly penalizes the energy-intensive industries and their overall competitiveness, and domestic consumers also are affected.
A radical shift will only be possible via a more balanced mix of fossil fuels, with a bigger share to clean coal technologies, and a return to the nuclear option. Italy also needs to put its energy policy higher up on the political agenda, so that stable regulations and faster authorization processes can be guaranteed. In turn, this will improve the efficiency of the energy markets.
PEi: The majority of Italy’s power generation in gas fired. Why does the country favour large combined-cycle power plants?
CL: Today the Italian power generation sector is relying on natural gas more than any other western developed country. This is the result of a combination of facts, and includes: the ban on nuclear power, the extensive deployment of the hydro resource with only small additional potential remaining, the very long and uncertain authorization processes for new sites, in particular for coal fired plants, and the very marginal role of renewables à‚— only wind has recently taken off.
Gas turbine plants, on the other hand, offer the opportunity of a short construction time to increase the installed capacity and increase the efficiency of old sites through repowering and conversion to combined-cycle. Because of their higher efficiency and lower environmental impact compared to conventional coal and oil fired power plants, combined cycle plants also in general enjoy shorter, although still too long, authorization procedures.
It should also be noted that gas fired combined-cycle are operationally flexible (e.g. they maintain their high efficiency, environmental impact, reliability and lifetime even when exposed to frequent start-ups and shutdowns, and partial loads), which is appearing as a “must” for Italian utilities and independent power producers.
PEi: Ansaldo Energia appears to be able to serve the large combined-cycle market in a variety of ways, from a strategic component supplier to a power block suppler to a general contractor, as well as a service supplier. What are the key factors that enable it to be this versatile?
CL: Over the last 40 plus years, only a small part of our 155-year history, Ansaldo Energia has completed more than 1700 projects throughout the world, resulting in more than 170 GW of installed capacity in 90 different countries.
In the last ten years, we have focused our manufacturing activities on gas turbines, steam turbines and electric generators; we selectively pursued turnkey contracts (giving first priority to our domestic market) and last, but not least, we boosted our service business, by developing a global service provider strategy for both our units and for third party units.
Therefore, today we can offer anything from an EPC contract, with a Long Term Service Agreement on the whole power plant down to tailored solutions for power plants revamping and repowering, to complete overhauls and original and/or re-engineered strategic spare parts. However, none of this would be possible without heavily investing in our technological independence, which led us to cut all previous licences and thus being recognized in the market as a bona fide OEM.
I would also like to highlight that versatility also comes from listening to the customer. Compared to the world’s market leaders, Ansaldo Energia cannot leverage its size and business volumes, so for us, it is extremely important to offer tailored solutions, and to demonstrate that sometimes being smaller can translate in quicker and more adaptive response.
PEi: How does a company like Ansaldo Energia meet the technological demands from customers for gas turbines with higher efficiency, but lower environmental impact?
CL: Our state-of-art gas turbine technology stems from more than 15 years of continued and increasing investments in various engineering disciplines, design and manufacturing activities, which turned us from a well-recognized steam turbine-generator OEM into a new player in the gas turbine arena. Since the early days of our technology licence contract with Siemens, we put our a lot of resources into development programmes, which had been carried out in cooperation with Siemens until the end of the licence agreement approximately three year ago, especially in the areas of combustion, automation and special materials.
As an example, the increasing market push towards higher efficiency and lower emissions led us to the development of the leading-edge VeLoNox burners, and to a series of new patents that will be used in all our upgraded gas turbine models.
As of today, Ansaldo Energia has sold approximately 150 gas turbines worldwide, ranging from 60 MW to 285 MW; most of these units are supported by our customer service, either under contractual or transactional schemes, and are remotely monitored for better and predictive maintenance.
PEi: When doing business in Italy, how important is it to have strong long-term collaborative relationships with your customers? Is this something relatively new or is it the traditional way of doing business?
CL: A strong long-term collaborative relationship with your customers is of paramount importance. With ENEL, the former Italian monopolist, we continue to nurture a strong relationship. You can say that technically we have grown together. In fact ENEL’s fleet, both the plants that they still own and those that they sold to the new entrants following market liberalization, are a big legacy for us.
Today, we continue to deeply appreciate ENEL’s trust in our business and feel the obligation to provide them with the best possible service, even as we extend our reach more and more to other utilities and independents power producers. Although every single customer in Italy has different structures, organizations, strengths and weaknesses, they all face the same market and common challenges; therefore they all look for a reliable partner, one who stands behind its commitments and consistently offers proven state-of-art equipment and long-term service.
We do see an evolution in the way of doing business, typically bigger liabilities being pushed to the equipment or power plant supplier and towards a more extensive outsourcing of activities, particularly on the O&M side. Not surprisingly all operators are having to face increased competition and higher cost of the fuels, while at the same time are expected to deliver improved returns to their shareowners. Thus, the only answer is value generation across the whole chain, with long-term collaborative relationships between the value chain players being key. As a matter of fact, hardly a day passes without being asked to help our customer to optimize their assets, certainly a big shift from the ‘equipment provider’ role we played 10 or 15 years ago.
PEi: Customers across the globe are demanding quicker delivery times. Is the demand the same from large combined-cycle customers in Italy? If so, how can companies like Ansaldo Energia meet this particular demand?
CL: To date, we have not had problems meeting the delivery times requested by customers in the Italian market.
Looking to the near future, although we recognize that customer would wish to see quicker delivery times in order to realize the cash generation from their plants, we do not envision a scenario of shorter delivery times. This is mainly because of the strong wordwide demand for equipment, which is stretching all major OEMs.
However, in an effort to meet this high demand, Ansaldo Energia is planning to more than double its production output between 2005 and 2010, via a combination of additional workshop investments in plant and equipment, revised make-or-buy and improved logistics, engineering and production workflows.
In the medium to long term, it will be very important to anticipate trends. To achieve this, we will work closely with all stakeholders, including regulators, financial institutions, and local communities, and will continue to develop in-depth knowledge of the Italian market and its dynamics.
PEi: How are the constantly changing needs and expectations of customers in Italy influencing the way that contracts are now being framed?
CL: The liberalization of the energy sector is completely changing the operational criteria of most of the power plants in Italy. Leaving aside the cogeneration plants, which normally produce without interruptions, most of the power production plants are being operated according to market criteria. This leads to a scenario in which the rotating equipment specifications are typically changing towards the requirement of a higher number of start-ups and shutdowns and partial load operations. In addition, the service contracts often include availability and reliability guarantees, linked to bonus schemes. As a result, the equipment and service suppliers are technically challenged, with higher risks and liabilities.
PEi: In the large combined-cycle market is Ansaldo Energia experiencing supply-chain constraints? If so, what is the company doing to minimize this problem?
CL: Because of the high demand for large combined-cycle plants across the world, Ansaldo Energia, as well as all its competitors, is experiencing some constraints in its supply chain.
In the past few years, however, we significantly widened and ‘globalized’ our supply chain, which is helping us getting through today’s contingencies.We also have long-term relationships with strategic suppliers, in order to secure our business and protect it from large swings in both delivery times and prices.
The success of this strategy is only made possible by a strengthened quality department, which now deals with a broader and often more remote supply chain, and by implementing risk-sharing contracts with suppliers.
PEi: How does Ansaldo Energia see Italy’s large combined-cycle power plant sector developing over the next ten to 15 years? Is Ansaldo Energia concerned what impact rising natural gas prices and Europe’s growing concern over security of gas supplies may have on its business?
CL: Everybody in Western Europe has legitimate concerns over the security of natural gas supply.
Italy is over-exposed to such risk because of its high dependence on natural gas for in its power plants. Having said that, we believe that our country has secured a strong position through agreements with North African countries and Gazprom of Russia, where ENI has played a key role. Additionally, new LNG terminals are being built, which should also make an important contribution to meeting demand, and thus lower the tension on prices.
Moving to the potential implications on Ansaldo Energia business, we do not feel at risk.
The main reason is that we are becoming more and more global, with a decreasing share of our order book coming from the Italian market; in the short to medium term, we feel that enough opportunities for natural gas combined-cycle, and even for natural gas open cycle plants will be available worldwide, where Ansaldo Energia has the necessary presence and product portfolio.
Meanwhile, we continue to develop new cleaner solutions for thermal power generation, which will be needed in the EU and worldwide to meet the ever more stringent environmental regulations.
PEi: How does Ansaldo Energia see the current credit crunch affecting the Italian large combined-cycle market?
CL: The majority of Italy’s growth in capacity has achieved in the past few years, so the market is not expected to see many new projects in the short term. Because of the credit crunch, potential impacts may be expected on project financing schemes, and depending on the duration of the credit crunch, this might simply mean delays, rather than cancellations.
However, even these days financial resources are selectively available for both thermal power generation and for renewable power projects, which benefit from incentives.
In the long run, we believe in a positive outlook, i.e. the world’s fast growing new economies will support a strong global demand for new and cleaner power generation plants.
Ansaldo Energia’s role in the important Enipower project
Ansaldo Energia has been involved in one of Italy’s most important energy projects in recent years, namely the Enipower project, which comprises 12 combined-cycle plants generating a total 4600 MW and covering five sites:
- Three plants in Ferrera Ebognone (1000 MW)
- Two plants in Ravenna (800 MW)
- Two plants in Mantova (800 MW)
- Three plants in Brindisi (1200 MW)
- Two plants in Ferrara (800 MW)
All the plants are in commercial operation with the exception of Ferrara Ebognone, which is expected to come on line by the end of 2008.
Ansaldo Energia supplied the power blocks on a turnkey basis comprising:
- V94 3A2 type gas turbine and relative 23Z top air type generator (in one of the three plants at Ferrera Erbognone the gas turbine is a V94.2 type, designed to burn syngas and connected to a 21Z top air generator)
- Steam turbine and relative generator, 21Z top air type
- Machine auxiliary systems, including governing and control sytems
- Machine cladding to reduce noise emissions complete with fire fighting and ventilation systems
- Tubing between the steam turbine and steam generator, complete with valves, reduction stations, insulation, supports, etc
The water condensers were also supplied at the Ravenna and Brindisi sites, and during construction work units 2 and 3 at Brindisi were also modified to allow them to burn the off-gas produced by the existing plants, mixed with natural gas.
Total time on site, from gas turbine placement on its base to entry into commercial service (PAC) was between 10-11 months.