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Consumption of energy is greatly affected by economic growth and thus, is influenced by trends in economic development. The International Energy Outlook 2009 (illustrated below) states that "â€¦total world consumption of marketed energy is projected to increase by 44 percent from 2006 to 2030."
Figure 1. World Energy Consumption 1980 - 2030.
Non-Organization for Economic Cooperation and Development (OECD) countries account for most of the projected increase in energy demand, whereas economic growth of the industrialized countries is expected to slow down. Non-OECD GDP increased by an annual average of 4.1 percent over the past 25 years and is expected to reach an annual average of 4.9% by 2030. This is mainly due to the growth in Chinese and Indian economies. Growth in OECD economies was an annual average of 2.9% during 1982 to 2006, and is expected to fall further by 2030. The relationship between GDP and energy consumption is shown below.
Figure 2. Per Capita Power Consumption vs GDP.
Figure 3. OECD and Non-OECD Energy Consumption.
China and India together accounted for approximately 10% of the world's total energy consumption in 1990, 19% by 2006, and is expected to reach 28 percent by 2030. Thus, non-OECD Asia shows the strongest projected growth of all the non-OECD regions, "with energy use rising by 104 percent from 2006 to 2030" (International Energy Outlook 2009). Strong growth can also be observed in the Middle East, Central and South America, Africa, non-OECD Europe and Eurasia, respectively. Energy consumption is becoming more efficient throughout non-OECD Europe, and in addition to a declining population, increases in consumption are less pronounced.
Other economic developments that also affect annual average consumption are:
Fluctuations in oil prices:
Changes in Energy Policy by country (legislation)
Increased emphasis on sustainable energy, which affects the decision over which type of energy generation to focus
Financial Crisis: the current economic downturn has resulted in a dampening of world demand for energy; however, this will remain short term and, is largely due to a slowdown in consumer demand for such goods and services. Nevertheless, a gradual return to trend growth is expected for most nations in the next 12 to 24 months.
"Renewables are the fastest-growing source of world energy, with consumption increasing by 3% per year" (International Energy Outlook 2009), particularly, for use in electricity generation (increasing at 2.9% per year from 2006 to 2030). With higher projected oil prices, in addition to rising concerns over the environmental impact of fossil fuel use and strong government incentives for a shift of focus towards renewable energy generation around the world, renewable energy sources are becoming more widely accepted and invested.
Concerns over energy security and rising greenhouse gas emissions have increased the demand for the development of new nuclear generating capacity. Nuclear power generation is projected to reach 3 trillion kilowatt-hours in 2030, up from 2.7 trillion kilowatt-hours in 2006. Despite this projection there is still considerable uncertainty about the future of nuclear power, particularly with respect to plant safety and waste disposal. Higher capacity utilization rates have been recorded for many existing nuclear facilities, encouraging the regeneration of older plants. Non-OECD countries having been granted an extension for operative plant life, however, some countries are unable to support the high maintenance costs required. On the other hand, China, India, and Russia represent over 65% of the expected net increment in world nuclear power capacity from 2006 to 2030.
At present, natural gas and coal account for more than 60% of global electricity generation. Coal, particularly in Asia, is a more economical source, since it is in ample supply.
These energy trends and their effects on suppliers and customers, in specific sectors of the power generation industry, are now discussed in greater detail in this essay.
2.0 Thermal Power Generation
2.1 Thermal Industry Trends
From 1991 to 1997, demand trends were driven by Asian countries towards steam plants (coal fired). In the rest of the world, and in particular in industrialized nations, the demand for thermal power plants was at a stagnation point that began in the 1980s.
From 1998 to 2001, there was a significant turnaround due to a strong surge in demand in the USA for gas turbines and combined cycle plants, driving orders above those for steam turbines. At the same time, the Asian market slowed down significantly.
Despite constantly increasing prices of primary energy sources, namely oil and natural gas, orders for thermoelectric power generation machinery have continued to grow. In fact, global orders for gas and steam turbines rose twofold in 2007, from 80 GW to 165 GW. There was an even sharper rise in steam turbine orders, which accounted for 70% of all turbine orders in 2007. In the medium to long term, high oil and natural gas prices are expected to continue growing, thereby encouraging the use of other cheap fossil fuels, including coal. Despite growing global interest in environmental issues, the World Energy Council confirmed the use of fossil fuels in power generation until at least 2030. However, the demand for thermo-electric power plant components fell by 11% in 2008. Furthermore, the demand for natural gas-fired plants fell to 58 GW in the first nine months of the year. Due to the slowdown in Asian economies, with respect to China and India in particular, orders for conventional coal-fired plants decreased by 15% as well.
Projections for energy usage predict a sound future for gas turbine plants. This depends on the use of fewer resources, and the reduction of harmful emissions through more efficient and clean power generation facilities. Future gas turbines will need to reach 50% efficiency in single cycle, and over 65% in combined cycle. There will be a trend towards Zero Emission Plants (ZEP), which release negligible emissions, such as CO2 and other greenhouse gases. Even higher efficiencies will be achieved by combining gas turbines with fuels cells, though, only after fuel cells have reached suitable economies of scale, cost, and reliability.
Within the thermal power industry, the relationship between contractors and their suppliers is usually on a long-term basis. This is due to the fact that power plant infrastructure has a long operating life, is immovable, and requires long-term planning for fuel supply and asset lifecycle management.
The most pertinent trend in this sector is that of tighter environmental standards, particularly in reference to tightening greenhouse gas regulations. This trend has lead to stricter supplier selection criteria for contractors.
The thermal power industry has undergone a restructuring that has digressed from the traditional, vertically integrated supplier. Contractors now outsource more, also exploiting economies of scale in utility operations. In this sense, globalization is vital because the power generation market now seeks out the highest bidder worldwide, rather than focusing solely on domestic suppliers. In some situations, however, contractors are forced to use local suppliers due to the presence of offset agreements.
Demand for power is growing and customers require better quality and reliability in products/services. Contractors must ensure that their suppliers are able to increase generation on short notice to meet fluctuating demand. Customers may even ask to take part in supplier selection for processes that involve key components.
The industry is characterized by consolidated players and customers who require a high level of commitment and expertise. Companies usually maintain long-term relationships with all their customers, who tend to be big in size and have high bargaining power due to the high level of investment that a new power plant requires.
In the construction, or upgrading, of new power plants, most contract risks are represented by penalties for delays, contractor claims, and/or internal/external cost increases. There are also issues relating to customer approval, quality, plant availability during the warranty period, and safety. More specifically, according to: the value of the contract; the type of customer; and the importing country, companies try to take all the necessary precautions to limit risk in terms of both payment and financial instruments used. In the most complicated cases, insurance coverage is utilized, or financial assistance is provided to the customer.
Most of the companies offer their customers a comprehensive portfolio of integrated solutions and services. The concept of quality, as the combined product of all business activities, from sales to service, stresses that every transition brings the risk of potentially loosing that quality. The result is that the quality perceived by the customer is not the same as the quality expected by corporate management.
3.0 Fuel Cells
3.1 Industry Trends
Although some data may not be fully comparable due to differing organizations responding year to year, looking at the chart referring to year 2003 - 2006, growth in the industry can be seen over the four year period. The data supplied shows the following trends:
Sales have increased 14% - from $339 million in 2003 to $387 million in 2006
R&D expenditures have grown 26% - from $659 million in 2003 to $829 million in 2006
Employment in the industry has risen 36% from 6,350 in 2003 to 8,647 in 2006
Figure 4. Growth Chart (2003 - 2006)
Prominent locations for fuel cell related manufacturing, and/or R&D activity, are as illustrated by the following diagrams. This data shows where fuel cell technology has been established and is continuing to develop through R&D.
Figure 5. R&D expenses ($ millions) and Employees by Country
Standards for the safety of stationary power application were the first to be developed in the fuel cell industry. Today this standards have been in use for over a decade and, with installations now in the thousands worldwide, have shown themselves to be effective.
The standards system for fuel cells does, however, remain a mix of national, regional and international standards, some of which overlap and duplicate others. This tends to create much of the uncertainty when selecting standards against which a design should be based. While the long-term goal of the industry is to develop a more streamlined standards system based on a single set of international norms, this will likely take some time to achieve.
The main supply issue, specific to critical core components, is the lack of appropriate suppliers for stack components. For instance, long-term supply contracts are more likely since suppliers of membranes are limited and hard to find, in addition to strict selection criteria with respect to supplier reliability.
The key customers vary significantly among manufacturers. Manufacturers are interested in providing prime power, backup power, motive power, combined heat and power, and renewable power to a variety of customers including utilities, industrial, telecommunication, government, mixed commercial, business, and consumer. Fuel cells manufacturers continue to find an ever-expanding market in which fuel cells can be a clean and effective alternative to commonly used technologies.
However, due to the lack of robustness in comparison to traditional technologies and high capital and operating costs, the fuel cell market is presently in the demonstration and product validation stage, where focus is on product development, as well as customer feedback in order to understand their requirements and enhance product solutions.
4.0 Nuclear Power Generation
4.1 Nuclear Industry Trends
The nuclear power sector has recently seen resurgence, mainly lead by a rising demand from China, and the need to build new reactors to replace those at the end of their service life. Furthermore, President Obama recently announced, in the 2011 budget request, an $8 billion loan guarantee for the construction of the United States' new nuclear plants, the first plant construction project in 30 years. The generational leaps, both in the past and the expected future, can be visualized in the following chart, sourced from the UN International Nuclear Commission.
Figure 6. Generation IV Nuclear Energy Systems.
Note that, the forces driving the present increase in the nuclear market trend are similar to those of the past. This is to say, a mix of social and economic factors mainly lead by government and social perceptions of nuclear power.
With respect to governmental support for nuclear power, it is important to note the need for governments to maintain a geopolitical-independent energy source to feed the country's power requirements. The funding programs in the past have either been initiated to take advantage of technological development opportunities, or to respond to crises: Exploration of the possibility of 'cheap' fuel (1950's), to permit the 'feeding' requirement of nuclear arsenals (1960's), to respond to fuel price crisis, to respond to public perception (1980's), and to keep carbon emissions targets.
In addition to the above macro events, the financial requirements of nuclear power generation must be considered, in other words, the upfront capital investment required to initiate the building of a nuclear power facility. The policies to fund nuclear power generation have varied depending on geographical location and economical context in which they were undertaken. However, all nuclear power reactors have been financed or subsidized by government funding. For example, the United States nuclear power contribution to its national grid was 19.3% in 2005; noting that no new reactors have been approved for construction by the Nuclear Regulatory Commission since 1978. Therefore, there is increasing demand for the development of commercial reactors, with a view to be in service in the next twenty years.
Currently, there are 436 nuclear reactors safely generating electricity around the world, accounting for about 15% of global electricity output. The figure below shows the graphical distribution of nuclear reactors worldwide. The following table gives further information about nuclear power and number of reactors in each country.
Figure 7. Nuclear Reactors Worldwide.
The status of nuclear power globally:
Â Â Â Â Â Operating reactors, building new reactors
Â Â Â Â Â Operating reactors, planning new build
Â Â Â Â Â No reactors, building new reactors
Â Â Â Â Â No reactors, planning new build
Â Â Â Â Â Operating reactors, stable
Â Â Â Â Â Operating reactors, considering phase-out
Â Â Â Â Â Civil nuclear power is illegal
Â Â Â Â Â No reactors
Table 1. Distribution of World Nuclear Capacity.
1. a One of the conditions of Lithuania's entry into the European Union was that the Ignalina Nuclear Power Plant, Lithuania's only nuclear plant, be closed on safety grounds. As a result, Lithuania has proposed a replacement to be built on the same site.
2. b North Korea has four incomplete reactors, two frozen in 1994 under the U.S.-North Korea Agreed Framework, and two under construction by KEDO until suspended in 2003. An experimental 5 MWe reactor is operating at the Yongbyon Nuclear Scientific Research Center.
3. c The nearly completed Å»arnowiec Nuclear Power Plant was abandoned in the early 1990s. There is wide political consensus that Poland needs at least 2 nuclear power plants in the north of Poland but no binding decisions have been made so far.
4. d Energy percentage produced.
5. e KrÅ¡ko Nuclear Power Plant, although it is located in Slovenia, 50% is owned by Slovenia and 50% Croatia, so half of electricity goes in Croatia
Reactor suppliers in North America, Japan, Europe, Russia and elsewhere have a dozen new nuclear reactor designs at advanced stages of planning, while others are at a research and development stage.
At the commercial level, by the end of 2006 three major Western-Japanese alliances had formed to dominate much of the world reactor supply market:
Areva with Mitsubishi Heavy Industries (MHI) in a major project and subsequently in fuel fabrication,
General Electric with Hitachi as a close relationship: GE Hitachi Nuclear Energy (GEH)
Westinghouse had become a 77% owned subsidiary of Toshiba (with Shaw group 20%).
Subsequently there have been a number of other international collaborative arrangements initiated among reactor vendors and designers, but it remains to be seen which will be most significant. The table below enlists the customers (Utility Generators) for these suppliers.
Table 2. List of Nuclear Operators in the World.
The nuclear industry (the large reactor vendors and utilities) is now working in cooperation with national and international regulatory and safety bodies with the aim of harmonizing regulatory and utility requirements to reactor designs throughout the world. Such harmonization would lower costs for manufacturing, construction, maintenance and refueling outages. Standardized designs can be produced en masse and with economies of scale.
In order to understand the relationship with suppliers, it is necessary to know which the prime participants in a nuclear project are:
Government - which is responsible for overall energy policy and, in some cases, financing
Market - formed by electricity customers wanting electricity at a competitive price
Utility (generator) - which is ultimately responsible for developing the complete project
EPC contractors - engineering, procurement and construction companies which are responsible to the owner for delivery according to schedule and budget
Vendors - which are responsible for supplying equipment and technology to either the owner, the EPC contractor or as part of a joint venture or consortium, according to schedule and budget
Safety authority - which is responsible for addressing all matters related to protecting public safety and the environment, from the design stage to plant operation and fuel management.
During the construction phase, the various risks can be covered by contractual arrangements among the utility, EPC contractor and vendors. Here there is a range of possibilities. For example, in a turnkey project the EPC contractor can assume almost all risks of cost overruns. Financial penalties and rewards are common, for parts of the construction contract relating to timing and quality. As an alternative, utilities can assume greater risk in exchange, perhaps, for the opportunity to benefit from a lower overall cost.
EPC contractors and vendors will limit their exposure and ultimately a portion of the risk will still reside with the utility. Because nuclear plants are very expensive, risking company balance sheets, forming consortia to share risks may often be a good solution.
5.0 Competitors Analysis
The company operates in the power generation market that is part of the broader energy market. The value chain for the power generation market and the main players is as shown in figure below.
Figure 8. Competitor Value Chain.
We have chosen the main competitors that are as follows:
Table 3. Competitors by Energy Sector.
GE Energy infrastructure segment is engaged in the development, implementation and improvement of products and technologies that harness resources such as wind, oil, gas and water. It includes energy, oil & gas, and water & process technologies business. Energy business serves power generation, industrial, government and other customers worldwide with products and services related to energy production, distribution and management. It offers wind turbines, aircraft engine derivatives, gas turbines and generators, and motors and control systems.
Their global presence is as shown in the Fig. 9 below.
Figure 9. GE Global Presence.
Through its partnership with USCAP(US Climate Action Partnership), GE is urging the U.S. government to enact strong legislation to reduce greenhouse gases.
GE is one of the world's leading wind turbine suppliers. With over 10,000 worldwide wind turbine installations comprising more than 15,000 MW of capacity; GE plans to be a leader in this segment of the market.
GE's Boiling Water Reactor (BWR) technology accounts for more than 90 operating plants in the world today.
The division's activities encompass design, engineering, and supply. The energy service division offers comprehensive services for complete power plants and for rotating machines such as gas and steam turbines, generators, and compressors. The division is also responsible for power plant maintenance and operations and the provision of emissions control services and systems. It's the only company worldwide that supports customers from the production of oil and gas to power generation and the transmission and distribution of electrical energy.
The global presence is as shown in Fig. 10.
Figure 10. Siemens Global Presence.
Development and production of systems based on emerging technologies such as fuel cells and fuel Renewable Energy: Wind power, Solar Power, Photovoltaic and Geothermal.
Siemens is developing energy technologies, for example: processes to capture and securely store the CO2 emitted by fossil fuel power plants.
Alstom is engaged in designing and manufacturing products and systems for the energy and transport infrastructure industries. The group serves the power generation market through its power systems sector and its power service sector; and the rail transport market through its transport sector. The group primarily operates in Europe. It is headquartered in Paris, France and employs about 76,000 people.
The power systems segment provides steam turbines, gas turbines, wind turbines, generators and power plant engineering. It also focuses on boilers and emissions control equipment in the power generation, petrochemical and industrial markets. The segment also supplies wind and hydro equipment as well as conventional islands for nuclear power plants.
Their global presence is as shown in Fig. 11.
Figure 11. Alstom Global Presence.
Alstom and Schneider Electric are joining forces to launch a new venture capital fund to finance innovative start-ups in the fields of energy and the environment. The mission of Aster Capital to take minority interests in innovative start-ups based in Europe, North America and Asia, developing new technologies that could lead to major breakthroughs in the fields of energy and the environment.
Alstom is the market leader for hydro turbines and generators and has supplied 25% of the world's installed hydro power generation capacity. The group is also a market leader in the retrofitting business, with a market share of about 50%. The group has built around 30% of the world's fleet of turbo generators for nuclear power plants. Alstom would capitalize on this base.
Figure 12. Areva Global Presence.
Objective:Â provide access to cleaner, safer and more economical energy to as many people as possible.
AREVA is seeking to capitalize on its integrated business model to spearhead the nuclear revival. The group is present across all industrial activities in this sector. This integratedÂ business enables the group to better respond to the strategic challenges facing its utility customers.
In order to position itself as leader in carbon-free electricity production, AREVA has fixed the following objectives:
Build 1/3 of new power plants on the accessible market
Securing the fuel cycle for its current and future clients
Develop its technologically mature, sustainable activities for the handling of spent fuel
Mitsubishi Heavy Industries (MHI) - power systems division develops energy conservation measures, petroleum substitutes and new forms of energy. The division is also involved in the nuclear power field as one of the world's leading manufacturers of nuclear power plants. This division is into manufacturing, installation, sale and repair of boilers, steam turbines, gas turbines, diesel engines, water turbines, wind turbines, SCR (DeNOx) system, marine machinery, desalination plants, nuclear power plants and equipment, advanced reactor plants, nuclear fuel cycle plants, nuclear fuel.
Their global presence is as shown in Fig. 13.
Figure 13. Mitsubishi Global Presence.
Expand business opportunities through comprehensive proposals of energy/environment related products (policies).
Accelerate global expansion (expand base networks and form alliances).
By utilizing GTCC, wind turbines, nuclear power plants, chemical plants and other existing businesses, we shall invest in next-generation businesses such as IGCC, CCS, photovoltaic and solar thermal power plants, offshore wind turbines, EV related businesses and eco-houses.
Figure 14. Toshiba Global Presence.
Toshiba has successfully developed the world's smallest DMFC (Micro Direct Methanol Fuel Cell) as a power source for portable electronic devices.
The global research activities are managed and integrated so as to ensure all the research sites collaborate while, at the same time, remaining attuned to their local markets. This global network is advantageous not only in terms of the quality and speed of the innovation process but also enhances cost performance.
Figure 15. EDF Global Presence.
Contributing to Energy and Climate Change Package - the European Union intends to increase the share of renewable energies (hydropower, solar, wind energy, biomass, and geothermal energy) in its energy mix to 20% by 2020 and to achieve this target, making major investments, mainly in hydropower, wind, and solar energy, with the support of EDF Energies Nouvelles (EDF EN, 50% EDF) and its major European companies.
Developing 'carbon-free' energy generation by developing low-carbon technologies
Promoting energy efficiency through demand management and efficient, environmentally friendly energy use
Play a leading role in the global nuclear revival,
Support the development of renewable energies and energy eco-efficiency solutions,
Consolidate positions in Europe.