Internet sparks explosion in power demand

Michael T. Burr

Editor

When Business Week magazine asked General Electric CEO Jack Welch recently to rank the Internet on his company`s agenda, he said, “In terms of priority, it`s number one, two, three and four.”

One can easily imagine how the Internet might affect a company as large and diverse as GE in various ways-from its subsidiaries in financial services (GE Capital) to mass media (NBC). The effect information technology (IT) has on electric power demand, and therefore power equipment sales, however, is less obvious.

At the recent POWER-GEN International conference in New Orleans, Robert Nardelli, CEO of GE Power Systems, said, “The Internet consumed 8 percent of U.S. electric output in 1998, and is responsible for 40 percent of the U.S. load growth over the past 10 years.” Computers in general, he added, used 13 percent of kilowatt hours generated in the United States in 1998.

Obviously this has a direct effect on GE Power Systems and other power equipment manufacturers. In the past two years, U.S. gas turbine orders have skyrocketed (see Figure 1). In 1997 the United States accounted for only 12 percent of the 28 GW of global gas turbines ordered. In 1998, that share jumped to 58 percent of the 54 GW ordered, and the first nine months of 1999 saw an even greater dominance by the U.S. market: 69 percent of the total 40 GW ordered through September.

These figures represent orders, of course, not actual unit deliveries. Many proposed projects will never generate a single watt. The trend, nevertheless, is clear. The mushrooming Internet and growing IT dependence in general are driving power demands upward-to say nothing of higher standards for power quality and reliability.

Growth opportunities

Not all new power plant developments are directly related to increasing demand, however; wholesale power market deregulation has opened the door to opportunities that project developers previously could not access. As a result, many merchant plant developers are targeting existing demands, rather than future load growth.

“Between 1998 and 2003, GE sees potential for displacing 38 GW of existing capacity,” said Mark Axford, a vice president with S&S Energy Products, a GE Power Systems company. This is in addition to demands due to load growth, which the company expects will total 78 GW over the same period, and nuclear retirements totaling about 7 GW.

GE`s projections assume a 2 percent-per-year load growth, and a 16 percent reserve margin. The load growth assumption is certainly reasonable, given the average 2.1 percent annual growth in electricity production the United States has sustained in the past five years. The reserve margin, however, is a different story. “The U.S. reserve margin has been squeezed in recent years, from 14 percent in 1997 to 9 percent in 1999,” Axford said.

Bringing reserve margins back to early-1990s levels will require considerable capacity additions. Some of this opportunity lies in the as-yet-undefined ancillary services market. “Ancillary services are not a market to be ignored,” Axford said. “They`re high value.”

Seeking to serve such high-value markets, power marketers are increasingly getting into the generation game, Axford said. “Power marketers are stepping in and becoming the owners of gas turbines to make sure they have supply. It`s not just utilities and IPPs any more.”

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Unit orders >10 MW. 1998 was the biggest year in history for gas turbine orders, and 1999 is projected to be bigger yet. Source: McCoy Power Reports and GE Power Systems.

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