Del Williamson, GE Energy
(Editor’s note: Williamson, president of global sales for GE Energy, is retiring after more than four decades in the global power industry. Following are his comments on some of the major changes he has witnessed in the industry during that time.)
From the era of large, integrated utilities to today’s environment of deregulation and intense competition among a variety of power producers, the landscape of the global energy industry has undergone many significant changes over the past 40 years.
Prior to deregulation, the industry featured a heavy concentration of utilities providing the complete range of electrical services from generation to transmission and distribution. That system fostered broad industry cooperation in areas such as system planning and technology development, and broad support for industry organizations such as EPRI, AEIC and EEI.
In past decades, huge investments were made in large central station generation, leading to continuing advances in the size and efficiency of turbine generators. That period was totally dominated by the use of coal, and air quality was only starting to be a concern.
State commissions controlled all electricity rates. During the 1960s and 1970s retail rates generally increased, then flattened out over the last two decades.
In the years before deregulation, customers placed great emphasis on long-term reliability, availability and sustained quality of the equipment they were purchasing, and relationships with trusted vendors were highly valued. Short-term financial measurements make these attributes less important in today’s world. With deregulation driving competition among power producers, the bottom line becomes the predominate part of the decision-making process. Purchasing decisions often are made by simply using a pure, pro forma balance sheet approach.
With the onset of deregulation, the industry over the past five years or so has seen very little investment in transmission and distribution requirements, a situation that was brought into focus by last summer’s blackouts. Some years earlier, there had also been a cutback in maintenance of generation equipment, largely because power producers were uncertain about what might happen under deregulation, including the likelihood that their generation assets would be sold. Both factors have likely had an impact on the reliability of the U.S. electric grid.
Technology leaps forward
From a technology development standpoint, the past four decades have seen gas turbine technology really come into its own. Gas turbines have gone from firing temperatures of 1400 F up to 2750 F today, while thermal efficiency has jumped from the 28-29 percent range for simple-cycle turbines, to 60 percent for today’s advanced combined-cycle systems—quite a remarkable achievement.
Service support also has undergone significant changes. At one time the industry standard was the “service doctor” approach, with some OEMs assigning specialists to work on site with customers on a continuous basis. Today, advances in technology are allowing the industry greater use of on-line monitoring and diagnostics for both power plant rotating machinery and substation equipment.
Renewable energy is starting to make greater inroads into the total energy picture today, driven largely by new technology advances in wind power, making it more competitive. Hydropower, in many cases, is also considered as “green power.” For the future, the industry is looking at fuel cells and photovoltaics technology, as well as reciprocating engines burning fuels such as methane gas.
The renewable sector will most likely continue to experience significant growth, as many states and countries today are aiming to produce 10 percent or more of their energy from renewable sources. Globally, renewable energy accounts for only 2-3 percent of the total capacity and moving to 10 percent capability on a global scale would represent a tremendous amount of segment growth.
A need for balance
There is great enthusiasm in the industry right now for wind power and other renewables, which is a positive trend. However, what is required is a continued balancing of the energy portfolio, including everything from fossil and nuclear to wind and hydro, and someday including new technologies such as photovoltaics or hybrid fuel cellsUeach one having an appropriate niche in the overall generation picture.
To support a sound energy balance, it’s extremely important that the U.S. and the rest of the world retain the option for nuclear power, given its economic performance and the overall safety record of light water reactors. Unfortunately, today’s political environment in many countries makes the future of nuclear very difficult to predict.
Mood swings in the industry
One of the constants of the past 40 years in the global energy industry seems to have been significant over-reactions to nearly every incident that has occurred. For example:
“- The 1967 blackout caused thousands of people to rush out and buy small generator sets for their homes and businesses.
“- The 1973 oil embargo essentially shut down the gas turbine business for 3-4 years and caused the U.S. power industry to make huge commitments for new coal plants that carried into the mid-80s for construction. As a result, the favorable economics of peaking power options were generally ignored.
“- The Three Mile Island incident, coupled with Chernobyl, essentially froze the nuclear industry in place, in most of the world.
“- When the Public Utility Regulatory Policy Act came along, it triggered a surge of building smaller, under 50-MW, power plants which may not have been the most economic way to add generation to the U.S. system.
“- At the same time, deregulation caused many of the large investor-owned utilities to develop unregulated subsidiaries, sell off their own generation assets, and go to other markets to buy assets. It moved assets from one hand to another, without creating much apparent value.
“- The latest incident was the 1998 power bubble in the U.S. and all of the over-reaction, much of which was driven by the financial community. Companies were committing to buying gas turbines to help build up their market capitalization, hoping to also make money from selling power. The over-commitment period lasted for 2-3 years and the resulting capacity overhang forced many into the mode of canceling commitments to protect their financial well-being, as the financial community began downgrading merchant investments. Today, many of those gas turbine assets that are on the ground or in storage have degraded significantly from their original value.
The power industry has the highest capital investment levels in the world, yet the swings and reactions to individual events are probably greater than in any other capital-intensive business, and these incidents are examples of over-reactions that were financially harmful to the industry for the long term.
It would be quite valuable if the industry, as a whole, learned some lessons from these past events, so huge over-reactions could be avoided in the future. A more balanced energy policy, including measures to reduce some of the spikes and valleys that are created in a dynamic industry, could be a great first step.