www.peimagazine.com Global power deals A comprehensive review March 2012 GERMANY’S MUNICIPAL POWER PROMISES SUSTAINABILITY The positive view most Germans have of their municipal utilities could prove key to their country’s transition to a sustainable energy system. FOREIGN INFLUENCE IN RUSSIA’S NUCLEAR SECTOR As construction of Russia’s new Baltic nuclear power plant gets underway, one foreign company and its technology are playing a central role. Click here to access Fall Energy 2011 Catalogue
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www.peimagazine.com
Global power deals A comprehensive review
March 2012
GERMANY’S MUNICIPAL POWER
PROMISES SUSTAINABILITY
The positive view most Germans have of their municipal utilities could prove key to their country’s transition to a sustainable energy system.
FOREIGN INFLUENCE IN RUSSIA’S
NUCLEAR SECTOR
As construction of Russia’s new Baltic nuclear power plant gets underway, one foreign company and its technology are playing a central role.
PennWell Global Energy Group, The Water Tower, Gunpowder Mill, Powdermill Lane, Waltham Abbey, Essex EN9 1BN, United Kingdom. Phone: +44 1992 656 600 Fax: +44 1992 656 700 www.peimagazine.comChief Editor Heather Johnstone [email protected] Deputy Editor Kelvin Ross [email protected] Associate Editor Nigel Blackaby [email protected] Production Editor Piers EvansAdvertisement Sales Manager Anthony Orfeo [email protected] Advertisement Sales Manager Asif Yusuf [email protected] Studio Manager Karl Weber [email protected] Design Michael Wickers Production Daniel Greene Group Publisher Ralph Boon Corporate Headquarters PennWell Corporation, 1421 S. Sheridan Road, Tulsa , OK 74112 USA Telephone: +1 918 835 3161 Fax: +1 918 831 9834 Sr. VP Audience Development and Book Publishing Gloria Adams Audience Development Manager Janet Orton Chairman Frank T. Lauinger President/CEO Robert F. BiolchiniCirculation and subscriber enquiries P.O. Box 3264, Northbrook, IL 60065-3264 USA Tel: +1 847 559 7501 Fax: +1 847 291 4816 E-mail: [email protected]
The positive view most Germans have of their municipal utilities could prove key to their country’s transition to a sustainable energy system.
FOREIGN INFLUENCE IN RUSSIA’S
NUCLEAR SECTOR
As construction of Russia’s new Baltic nuclear power plant gets underway, one foreign company and its technology are playing a central role.
PennWell Global Energy Group, The Water Tower, Gunpowder Mill, Powdermill Lane, Waltham Abbey, Essex EN9 1BN, United Kingdom. Phone: +44 1992 656 600 Fax: +44 1992 656 700 www.peimagazine.comChief Editor Heather Johnstone [email protected] Deputy Editor Kelvin Ross [email protected] Associate Editor Nigel Blackaby [email protected] Production Editor Piers Evans Design Michael Wickers Production Daniel Greene Advertisement Sales Manager Anthony Orfeo [email protected] Advertisement Sales Manager Asif Yusuf [email protected] Studio Manager Karl Weber [email protected] Group Publisher Ralph Boon Corporate Headquarters PennWell Corporation, 1421 S. Sheridan Road, Tulsa , OK 74112 USA Telephone: +1 918 835 3161 Fax: +1 918 831 9834 Sr. VP Audience Development and Book Publishing Gloria Adams Audience Development Manager Linda Thomas Chairman Frank T. Lauinger President/CEO Robert F. BiolchiniCirculation and subscriber enquiries P.O. Box 3264, Northbrook, IL 60065-3264 USA Tel: +1 847 559 7501 Fax: +1 847 291 4816 E-mail: [email protected]
Power ReportGlobal power M&A deals 18The trends in mergers and acquisitions involving utilities are changing, with radically different fortunes affecting not just East and West, but also both sides of the Atlantic.
Features India’s coal supply challenges 26India’s desire to expand its coal � red power generation base is running up against fuel supply constraints from a state-dominated coal sector lacking investment and hampered by environmental regulations.
Sustainable power in Germany 32The positive attitude most Germans have for their municipal utilities – or stadtwerke – could prove key to their country’s transition to a sustainable energy supply.
Opinion: Europe’s power sector 36As POWER-GEN Europe celebrates its 20th anniversary, Nigel Blackaby, its conference director, considers the trends that have shaped the European power industry over the past two decades and how current developments might in� uence its evolution in the next 20 years.
Nuclear new build project 42 Alstom-Atomenergomash has signed a €875 million deal to supply and install the critical components for Kaliningrad’s new nuclear power plant. The � rm explains why this is a landmark contract both for it and Russia.
Q&A: Carlos Pone, ABB 48 With its generation capacity set to double and new T&D � nancing to hit $10 billion, Africa offers vast power potential. Carlos Pone, ABB’s manager in South Africa, tells PEi why he expects Africa to be one of his company’s outstanding growth regions.
Maintanance, repair and overhaul 52 The international market for power plant MRO (maintenance, repair and overhaul) is evolving fast, in response to global shifts in economic power and the development of national energy policies aimed at safeguarding the environment or enhancing energy security.
PwC’s recent Power Deals report reveals how the power sector’s global M&A activity is undergoing rapid changes (p.18)
C O N T E N T SVolume 20 • Issue 3 • March 2012
Power Engineering International®
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UP FRONT
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This month � nally saw the completion of the long-running merger between Exelon Corporation, America’s biggest nuclear power operator, and Constellation Energy Group. In the
PricewaterhouseCooper’s (PwC) latest report that analyses merger and acquisition (M&A) activity in the global power utilities sector, this $11.2 billion deal ranked third largest. For our cover story, we pick out the key � ndings of PwC’s Power Deals report.
Traditionally, Europe and the US have been the dominant in� uence on M&A activity; this, at least for the latter, holds true. Last year, the value of North American deals more than doubled compared to 2010 to hit close to $108 billion, with US companies leading the charge. Europe, in contrast, saw the value of its M&A deals fall a massive 43 per cent, barely reaching $40 billion; similar to the values seen back in 2009 at the height of the credit crunch.
Undoubtedly the continuing crisis in the eurozone will complicate the dealmaking environment this year, and PwC believes that whether M&A activity picks up in Europe “will rest on the extent to which economic growth signals can provide the con� dence to support Eurozone strategies”.
The report also highlights the growing in� uence of Asia-Paci� c investors, in particular Chinese companies which are stepping up a gear in their ‘go abroad’ strategies. Another emerging trend highlighted in the report is the growing interest in rapidly developing power markets such as in Brazil.
Last year saw China’s Three Gorges acquire a sizable stake in Energias de Portugal, which has an extensive generation and distribution presence in Brazil, while German utility E.ON con� rmed it was taking 10 per cent in MPX Energia, Brazil’s leading power generation company.
Although PwC believes that the “underlying fundamentals” for a return to the deal value highs of 2006–07 remain in place, “con� dence in the wider economic outlook will be pivotal” to whether or not this is achieved this year. For a complete picture of the dealmaking that was conducted in the global power utilities sector last year and forecasts for 2012, please read Kelvin Ross’s comprehensive roundup on p.18.
Another country that appears to be actively looking outside its borders is Russia. This month, gas giant Gazprom announced it was planning to jointly invest in gas � red power plants in northwest Europe, with Danish utility Dong Energy, as part of an effort to move into new markets, while Inter RAO UES, one of Russia’s biggest power companies con� rmed it is seeking to acquire power plants in both Europe and
Turkey. It also recently signed a 25-year contract to supply close to100 billion kWh of electricity to China.
Russia’s trend of exploring new markets outside of its borders does beg the question why, when you consider the size of Russia and its desperate need for new generation capacity and the modernisation of its existing assets, much of which is close to collapse.
I have recently returned from our Russia Power Conference and Exhibition, which took place on 5–7 March in Moscow, and some of the potential reasons behind this shift were highlighted during the conference. It is well documented how Russia’s conventional electricity sector has transformed itself almost beyond recognition in recent years – from a state-owned entity into a liberalised industrial sector subject to market forces. Clearly this has created a lot of opportunities but equally as many challenges.
Topping the list of power generators’ concerns is the lack of power tariff reform and its impact on their potential return on investment. As prime minister, Vladimir Putin was reticent to address tariff reform, and now that he is once again president the power industry has little con� dence that he will address this highly divisive issue. Without a realistic tariff rise generators – both domestic and foreign – say investment in new capacity and, arguably more important, the modernisation of existing power assets, is uneconomical.
As Putin beds down in his ‘new, old’ role it is unclear at the moment whether the politicians and the Russian power industry can resolve this key issue and take a step closer to creating a modern, ef� cient and sustainable power system that be� ts the country.
US dominates global M&A, but who is waiting in the wings?
“Without a rise in the power tariff for
consumers many generators say it will not
be possible to build new capacity and
modernise Russia’s exisitng power assets”
Kind regards,
Heather Johnstone, PhDChief Editor
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It has been a year since the devastating
earthquake and subsequent tsunami in
Japan killed 16 000 people and caused the
catastrophic nuclear meltdown at Fukushima.
For an industry that – according to Yukiya
Amano, head of the International Atomic
Energy Agency (IAEA) – had become “a bit
complacent” before Fukushima, the disaster
was its worst nightmare come true.
Elmo Collins of the US Nuclear Regulatory
Commission (NRC) says that watching the
events unfold on television “felt like it happened
in our own back yard”.
The headline after-effects of Fukushima are
well known: Japan’s nuclear power sector
is crippled and the country is in the midst of
an energy crisis, while Germany, Italy and
Switzerland have essentially withdrawn from
nuclear power.
There have been numerous public opinion
polls about nuclear power since Fukushima,
and guess what: they all conclude something
different. Depending on which one you read,
sentiment is either anti-, pro-, or apathetic to
nuclear. Six months ago the Germans and,
understandably, the Japanese were the most
anti-atomic nations. Now, Germans are said
to be uneasy about the costs to their energy
bills that the nuclear pullout will cost them.
In fact sociologist and political scientist
Piet Sellke of Stuttgart University believes
that if Germany had held a referendum on
nuclear, the country would still have its reactor
programme in place.
Meanwhile, the French are also said to
be strongly anti-nuclear, yet believe the risk
management of EDF is so robust that they
would rather live with the devil they know than
opt for a radical change in energy policy.
So on a global scale, how much has
changed in the 12 months since Fukushima?
From a statistical point of view, the answer is
not much. On the day before the earthquake
last year, there were 442 operational reactors
in 30 countries, 65 in the process of being
built and another 158 in the pipeline.
As of the beginning of this March 2012,
there were 436 reactors operating in the same
30 countries, and 65 are still in construction.
Those European countries that were pro-
nuclear, such as the Czech Republic, the UK
and Poland, remain so, while China, India and
the Gulf States of the Middle East are pushing
ahead with ambitious atomic agendas.
What has changed is there is a far more
measured approach to nuclear, with a greater-
than-ever emphasis on safety.
Stress tests have been carried out on
reactors across the world and with the results
of these tests in Europe due in June, what
happens next will be decisive. In Brussels this
month, at a debate to mark the � rst anniversary
of Fukushima, British Conservative MEP Sajjad
Karim said the response to the tests should be
“sensible, proportionate and based on facts”,
warning that a hasty reaction could lead to
“negative consequences for safety and energy
security”.
The IAEA’s Amano says Fukushima was
“an important wake-up call” that triggered
a “nuclear safety renaissance”. He says the
disaster exposed weaknesses in Japan’s
nuclear industry, including inadequate
preparation and responses to an emergency:
weaknesses that could be traced back to a
nuclear regulatory body that “was not fully
independent from the promotional side”.
A regulatory review has been underway
in Japan and countries across the world, with
the effect that nuclear power generation is
probably safer now than it has ever been.
Collins of the NRC says that the battle for
nuclear safety “requires daily vigilance” and
that a lengthy period of time without a nuclear
incident should not be equated to a time of
prolonged peace, but instead was “a time of
increased risk”.
This mindset was what was missing pre-
Fukushima, but it is now front and centre of the
agendas of everyone in the industry.
The biggest challenge will centre on not
the new reactors, which will incorporate post-
Fukushima designs, but those aging plants of
more than 20 years’ old which account for
80 per cent of the global nuclear � eet.
These need to incorporate the safety features
of newer or future designs, especially if some
of them are to have an extended lifespan.
Peter Bradford, who previously worked
for the NRC and is a member of the China
Sustainable Energy Policy Council, says it
would be ideal if Fukushima could “steer
us away from prophecies and towards a
sensible assessment of market economics,
climate science and nuclear risks. Then nuclear
power would serve the public, not the other
way around.”
He may well get his wish. The new
regulatory and safety landscape of the
industry will put it in a strong position to take its
place in the energy policies of established and
emerging nuclear nations. While the last 12
months have seen the nuclear industry assume
a taking stock approach, the next year is likely
to be more decisive. By March 2013 we will
have a much clear idea of just what the true
after-effects of Fukushima will be.
ANALYSIS••• BY KELVIN ROSS •••
4 www.peimagazine.com March 2012 - PEi
A year on from Fukushima, what has changed?
While Germany has taken its historic withdrawal decision, the rest of the nuclear world paused, took stock…
and carried on. Yet an overhaul of regulatory and safety regimes means it is in better shape than ever.
Source: World Association of Nuclear Operators
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INTERNATIONAL••• WORLD NEWS •••
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AES Corp, the � rst US power
producer to enter China, about
two decades ago, is looking to
sell all or some of its assets there,
because it cannot pass on higher coal
costs in a state-regulated industry.
Sources said Virginia-based AES,
which has a market value of around
$10.5bn, has recently hired an in-
vestment bank to start the process.
A sale or sales is said to be
potentially be worth $300-400m.
China’s sovereign wealth
fund China Investment Corp
acquired a 15 per cent stake
in AES for $1.6bn in 2009.
The likely exit, or scaling
down, underscores the challeng-
ing operating environment in
China’s power industry, where
coal � red power producers have
little control over electricity
prices, which are set by the state.
Chinese independent power
producers such as Huaneng Power
International Inc and Datang In-
ternational Power Generation,
which generate power but don’t
own grid assets, have seen a sharp
dip in their business in recent
years as coal prices have surged.
And the pro� t outlook re-
mains murky this year in the ab-
sence of a tariff regime that al-
lows power producers to pass
on fuel costs to consumers.
Asia: The Desertec Foundation
and the Japan Renewable Energy
Foundation have signed a pact to
co-operate on developing an Asian
Super Grid. The two non-pro� t
organisations announced that they
will work on a project that would
interconnect the grids of Japan,
Korea, China, Mongolia and Russia.
Bangladesh: The country’s cabinet
committee has rati� ed an agreement
with Russia signed in November for
a nuclear power plant. The 2000
MW facility will be Bangladesh’s � rst
nuclear facility.
Cameroon: In conjunction with
Joule Africa, Cameroon is to develop
a $1bn hydroelectric project. The
project will increase the country’s
installed power generation capacity
by about 40 per cent and would
have an installed capacity of more
than 450 MW.
Indonesia: Wärtsilä will supply a
new, gas fuelled power plant to
Indonesia. The plant is to be located
in Sei Gelam Jambi in Sumatra and
will be powered by 11, 20-cylinder
Wärtsilä 34SG generator sets
in V-con� guration, operating
on compressed natural gas and
providing an output of 110 MW.
Iraq: ABB has won a $60m contract
from Shell Gas Iraq to build a gas
power plant in the south of the
country. The Khor Al Zubair project is
part of an engineering, procurement
and construction contract to build
a 50 MW plant which will feed
electricity to the facilities of the
Basrah Gas Company.
Japan: The European Marine Energy
Centre in Scotland is to help Japan
develop its � rst marine energy
test centre. The Orkney-based
EMEC has signed a memorandum
of understanding with the Ocean
Energy Association of Japan.
Jordan: Russian company
AtomStroyExport has offered Jordan
a deal for four nuclear power
reactors. If all four are built, 4000
MW of generating capacity would
be added to the grid, more than
doubling Jordan’s current capacity.
Kuwait: Alstom has been selected
by the Kuwait Ministry of Electricity
and Water to provide a fully
integrated Smart Grid solution.
The project includes an upgrade
of a town district control centre’s
energy management system, a new
integrated distribution management
system and an asset management
system.
First US power producer to enter China now plans exit
European power grid operator TenneT
and Japan’s Mitsubishi Corp have
signed a letter of intent to join up for
two more offshore grid connections.
The connections, HelWin2
and DolWin2, are both located
in the German North Sea and are
of crucial importance for the in-
tegration of offshore wind farms
to the German onshore grid.
The projects have an invest-
ment volume of about $2.2bn and
an expected third-party equity
stake of around €340m ($443m).
Investment in Smart Grid cyber
security is expected to hit $14bn
by 2018 according to a new report.
But analysts at Pike Research
say that while utilities are planning
Smart Grid deployments at a greater
pace than ever before, “cyber security
is still way behind the attackers”.
“Cyber security remains a check-
the-box exercise for many utilities,
with spending limited to whatever is
needed to survive compliance audits,”
said Pike senior analyst Bob Lockhart.
But he added that more Smart
Grid technology companies are now
proactively seeking out security
vendors for assistance in building
cyber security into their products.
Qatar Electricity & Water Company
(QEWC) will continue its policy of
pursuing roles on power and water
projects outside of its home market.
Abdulsattar al-Rasheed, chief
executive of� cer of QEWC’s Ras
Abu Fontas power plant, said that
the company agreed that it was
necessary to look to opportuni-
ties abroad. “We have a stake in
a power plant in Jordan and also
one in Oman. Now we are com-
peting with Siemens in Dubai for
the Hassyan power plant,” he said.
Smart Grid cyber spend to hit $14bn
Saudi Electricity is looking for
companies to build and operate
a 1700 MW independent power
plant (IPP) running on fuel oil.
Expressions of interest in run-
ning the plant at Rabigh on
the west coast of the world’s
largest oil exporting country
will be submitted this month.
The Rabigh IPP2 plant is the
fourth of � ve planned IPPs that will
add a total of around 11 000 MW of
power generation capacity. The other
three are under construction and in-
clude the 1200 MW Rabigh IPP1.
SEC will buy electric-
ity from the new company
under a power purchase agreement.
Saudi Electric plans 1700 MW oil plant
Investment in US wind farms and
wind energy businesses tumbled
38 per cent last year to $9.7bn, as
the economic climate worsened
for wind-power companies, which
are � nding it increasingly dif-
� cult to attract venture backers.
According to data from
Bloomberg New Energy Finance,
venture capitalists have practically
left the sector altogether.
They invested only $177.6m
in wind startups last year,
down 71 per cent from the
year before, BNEF found.
Wind power is bucking a broader
trend for clean energy, which is
experiencing a surge of investment.
Venture backers pumped $4.29bn
into the green tech industry in 2011,
up 13 per cent from the previous
year, according to the National
Venture Capital Association.
A key factor is a glut of
turbine production, fuelled by
investments over the last half-
decade in the US, Europe, and
Asia, and not enough demand.
Global purchases of turbines
will fall 14 per cent this year from
2010 and stay within 2011 levels
for two years, BNEF estimates.
That is hurting the biggest makers
of turbines such as Denmark’s Vestas.
US wind market in dif� culty
Qatar targets overseas power projects
TenneT in wind power pact with Mitsubishi
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EUROPE••• WORLD NEWS •••
The German government has
drafted legislation to cut solar
power subsidies, a move slammed
by the renewables industry.
Carsten Koernig, head of the BSW
Solar industry group, said the plan
was “dangerous as it would destroy
investment security. We fear a rollback
in clean energy and climate policy at
a time when Germany wants to lead.”
Germany, the world’s largest
solar market, wants to halve the
annual number of installations after
incentives for the industry pushed
capacity past government targets.
The draft bill, to be debated
later this month, would
drastically cut solar subsidies and
eliminate them altogether for
the largest photovoltaic plants.
10 Visit www.peimagazine.com for more news March 2012 - PEi
The European Commission is
to open talks with Russia and
Belarus in a bid to integrate
the Baltic States’ electricity
system with other parts of Europe.
Estonia, Latvia and Lithuania
are currently part of Russia’s
UPS IPS grid which was built
as part of the Soviet system.
While it is accepted that, in
the short term, Russia’s electricity
system is incompatible with that of
the rest of Europe – Russia has no
means of auctioning interconnector
capacity – the EC regards building
links to the Baltic ‘electricity
island’ as a key stepping stone to
wider European energy security.
It would like to see the three
Baltic states link with Finland,
Poland, Germany, Denmark and
Sweden and there are also plans
for a north-south interconnector
between the Baltic states and
central and southeastern Europe.
Meanwhile, work has
started on the Baltic nuclear
power plant in Kaliningrad.
Two units of the VVER-1200
design are due to be commissioned
in 2017 and 2018, respectively.
The plant will not only
supply power to the Kaliningrad
region, but will also provide
energy exports to the Baltic
states and northwest Europe.
Bulgaria: The European Bank for
Reconstruction and Development has
given a €10m loan to Bulgaria to help
it promote energy efficiency measures
across the country.
Austria: Chancellor Werner Faymann
believes the European Union will
this year face pressure to abandon
nuclear power. He said he expects
anti-nuclear petitions to start in
at least six EU states. Petitions that
attract at least 1 million signatures
can seek legislative proposals from
the European Commission.
Europe: Italy and the Nordic regions
are leading the way in smart meter
deployments, according to technology
company Sentec. Research from the
company shows the countries have an
installed smart meter capacity of 94
per cent and 70 per cent respectively.
Europe: European Energy
Commissioner Gunther Oettinger has
said that national elections are bad
news for energy policies. With voting
this year in France, Russia and the US,
Oettinger said that power generation
and elections are “not a good couple”,
because energy policies are “quite
complicated” for an electoral debate.
Poland: Poland vetoed a plan backed
by 26 other EU states to set targets
to reduce greenhouse gas emissions
beyond 2020. Poland was the only
country to vote against plans to cut
emissions by 40 per cent by 2030, 60
per cent by 2040, and 80 per cent
by 2050.
Russia: Gas giant Gazprom and
Danish energy company Dong Energy
are planning to invest in power plants
in north west Europe. Gazprom said
the two companies “agreed a plan of
action concerning existing gas � red
power plants and the construction of
a new, modern steam-gas plant.”
UK: A Green Investment Bank
will be based in Edinburgh with a
smaller of� ce in London. The bank,
announced in 2010, will have an
initial £1 billion budget to help fund
renewable projects in the UK.
UK: Horizon Nuclear Power is in the
“� nal stages” of selecting the design
for its proposed new nuclear power
station in Wales from the AP1000
from Westinghouse or the European
Pressurised Reactor from Areva.
UK: E.ON is to close its Kingsnorth
coal � red power station in March
2013. The 1940 MW plant will have
reached the end of its allocated
running hours under the EU’s Large
Combustion Plant Directive.
The largest biomass power station
in the world was shut down by
a � re which engulfed several
thousand tonnes of wood pellets.
The 750 MW plant at
Tilbury in the UK, run by RWE
npower, had only been fully
operational for a few weeks when
the � re broke out earlier this month.
Of the plant’s three units, one
is expected back online in April
while the other two, which were
directly affected by the � re, are not
expected to be operational until July.
EC in talks with Russia to free up Baltic electricity ‘island’
Polish utility Enea is considering a
joint venture with Poland’s largest
gas company gas PGNiG to build
a series of gas � red power plants.
Enea chairman Maciej Owczarek
said that the companies were
considering building “not one, but
several gas-� red power plants”.
Owczarek also said that Enea was
looking into shale gas opportunities
– Poland has the largest reserves
of shale gas in Europe and is the
EU’s most pro-shale advocate.
“It would be unreasonable
for Enea to remain completely
disengaged from shale gas,” he
said, but added: “We shouldn’t
rush with the decision.”
Enea targets gas joint venture deal
German fury at solar subsidy cuts plan
Scotland may extend the life of the
country’s two nuclear power plants —
Torness and Hunterston, which are
operated by EDF — to help the tran-
sition to producing all of its electric-
ity from renewable sources by 2020.
The Scottish government said
it still plans to phase out nuclear
power and rely on cleaner thermal
energy to reduce carbon emissions,
adding it was on track to meet
the target in eight years’ time.
“This does not preclude extending
the operating life of Scotland’s
existing nuclear stations to help
maintain security of supply over
the next decade,” it said. “Subject
to the relevant safety cases being
made, the government would not
oppose operating life extension
applications at these sites.”
Scotland’s nuclear policy
differs from that of the UK
government, which has agreed
to build more power stations as
part of its strategy of meeting EU
targets to cut carbon emissions.
EDF wants to extend the
operating life of Torness and
Hunterston by at least � ve years.
Scotland may extend nuclear plants to ease renewable switch
Ukraine has opened up its shale
gas reserves to exploration, a
move that could help reduce
its heavy dependence on increas-
ingly expensive gas imports from
its eastern neighbour Russia.
The Ukrainian government said
it would hold two tenders for rights
to explore for unconventional gas in
two vast areas, one in the east of the
country and the other in the west.
Ukraine is one of several European
countries eager to replicate
the shale gas boom in the US.
Ukraine green lights shale exploration
Fire shuts down world’s biggest biomass plant
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ASIA-PACIFIC••• WORLD NEWS •••
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Several New Zealand renewable
power projects are scheduled
to begin construction this year.
Industrial Info is currently
tracking 25 New Zealand
renewable projects in the plan-
ning and engineering phase
that are scheduled to begin con-
struction from 2012 onwards.
The projects total more than
$4.87bn in investment value and
indicate that New Zea-
land is predominately invest-
ing in wind, geothermal and
hydro generation projects.
Hydropower currently accounts
for about 54 per cent of New Zea-
land’s generation capacity. How-
ever, looking forward, it is wind
energy projects that lead in terms
of number and project invest-
ment value. There are currently
13 wind farms in the planning and
engineering phase, totalling more
than $3.2bn, that are scheduled
to begin construction in 2012-13.
There are eight major hydro
projects scheduled to begin con-
struction that total about $1.3bn,
and four proposed geothermal en-
ergy projects that represent more
than $920m in investment value.
The largest renewable energy
project in New Zealand’s develop-
ment pipeline is Genesis Energy’s
600 MW Castle Hill Windfarm.
Australia: AGL Energy is to take
full control of Australia’s largest
coal plant, buying out Japan’s Tepco
and investment funds for A$448m
($480m). AGL already owns a one-
third stake in the Loy Yang A power
station and an attached coal mine.
Australia: The country’s coal
industry has called on the New
South Wales state government to
establish a clear strategy for power
generation that includes developing
low emissions technology to provide
certainty for industry investment
and long-term government planning.
China: US-based Duke Energy and
China’s Huaneng Group have signed
a three-year research co-operation
agreement on advanced coal and
carbon capture technologies for
Chinese power plants.
China: The government has
cancelled funding for an electricity
project in Sudan as it has lost
collateral for the loan, in the form of
oil supply, following the separation
of Sudan and South Sudan. Sudan’s
total oil resources have decreased
75 per cent after the separation with
oil-rich South Sudan.
India: Adani Enterprises has signed
� ve deals to supply a total of
4 million tonnes of imported coal
to NTPC, India’s country’s largest
power company. Adani will supply
NTPC’s 14 power stations across India
between this month and June 2012.
India: The government is set to
approve a plan to impose a 19 per
cent duty on power generation
imports to help local manufacturers
Bharat Heavy Electricals and Larsen
& Toubro compete for orders with
Chinese rivals.
Indonesia: Two new units have
been commissioned at Tanjung Jati
B coal � red power plant in Central
Java. Operated by PT PLN, Indonesia’s
state-owned utility, the units will
provide 1320 MW of capacity.
Korea: Hitachi and its consortium
partner Daelim Industrial have
received a $745.7 million order to
install two energy-ef� cient coal � red
facilities, with a generation capacity
of 1.05 million kilowatts each, at a
plant run by Korea Western Power.
Malaysia: Conglomerate Sime Darby
is considering buying the 1400
MW coal � red Jimah power plant
for more than $364m. The plant is
held under Jimah Energy Ventures
Holdings, whose majority 70 per cent
shareholder is Jimah Teknik.
New Zealand to spend $4.8bn on 25 renewables projects
An industry body for Japan’s
steelmakers, the nation’s biggest
electricity users, has urged the ear-
ly restart of nuclear power plants.
The Japan Iron and Steel
Federation fears that potential
power cuts and higher electricity
charges will further squeeze a sector
already reeling from the strong yen.
Big businesses have reacted
furiously to plans by Tokyo Electric
Power Co, or Tepco, to raise
charges, but had refrained from
calling for the restart of reactors,
wary of an angry response from
a public worried about nuclear
safety following the Fukushima
radiation crisis of year ago.
Japan steelmakers urge nuclear start
Indonesian state electricity utility
PT PLN will start operations of a new
mine-mouth coal-� red power plant
in South Kalimantan later this year.
This will be the country’s
third mine-mouth coal � red
power plant and is estimated
to cost IDR1.3trn ($143m).
PLN intends to build three other
mine-mouth plants in Sumatra at an
estimated cost of IDR26tn ($2.86bn).
The plants include South Sumatra
9, South Sumatra and Jambi
and are aiming to achieve a total
capacity of 7300 MW by 2020
in a bid to optimise coal usage.
Indonesia plans trio of mine-mouth power stations at a cost of $2.86bn
Alstom has clinched a $1.10bn
contract as part of a consortium
that will build a coal � red power
plant in Tanjung Bin, Malaysia,
its second sizable power plant deal
in the country in less than a year.
The contract is for a
supercritical coal � red plant.
These plants operate at a higher
temperature than regular coal plants,
which improves their ef� ciency.
The other consortium
members are Malaysian building
materials company Mudajaya and
construction � rm Shin Eversendai.
BP plans to withdraw from a venture
seeking Australian government funds
to build a solar power generation
project in the state of New South Wales.
“We’ve indicated that we wish
to leave the consortium and that
we won’t be part of the new bid
process,” said Jamie Jardine, a
Melbourne-based spokesman for BP.
BP, Fotowatio Renewable Ven-
tures and Paci� c Hydro Pty,
which won A$306.5m ($329m) in
Australian funds last year to build
the Moree solar farm, missed a
December � nancing deadline.
That prompted the government
to reopen the competition to other
bidders, including AGL Energy.
The solar industry faces
oversupply and price pres-
sures after Chinese competi-
tors increased production.
BP and its partners in the
proposed A$923 million solar
photovoltaic plant had failed to
sign power-supply agreements
needed to advance with the project.
The government has said the
Moree venture will still be eligible
to bid for the funds and show it is
BP quits Australian solar deal as � nancing deadline missed
Two 220 MW geothermal
power plants are to be built on
Sumatra Island in Indonesia by
GDF Suez and International
Power joint venture IPR-GDF.
The two companies, along with
project partners PT Supreme
Energy and Sumitomo Corporation,
today signed 30-year power purchase
agreements for the plants with PLN,
the state-owned utility of Indonesia.
IPR-GDF Suez Asia is one of
Indonesia’s leading power producers,
with 1280 MW of operating assets.
Two geothermal plants set for Sumatra
Alstom wins $1bn Malaysian contract
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A federal appeals court has ruled
that the owners of the San Juan
Generating Station, a huge coal
� red power plant in New Mexico,
US must continue with plans to
install strong pollution controls.
Several Californian cities
purchase electricity from the plant.
The federal Environmental
Protection Agency ruled last year
that the plant was required to in-
stall strong “selective catalytic
reduction”, or SCR, equipment
to cut its yearly output of 16 000
tonnes of ozone, � ne particulate
matter and other pollutants in
order to meet federal standards.
The plant’s owner, energy com-
pany PNM, is appealing the EPA
ruling, and the company and New
Mexico Governor Susana Marti-
nez had motioned to delay the
implementation of those con-
trols until the appeal is decided.
But the US 10th Circuit
Court of Appeals denied the
motion in a ruling that ran
to only a couple of sentences.
The ruling came on the heels
of a Sierra Club report that found
that at the same time PNM was
� ghting the more costly pollu-
tion controls, it had dramatically
increased its rates and its pro� ts,
while not meeting state energy-
ef� ciency and renewables targets.
Argentina: Energy demand in
Argentina hit a new record when
it reached 396.4 GWh in February.
The previous record was 390.4 GWh,
which was reached on 21 January.
Brazil: The Ministry of Mines and
Energy has approved testing of units
1 and 2 at the Victor Baptista Adami
small-scale hydroelectric power
plant. Each unit has a capacity of
12.5 MW.
Brazil: GE plans to build a $35m wind
turbine assembly plant in Brazil.
The plant is due to be built during
the next 6 to 12 months. GE has
secured about one-� fth of the supply
contracts for Brazilian wind projects.
Canada: Algonquin Power has
announced a 25 year power purchase
agreement with SaskPower for a
177 MW wind farm. The $355m
project will be in Chaplin,
Saskatchewan, and is due to be
completed by 2016.
Canada: Mustus Energy is to work
with Lockheed Martin to build a 41.5
MW biomass power plant in Alberta,
Canada. The project, which is due to
start this Spring and be completed by
2013, will provide enough energy to
power over 30 000 Canadian homes.
Chile: The Chilean government
wants to add 8000 MW of electricity
to the national grid by 2020, while
guaranteeing “clean, secure and viable
energy” supply. President Sebastian
Pinera said without clean electricity
“Chile will not become a developed
country”.
Mexico: Mexican wind power
capacity is set to rise from 569 MW
to about 2000 MW by the end of
this year. By 2014 the generation
“will be over 2500 MW”, said
Leopoldo Rodríguez, president of the
Mexican Association of Wind Energy.
Investment in Mexico’s wind power
sector currently stands at $2bn.
US: First Solar Inc is to build a 26 MW
solar power plant for power producer
NRG Energy Inc in Arizona. The plant,
the Avra Valley solar project, will be
built by First Solar and use the US
company’s thin � lm panels mounted
on a tracker that tilts the panels to
follow the sun’s arc.
US: Tri-State has entered into a
20 year power purchase agreement
to buy electricity from the 67 MW
Colorado Highlands wind project. The
facility will be developed by Colorado
Highlands Wind, which is jointly
owned by Alliance Power and GE
Energy Financial Services.
US coal station mandated to install pollution controls
Brazil’s largest non-government
electricity generation and distribution
utilities, CPFL, is to buy Bons Ventos
Geradora de Energia, a Brazilian
wind-power company, for $620m.
Bons Ventos owns four
wind farms which have a
licensed capacity of 157.5 MW.
The wind farms are located in
Brazil’s northeastern coast state
of Ceara and have contracts with
Eletrobras, Brazil’s state-con-
trolled electricity utility holding
company, to supply power for 20 years.
US power company Dominion
Resources is proposing to spend $1bn
to build a natural-gas powered power
plant in South-Central Virginia.
The Virginia based power
company said it plans to seek
State Corporation Commission ap-
proval for the plant, planned for
Brunswick County, later this year.
The proposed plant, with an
estimated capacity of more than
1.3 GW, is targeted for completion
in summer 2016 and is expected
to produce enough electricity to
power more than 325 000 homes.
The output would replace elec-
tricity from two coal � red units that
are likely to be retired by 2016.
Dominion plans $1bn gas plant
Wartsila has signed an operation &
maintenance agreement for the new
380 MW Suape II power plant in Brazil.
The plant is the biggest ever
built by Finland’s Wartsila and is
equipped with 17 of the company’s
20-cylinder, 46F engines. It was
inaugurated at the end of last year.
The three-year O&M deal is with
domestic power � rm Energética
Suape II and a Wartsila team will
be permanently on site to operate
and maintain the facility, which
is an intermediate-load plant de-
signed to feed electricity to the
national grid when � uctuations in
the supply of hydropower create
a need for compensatory capacity.
Wartsila in O&M deal for biggest plant
Apple has revealed ambi-
tious plans to build Ameri-
ca’s largest solar panel farm.
The � rm hopes to use renewable
energy to power a vast new data
centre in North Carolina using
the 100 acre array of panels.
The Maiden data centre helps power
Apple’s online operations, including
the iTunes store that delivers
music and apps to the � rm’s users.
“Our goal is to run the Maiden
facility with high percentage
renewable energy mix, and we
have major projects under way to
achieve this — including building
the nation’s largest end user-owned
solar array and building the largest
non-utility fuel cell installation
in the United States,” Apple said.
When completed, the 100-acre,
20 MW facility will supply 42 million
kWh of clean, renewable energy
annually. However, Apple’s site is
still dwarfed by the world’s largest
array, Golmud Solar Park in China,
which produces 200 MW of power.
The solar array was revealed as
part of a raft of green announcements
in Apple’s 2012 facilties report.
Apple set to build biggest US solar farm to run data centre
Spanish utility Iberdrola has
completed the construction of
the 304 MW Blue Creek wind
farm located in the Van Wert
and Paulding Counties of Ohio.
The wind farm employs 152 units
of Gamesa G90 turbines which
each have a capacity of 2 MW.
Iberdrola signed a power pur-
chase agreement with US com-
pany FirstEnergy Solutions in Fe-
burary last year for 100 MW of
the total output of the Blue Creek
project over the next 20 years.
Iberdrola � nishes 304 MW wind farm
CPFL pays $620m for Brazilian wind farm quartet
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Iraq’s cabinet has approved the
award of a $363m contract to
build a 1014 MW gas power
plant at Baiji in Salah al-Din
governorate to Egypt’s Orascom
Construction Industries (OCI).
“At present, we have received
cabinet approval, but have yet to
sign the � nal contract. We expect to
sign in the near future,” said OCI.
The gas � red power plant will
be constructed on an engineering,
procurement and construction
basis. Baiji is 180 kilometres
north of Baghdad and is home to
the country’s largest oil re� nery.
The facility will comprise six
169 MW turbines. The ministry
secured the turbines from
Germany’s Siemens and they are
not included in the construction
cost. The project is expected
to be completed in 21 months.
The power plant contract
has encouraged the Egyptian
company to bolster its presence in
Iraq. “We have decided to target
Iraq’s infrastructure development
programme, which has now become
a key focus for the group,” said OCI.
As part of this strategy, OCI
has established a permanent
branch in Baghdad to pursue other
major projects in the country,
speci� cally in power generation,
water, and large-scale oil and gas.
Babcock: The UK nuclear support
services company has opened an
of� ce in Lyon where it will work
with EDF’s nuclear decommissioning
and environmental division on the
dismantling of gas cooled graphite
reactors at Chinon and St Laurent.
E.ON: The UK’s Department of
Energy has approved plans from
E.ON for a 150 MW biomass power
station in Bristol. The plant will be
fuelled mainly by imported wood,
energy crops and local waste wood.
ExxonMobil: ExxonMobil is in talks
over drilling for shale gas in Turkey.
Turkey is said to have 15 trillion
cubic metres of shale gas and the
country’s state energy company
TPAO has held discussions with
ExxonMobil on exploration.
Exelon: Constellation Energy and
Exelon Corp have completed their
$11.2bn merger. The deal was
announced last year but it took
until 12 March for all the required
regulatory approvals to be granted.
The deal was the third-biggest of
2011 in the US.
CEZ: Czech Republic company CEZ
returned a better-than-expected
new pro� t for 2011 of CZK 40.8bn
($2.1bn). It said its priority for 2012
was securing extra units at Temelin
nuclear power plant.
Gamesa: Gamesa is to sell four
wind farms in the US to Canada’s
Algonquin Power & Utilities Corp for
$900m. The farms are Pocahontas
Prairie (80 MW) in Iowa; Sandy Ridge
(50 MW) in Pennsylvania; Senate
(150 MW) in Texas; and Minonk
(200 MW) in Illinois.
GE: GE is to overhaul an ageing
power station in Texas and turn it
into a combined cycle plant. When
the Marble Falls plant goes online,
due in 2014, it will be the � rst
such plant in the Electric Reliability
Council of Texas region that meets
the latest Environmental Protection
Agency greenhouse gas regulations.
RWE: The company said it had taken
a $1bn hit in 2011 from the German
government’s decision to withdraw
from nuclear power. The group’s
operating result dropped 24 per cent
to €5.8bn.
Wartsila: Finland’s Wartsila
will supply the engineering and
generating equipment for a
new power plant in Alaska. The
$106m order has been placed by
Alaksan utility Matanuska Electric
Association.
Egypt’s OCI gets approval for $363m Iraq gas power plant
India’s Tata Power has formed
an equal joint venture with
South African coal producer Exxaro
Resources to develop and operate
power projects in the African nation.
Tata Power will form the new
company, named Cennergi, through
its unit Khopoli Investments.
Cennergi will initially focus
on renewable energy in South
Africa and will later have projects
in Botswana and Namibia.
Exxaro chief executive Sipho Nkosi
said: “Cennergi has been created by
companies from developing nations
to serve developing nations. It
will play a key role in the African
electricity generation market.”
Tata in power deal for South Africa
SKF has secured a $52.25m
order from Danish wind tur-
bine manufacturer Vestas for the
delivery of main shaft solutions to
the Vestas V112-3MW turbine.
SKF president Tom John-
stone said: “Our knowledge and
experience in wind energy
enabled us to develop a unique
solution for this new turbine. Wind
energy is a key industry for the
SKF Group and we continue to in-
vest in this business by developing
new solutions to enable more cost-
effective wind energy generation.”
SKF provides solutions that
optimise the reliability and
performance of wind turbine designs.
SKF clinches $52m Vestas supply order
The Ashalim Sun PV consortium has
won a tender to build and operate a
30 MW solar photovoltaic power
plant in Israel’s southern Negev desert.
Ashalim Sun is a 50:50
joint venture between Clal Sun
and SunEdison, which is the
solar project development unit
of MEMC Electronic Materials.
The solar power plant, which will
begin to operate in the � rst half of
2015, will be one of the largest of its
kind in the world, the ministry said.
This plant will be built
besides two thermal solar plants
in Ashalim, which will each
provide 110 MW of power.
Together, the three plants will
account for 2 per cent of Israel’s
electricity generation and repre-
sent a milestone on the way to
Israel achieving its goal of 10 per
cent of electricity production from
renewable resources by 2020.
Ashalim Sun will operate the
plant for 27 years, after which the
government will take ownership.
Ashalim Sun offered a price
of 0.5365 shekels (US14 cents)
per kilowatt hour of electricity.
Ashalim Sun wins tender for Israeli desert solar project
ABB has signed a deal to partner with
Inocean to establish an engineering
services joint venture that specialises
in delivering offshore wind projects.
The new entity, ABB Inocean,
will be based in Gothenburg, Sweden.
ABB will own the majority
stake in the company, which
will undertake design, engineering
and project management activities.
The new organisation is
expected to strengthen ABB’s
expertise in the offshore wind
power integration business.
ABB in joint venture with Inocean
Doosan Heavy wins $1.3bn boiler order in India
Doosan Heavy Industries &
Construction has announced
$1.3bn of orders to build � ve
boilers for Indian power plants.
The 800 MW boilers will be
installed at NTPC facilities by 2016.
Three will be used at the Kudgi
power plant in Karnataka state in In-
dia’s southwest, and two in the Lara fa-
cility in Chhattisgarh, central India.
India is adding electricity
generating capacity to support
economic growth and may build
25 GW of plants a year until 2020.
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The landscape of mergers and acquisitions (M&A) within the global power utilities market is changing like never before.
And, for the � rst time, traditionally dominant regions are being outpaced by the world’s emerging markets.
These are the conclusions of analysts at PricewaterhouseCoopers (PwC) in their annual Power Deals report, which examines M&A trends over the past 12 months in the global power utilities market. The report covers deals involving power generation, transmission and distribution, natural gas transmission, distribution and storage, and energy retail. Renewable energy deals are excluded (they are featured in PwC’s publication Renewables
Deals). And, for the � rst time, the report looks at projections for the coming year.
Firstly, let’s look at the headline � gures. The worldwide total for M&A deals in the power sector was $174.4 billion, up 16 per cent year-on-year. Yet the number of deals was down 13 per cent from 670 in 2010 to 583 last year. This broke down as 468 electricity deals and 115 involving gas. Of the 583 total, 436 were domestic and 147 across borders.
A year ago, the value of deals had been heading towards the highs of 2006–07, the last peak of M&A activity before the credit crunch suddenly kicked in. But at the start of 2012 this bounce-back has stalled, with deal values currently near the credit crunch lows of 2009.
What has caused this? One of the major drivers is the crisis in the eurozone, which
PwC says will continue to cloud the deal environment this year. The uncertainties over the euro – with Greece’s debt crisis at their heart – caused M&A activity in the region to shudder to a halt as investors reassessed their options in the face of fears of recession and the worst-case scenario of a complete collapse of the currency.
European deals completed over 2011 totalled 142, a drop from the 190 of 2010. The value of these deals was $39.8 billion, a signi� cant fall from the 2010 � gure of $70.3 billion.
Yet the outlook for Europe is not so uniformly bleak: while deal value in 2011 was much lower than 2010, the number of deals is still considerable and PwC says that companies remain on the lookout for opportunities.
power
reportGLOBAL POWER M&A DEALS
Kelvin Ross, Deputy Editor
Mixed fortunes for power deal players
The worldwide total for merger and acquisition deals in the power sector in 2011 was $174.4 billion, up 16 per cent from 2010. But the number of deals dropped from 670 in 2010 to 583 last year.
The trends in merger & acquisitions involving power utilities is changing, with radically divergent trends
apparent not just for East and West, but also for the two sides of the Atlantic.
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power
report
EUROPE’S CRISIS SPURS DEALMAKING
A characteristic of European deals is the need for many utilities to shed assets in a bid to revive balance sheets that are mired in the red. The biggest European deal was E.ON’s sale of Central Networks to US company PPL Corporation for $6.5 billion, which was part of E.ON’s efforts to divest itself of assets worth €15 billion ($20 billion) by the end of next year. One of Europe’s biggest deals this year is likely to be E.ON’s sale of its gas transmission operation in Germany, Open Grid Europe.
Fellow German utility RWE wants to claw back €9 billion and a key stepping stone to this was the September sale of a 74.9 per cent stake in German electricity transmission system operator Amprion. Future deals to hit this target are likely to be the sale of its gas grid operator in the Czech Republic, Net4Gas, a stake in its Berlin water company Berlinwasser and parts – or all – of its Dea upstream gas and oil business.
Meanwhile in Sweden, Vattenfall drew up a consolidation blueprint with the ultimate aim of refocusing its business domestically and in Germany. This strategy got underway with the agreed sale of Nuon in Belgium to Italy’s Eni, and the sale of its Polish heat, electricity distribution and network services to PGNiG and Tauron. Vattenfall ended 2011 with a deal to sell its electricity and heating distribution assets in Finland to a Goldman Sachs/3i consortium for €1.54 billion. A further deal of note was the decision by France’s EDF to increase its stake in Italian company Edison to 78.95 per cent at a cost of $6.3 billion.
Looking to the year ahead, PwC predicts that, unsurprisingly, the eurozone crisis will continue to have an impact on M&A activity, although not inevitably in a negative way.
“It is unlikely to halt the divestment programmes of the major utility companies,” said the report.
“The underlying fundamentals for such deals remain strong. Companies need to continue to reposition their fuel and value chain mix and to seek out growth markets. They have big investment requirements and need to manage leverage. Debt markets remain constrained and, as RWE’s late 2011 share sale showed, the equity markets are likely to only provide a part answer. Raising capital from disposals remains an important priority and is likely to remain a strong feature of power deals in 2012.”
Indeed, PwC states that the eurozone crisis will “act as a spur for dealmaking”, pointing to potential sales of state-owned assets in Ireland and Italy, including the part-privatisation of Irish gas company Bord Gais.
PwC also spotlights European power grid operator TenneT as being a prime candidate for sell off. TenneT is struggling to cope with demands being placed on it by the state to link Germany’s many wind farms to the grid, a move which is critical since the Merkel government’s decision to withdraw from nuclear power.
For those companies looking to ease balance sheet woes, joint venture project and investment relationships are likely to � gure strongly in 2012. Last year RWE held talks with Gazprom about the possibility of the two � rms covering gas and coal � red plant in Germany, the Netherlands and the UK. This deal failed to come to fruition in 2011 but PwC states that it “remains a distinct possibility” for this year.
A further trend peculiar to Europe relates to energy prices, which PwC says have become “a hot issue as the cost of decarbonisation
PEi - March 2012 www.peimagazine.com 21
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power
reportGLOBAL POWER M&A DEALS
bites and the economic situation puts pressure on customer budgets”. PwC states that concerns about energy prices have created “a trilemma in the triangle that has to be balanced between affordability, sustainability and security of supply”. This is adding to the uncertainty faced by dealmakers and investors.
CHINA LOOKS ABROAD
But the European trend of companies and governments seeking to shed assets means opportunities for other acquisition-hungry regions of the world – and, in particular, China.
The most notable deal was China Three Gorges’ $3.5 billion bid for a 21.35 per
cent stake in Energias de Portugal (EDP) – a move PwC sees as “symptomatic of increased interest in expansion into overseas power markets by Chinese generating companies”.The EDP deal will give China Three Gorges a
foothold in the boom market of Brazil, a tactic mirrored by China’s State Grid Corporation’s bid for a 25 per cent stake in Portuguese power grid company REN. But expansion in the fast growing Brazilian market was an
“Concerns about energy
prices have created a
trilemma in the triangle
that has to be balanced
between affordability,
sustainability and security
of supply”
PwC believes that the crisis in the eurozone will “act as a spur for dealmaking”.
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important focus for European companies as well. E.ON lost out to China Three Gorges for the EDP deal. But this disappointment was tempered when at the start of 2012 it entered into an agreement to take a 10 per cent stake in Brazil’s MPX Energia. This deal is expected to lead to major investment by both parties into new power generation capacity. Meanwhile, Spain’s Iberdrola bought Brazilian distribution company Elektro for $2.9 billion.
This year, Chinese companies’ appetite for western markets is expected not only to continue but to intensify at some considerable pace. And it is not just the Chinese who are pursuing this ‘go abroad’ strategy. Japan’s power sector may still be reeling from the Fukushima disaster a year ago, but the country’s dealmakers are working apace.
The second-largest Asia-Paci� c deal of 2011 was the $1.2 billion distress sale by Grif� n Energy of two coal � red power plants in Australia to Kansai Electric Power and Sumitomo Corporation. Marubeni Corporation clinched a 40 per cent stake in Queensland gas distribution network Allgas, and Itochu Corporation bought a 33 per cent share of Belgian electricity � rm T-Power.
Of course, the Japanese company most affected by last year’s earthquake and tsunami is Fukushima operator Tokyo Electric Power Company (Tepco), and on the M&A front its future is suitably cloudy. The company has already started asset sales and these are likely to accelerate this year.
The total number of deals transacted in the Asia-Paci� c region in 2011 was 156, just a 3 per cent drop on the 160 done a year earlier. The 2011 deal value was $14.1 billion, compared with $19.7 billion.
NORTH AMERICA STAYS BUOYANT
If there is a constant between the 2011 M&A activity and that of previous years, it is that the North American market remains buoyant. American deals dominated the top ten as US companies moved to gain scale. In the US, 117 M&A deals done last year, a 6 per cent increase of the 110 carried out in 2010. However, the value of these deals has rocketed 119 per cent, from $49 billion in 2010 to $107.5 billion.
The year started with the $25.8 billion merger between Duke Energy and Progress Energy and was followed by a strong � ow of other deals, including a proposed merger between Exelon and Constellation and two mega mergers in the gas pipeline sector. Indeed, it is the � rst time that all-US deals accounted for six out of the ten largest deals in the PwC report.
The Duke/Progress deal will create the largest utility group in the US, with around 7.1 million electricity customers and 57 GW of generating capacity from coal, oil, natural gas, nuclear and renewables. But the biggest deal in the US – or anywhere else in the world – was Kinder Morgan’s $37.9 billion purchase of the gas pipeline assets of El Paso. PwC notes that the gas supply glut in the US, caused by the expansion of shale and other forms of unconventional gas, “has changed the economics of power generation and gas transportation”.
“Low gas prices combined with lower power demand have put strains on power generation,” it states. “Many generation plants are under-utilised in a changed supply-demand and price environment. Sales of gas � red plant have added to smaller deal � ow. The changed gas environment has created opportunities for, but has also
For
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PEi - March 2012 www.peimagazine.com 23
power
reportGLOBAL POWER M&A DEALS
put strains on, gas pipeline operators. Pipeline
businesses deliver stable cash � ows, often high
yield, but the inter-regional differences that are
the basis of pipelines � ows have been altered
in a different supply and price environment.
“At the same time, more sources of supply
have required more pipeline investment. As a
result, greater spread and size is being sought
by companies.” The Kinder Morgan/El Paso
deal highlighted this trend, says PwC.
Over the next nine months, ‘buy
versus build’ will be the mantra for US
generation, according to PwC, as current
market conditions make this the more
economical option.
For more information, enter 13 at pei.hotims.com
The top ten global M&A deals in the power utilities sector are dominated by activity in the US. The Duke/Progress merger - number two on the list - will create the largest utility group in the US.
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of deals in the US, but its strength will depend on
state regulators. The big 2011 US deals are still
to get over the � nish line in terms of regulatory
clearance. “Companies will be looking closely
at the reaction of regulators before weighing up
their next moves,” states PwC.
Given that merger activity is now at the same
level as it was in 2008–09, it might be tempting
to draw some parallels between the � nancial
climates of the two times, but PwC cautions
against this. The credit crunch, it states, had
a “de� nite focus, centred around the Lehman
crash”. The current crisis, however, lacks an
equivalent “big event focus – a rear view mirror
event that can be seen as a turning point.
Instead there is ongoing material uncertainty.”
‘ROLLING UNCERTAINTY’ FOR 2012
It is this ‘rolling uncertainty’ that PwC says will
characterise deals throughout the next nine
months. Dealmakers are facing a perfect storm
of a fragmented liquidity landscape, uncertain
bank � nance and no end in sight for an easing
of debt issuance. And yet PwC considers the
credit-crunch advice of ‘if you don’t have to be
in the market, stay out of the market’ does not
apply in 2012.
While no one knows if things will be better or
worse in six months’ time, “in this environment,
perhaps paradoxically, a complete brake
on dealmaking makes less sense”. “If a deal
is highly strategic and mission critical, then
parties may feel it is worth doing if it can get
done. With the uncertainty over how long the
constraints will persist, it’s a brave bet to stay
out of the markets just in the hope that things
will improve.”
PwC concludes that 2011 saw the global
M&A deal landscape signi� cantly change. “In
the past, Europe and the US were the dominant
in� uence on deal activity,” it states. “Now two
other important in� uences are coming right to
the fore – the involvement of very active Asia-
Paci� c investors and the pace of growth markets
such as Brazil. We’re also seeing markets move
at different speeds and in different directions.
Growth in emerging markets is contrasting with
recession in Europe. These different speeds will
provide opportunities for buyers able to exploit
cross-continental value opportunities.”
The number and value of M&A deals in the North American rose last year, with US transactions dominating the global top ten mergers for 2011
The crisis in the eurozone was a key factor in European M&A deals falling signi� cantly both in value and in number
While the value of deals in the Asia-Paci� c fell dramatically, their number dipped only slightly from 2010’s � gures
South and Central America saw a signi� cant rise in both the value and number of deals
PEi - March 2012 www.peimagazine.com 25
For more information, enter 14 at pei.hotims.com
India’s coal supply challenges
26 www.peimagazine.com March 2012 - PEi
Coal shortages experienced by generators last year are likely to be a sign of things to come as it becomes clear that domestic production cannot expand fast enough to meet the
huge additional demand from the rapid power expansion underway in India at the moment.
The shortfall is leaving many projects without secure domestic supplies, which is leading to cancellations, rising imports and attempts by project developers to capture supply by moving upstream into mine development at home and abroad.
Casualties to-date include companies like Reliance and Adani Power, both of which halted planned capacity expansion last year. Experts say up to $36 billion of investment is under question, representing around 35 GW, with developers worried that plants under construction across India may sit idle on completion because of a lack of affordable, reliable domestic coal.
Financiers and project developers had been piling into the sector as power demand ballooned alongside India’s rapid economic growth of recent years. But the uncertainty over coal supply has started to rattle � nancial backers, with the Reserve Bank of India suggesting
banks freeze lines of credit to what it described as a “distressed sector”.
The move followed months of warnings from � nancial analysts that systemic defaults loomed on coal plant loans, which could have a destabilising impact on the Indian banking sector due to high exposure.
IMPORTS ON THE RISE
The domestic shortage is drawing in imports, and in 2011 India overtook China as the world’s biggest coal importer, while it remains both the third-largest consumer and producer in the world after China and the US.
Of� cial � gures are not yet out but analysts estimate India imported about 81 million tonnes of steam coal for its power plants in 2011, up about 30 per cent on the year (see Figure 1).
Fortunately demand for imports from China fell last year, dampening upward pressure on international prices from India’s additional purchases. A further 40 million tonnes are expected to be cut from China’s import total this year as up to 200 million tonnes of extra
Coal shortage threatens India’s power expansion plansIndia’s desire to expand its coal � red power generation base is running up against fuel supply
constraints from a state-dominated coal sector lacking investment and hampered by environmental
regulations and labour disputes.
Jeremy Bowden
Coal is a mainstay of India’s electricity sector, but are domestic shortages and a growing reliance on imports threatening its power generation capacity development?
India’s coal supply challenges
PEi - March 2012 www.peimagazine.com 27
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India’s coal supply challenges
28 www.peimagazine.com March 2012 - PEi
domestic production is brought online – twice that added in 2011.Last year Indonesia was India’s largest supplier, providing an
estimated 64 million tonnes of steam coal. However, total Indian purchases were lower than many forecasts for the second half of the year because of slowing activity in its $1.7 trillion economy. KPMG estimates a domestic shortfall of 189 million tonnes a year by 2015, while the government expects imports of 194 million tonnes alongside production of 770 million in 2017.
The Indian government is now estimating a total gap between supply and demand of 142 million tonnes for the whole 2011–12 � scal year, against coking and steam imports expected at around 115 million tonnes – suggesting imports are not entirely making up for the shortfall. This represents a major constraint on economic growth, as well as power output. Import prices, which are variously put at 20-40 per cent above domestic levels, add expense thereby making power projects less competitive.
To reach a targeted average economic growth rate of 9 per cent per year for the next � ve years, the government acknowledges it must remove obstacles to domestic coal development.
In the meantime, Sriprakash Jaiswal, the minister of coal, has asked the Ministry of Power to freeze the capacity of con� rmed coal-based power projects at 63 450 MW for the next � ve years – against an original target of 96 178 MW by 2017.
The uncertainty means projects not included in that 65 450 MW are now being cancelled or postponed, according to the Central Electricity Authority. To help cope with the additional demand for coal from all these new plants – albeit reduced from earlier expectations by over 30 GW – the Prime Minister’s of� ce recently agreed that Coal India Limited (CIL) could peg minimum supply at 80 per cent of full deliveries for plants built after March 2009, along with 90 per cent to plants built earlier.
CIL’s chairman and managing director, Ms Zohra Chatterji said in February that the company was able to meet at least 80 per cent of these new plants’ demand without importing, and so it may not need to buy in the international market, which it appears reluctant to do.
However, Sanford C. Bernstein & Company said in a recent report that it believes CIL will have to boost imports on government orders and the threat of penalties should deliveries fall below 80 per cent. The additional costs of imports by CIL can then be spread evenly among end-users, with only a marginal impact on price. Buying the fuel from CIL also eliminates the � nancial risk to power producers of importing coal directly.
HEALTHY RESERVES
The problem is not one of reserves. India is continuing to expand its proven reserve base (see Figure 2) despite steadily increasing production, and at current production rates of around 600 million tonnes a year it has over 300 years’ worth of supply.
CIL claims it is new environmental regulations, above all, that are hindering output growth. In 2011, Dr Manmohan Singh, India’s prime minister, passed an order from the Ministry of Environment and Forests restricting new mines in areas covering about 40 per cent
of CIL’s reserves. The Ministry of Coal, however, has questioned the move’s legitimacy and is pushing for it to be reduced to cover just 10 per cent of reserves.
In addition, the new rules mean that about 218 mines started before 1994, and previously exempt from regulations, now require environmental clearance.
The Confederation of Indian Industry says it now takes an average of seven years to receive environment and forest approvals to start mining. Worried about such delays and unable to secure supplies from CIL, some Indian businesses have begun acquiring coal mines in Indonesia, Mozambique and South Africa, a trend many call India’s “coal rush”.
CIL too is attempting to acquire mines in South Africa, the United States and Australia, but with little success so far.
However, concerns are increasingly being voiced over security of imported supplies, especially with the Indonesian government proposing to restrict exports of certain coal grades – representing about 40 per cent of total exports – from January 2014 from mines including those owned by Indian companies.
Casualties of the new environmental regulations also include companies like Madanpur South Coal Company, which has already sunk over $600 million into expanding a power plant and steel factory in Chattisnagarh state in central India, but can no longer depend on an assured coal supply from nearby mines around which the project had been based.
In a ‘business as usual scenario’, CIL’s Chatterji said her company would meet its 464 million tonnes production target in 2012–13, rising to 556 million tonnes by 2016–17. But if all environmental clearances were obtained for upcoming projects the company could produce at least 615 million tonnes by then.
In response, the Ministry of Environment and Forests assured CIL in January that it would indeed fast-track mine approvals, particularly for capacity being added to operational mines, to ensure production can rise by at least 25 million tonnes per year.
CIL has also been attempting to move up its domestic coal prices nearer to international levels to boost investment and fund a substantial wage hike for its workers. But under pressure from power
120
Steam coal imports
Total imports
100
80
60
40
20
02008 2009 2010 2011
Figure 1: India’s imports of steam coal rose 30 per cent in 2011 Source: IEA, EIA
India’s coal supply challenges
PEi - March 2012 www.peimagazine.com 29
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India’s coal supply challenges
30 www.peimagazine.com March 2012 - PEi
producers the government reversed direct rises last year, forcing CIL to absorb the higher wage costs anyway. Instead CIL has upgraded and standardised its coal classi� cation system, which would have raised the price of coal by 25–40 per cent to prevailing international levels, but it has been forced to limit price increases to certain grades of coal.
Both coal and power industry groups are also opposing the proposed introduction of a 5 per cent import duty. They claim that levying such a tax will make it all but impossible for project developers to supply power pro� tably using imported coal – even when it is mixed with cheaper domestic supply – unless power prices are allowed to rise. A levy of Rs50 ($1.1) per tonne on domestic coal producers designed to fund renewable development was introduced last year.
India’s fuel shortages are further exacerbated by a lack of trucking and reliable railway networks to transport coal inland from ports. Thermal coal stocks at ports may be as much as 9 million tonnes, according to a February Citigroup report. Moreover, CIL’s biggest coal � elds are located in remote regions where Maoist rebels operate. The guerrillas are known to target business activities for extortion and to disrupt roads and railway lines used to transport coal. They are also suspected of involvement in coal theft.
COAL SECTOR REFORM
CIL claims to be the world’s biggest coal producer, and is responsible for more than 80 per cent of India’s total consumption. Last October, it raised Rs152 billion for the government through a 10 per cent initial public offering. And at the end of February CIL became India’s most highly valued company, overtaking Reliance Industries. However, the Indian government appears to be shying away from further bold market-oriented reforms of coal production, despite calls for the dismantling of CIL’s dominant position in order to attract private investment and stimulate output.
The government has, however, pushed forward with some demand-side reforms, including expanding the number of end-users entitled to buy coal directly from CIL, which critics claim could further increase demand while doing nothing for output. The authorities will also make public the reasons why some companies are granted or denied coal, make e-auctions of coal more systematic – CIL currently sells about 10 per cent of annual production through spot and forward e-auctions every year – and auction coal blocks only after all environmental clearances have been secured.
But these measures are not expected to solve the problem without further supply-side reforms to stimulate production, including the creation of a sales platform for CIL, the sale of surplus production from captive mines and allowing all approved end-users to import. The government has also put on hold a proposal to allow private mining � rms to bid for auctions of coal blocks, because it claims state ownership of coal resources is enshrined under the Coal Mines Nationalisation Act of 1973.
India’s Association of Power Producers says that the moves, as they stand, will make the situation worse, and hopes to persuade
the government to at least give power projects � rst priority in coal allocation and allow captive block owners to sell coal, although it backs the move to keep independent miners out of coal block auctions. It has also pushed the government to lobby Indonesia to reduce coal prices, but with little effect.
LAST YEAR’S COAL SHORTAGES
CIL was reported to have reduced supply to some new plants by up to 50 per cent in 2011, and at one point several domestic newspapers reported that 11 power projects with a combined capacity of 16 000 MW had only a day’s stock left, citing the Central Electricity Authority. But Prasenjit Pal, deputy general manager at India’s biggest generator, state-run NTPC Limited, puts last year’s problems down to labour disputes and practices, along with heavy rains.
“The main problem is CIL delivers in � ts and starts,” he said, explaining that in the run-up to 31 March each year CIL ramps up output to meet annual targets, which overloads the transportation system. In March, power plants stock up on coal in expectation of a slowing of deliveries in the following months, he added. “Everyone [at CIL] relaxes after the March annual target deadline; it’s a seasonal variation,” he said. “NTPC is not seeing any major shortages now… there have been bottlenecks but it is not a long-term problem… it’s more of a logistical problem,” he said.
For fuel supply agreements signed prior to 2009, 90 per cent supply was assured and in some cases 95 per cent has been delivered. This surplus could be made available to new plants. Pal added that this will not constrain power output at these established
India’s cool reserves (million tonnes) – as of 1 January 2012 Source: CIL
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Sustainable power in Germany
34 www.peimagazine.com March 2012 - PEi
feedstocks. This transition is already creating problems for the German
electricity transmission system. In some periods, � uctuating renewable
sources sometimes produce hardly any electricity, leaving conventional
and nuclear power plants to meet the bulk of electricity needs. But during
periods of high wind and strong sunshine, output from wind turbines and
roof-mounted PV systems creates congestion in the transmission grid.
Large German central power plants, with output controlled by the
transmission system operators (TSOs), are often no longer the main
producers of electricity. Yet these big power plants have to maintain the
balance between electricity production and consumption to safeguard
the 50 Hz frequency.
To compensate for a decline in their frequency control capacity, TSOs
are now seeking direct access to stadtwerke distributed generators to
manage their output. If stadtwerke lose full control over their generating
units, these plants are likely to run for fewer hours and to provide a lower
return on investment. Uncertainty over local power plants’ operating
hours clearly makes a further expansion of stadtwerke power capacity
less attractive.
Users of the electricity transmission system normally pay a fee to the
TSOs. Municipal cogeneration systems are currently exempt, as they
are designed to deliver electricity to local customers without using high-
voltage transmission lines. But German TSOs now want to levy this fee
on all grid-connected equipment and legislation to impose this is in
preparation. Local generators will also be expected to act like large
central generators during contingencies such as short circuits and power
plant failures.
CLEARING THE WAY FOR STADTWERKE
German engineering ingenuity is likely to overcome these challenges.
Stadtwerke are already installing large hot water reservoirs to decouple
their CHP systems’ electricity generation and heat production. Storing
heat in large water tanks is relatively cheap and very effective. Electricity
can thus be produced at high cogeneration ef� ciency when renewable
energy output and demand for heat are both low.
Fear that reduced running hours could cut investment returns on
stadtwerke equipment could be relieved by establishing compensation
mechanisms for such back-up facilities. Rapid back-up generators for
Renewables
Combined heat and power
Conventional
Power capacity German stadwerke:
10165 MW (2010)
The electricity generation capacity of the German stadtwerke sector in 2010
A biogas plant with two 1.2 MW units run by a German municipal authority Source: MWM
Sustainable power in Germany
PEi - March 2012 www.peimagazine.com 35
renewable energy sources have a legitimate claim to remuneration and
are likely to be a permanent feature of the power system; solutions such
as batteries are not expected to cover electricity needs by charging in
summer and discharging in darker seasons, so natural gas and biogas
remain by far the best long-term energy storage solution. Gas � red
equipment also offers outstanding agility for stabilising electricity systems.
Customers have been shown to greatly value the stadtwerke model
for providing heat and electricity. Stadtwerke can ensure long-term
strategy for a reliable, ef� cient, environment-friendly, affordable and
accountable energy supply. It is to be hoped that national policymakers
will understand and appreciate the bene� ts of the stadtwerke concept
and facilitate its further expansion.
Jacob Klimstra will chair a session on the future of stadtwerke power provision
on 14 June 2012 at POWER-GEN Europe in Cologne, Germany.
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Opinion: Europe’s power sector
36 www.peimagazine.com March 2012 - PEi
Signi� cant transformation has epitomised the power industry over
the past two decades. As the sector strives to balance the needs
of consumers, governments and the environment, few could
have predicted the shape of the current energy mix and even fewer
would have thought we would still be so reliant on fossil fuels. Looking
back, industry commentators agree the most signi� cant trend has been
the industry’s shift from being largely state-owned, centrally controlled
and dominated by large integrated companies to that of a liberalised
environment.
The deregulation that began in the early nineties, led primarily
by the UK and Norway, has since spread throughout Europe. Some
would suggest this has led to lower prices for the consumer and
the introduction of ef� ciencies into the marketplace. Others would
argue that energy costs for end-users have actually risen in real
terms, that there continues to be a lack of true competition, and that
wider market uncertainty still hampers long-term investment in plant
and infrastructure.
Certainly further deregulation, the ‘green agenda’, the integration
of renewables into the electricity system, plus new uses of electricity
such as electric vehicles, bring fresh challenges, but they also create
exciting new opportunities, as do increasingly rapid advances in plant,
storage and Smart Grid technologies. As always, huge questions
remain over the future of nuclear energy and other fossil fuels that have
an impact on the environment.
The choices we make about
these technologies and the
way in which we manage the
whole electricity infrastructure,
potentially impacts the global
economy and our way of life.
MARKET LIBERALISATION
The unbundling of generation,
transmission, distribution
and supply (retail), as well
as the creation of energy
trading markets have
driven ef� ciencies into the
marketplace, primarily
in respect of technology
ef� ciencies and lower
wholesale prices via energy trading. Speci� cally, combined-cycle gas
turbine generation has continued to blossom, with major advances in
both ef� ciency and size.
Gas turbine technology provides a means of constructing power
plants in a relatively short time and at much lower cost, with a lower
The European power industry continues its revolutionAs POWER-GEN Europe celebrates its 20th anniversary, Nigel Blackaby, its conference director,
considers the trends that have shaped the European power industry over the past two decades and
how current developments might in� uence its evolution in the next 20 years.
European Union’s climate goals heavily rely on the successful commercialisation of CCS technology Source: Doosan Power Systems
Nigel Blackaby, conference director, POWER-GEN Europe
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Opinion: Europe’s power sector
38 www.peimagazine.com March 2012 - PEi
environmental impact and increased ef� ciency of fuel conversion
into electricity. At the same time, the change in the marketplace and
introduction of competition have accelerated its adoption, since new
investors look for propositions with shorter lead times, greater certainty
of outcomes and easier permitting.
This boost was critical in redressing the effects that the stagnation
in power consumption of the late 1980s and resulting over-capacities
had in directing investment away from infrastructure towards mergers
and acquisitions. Indeed, many utilities delayed investment in new
plant until the impact of liberalisation became clear and a number
of equipment manufacturers suffered as a result. That said, investment
decisions continue to be clouded by a myriad of factors today.
INVESTMENT DECISIONS
In unbundled markets, companies must consider their investments
carefully because every plant has a technical life of 40–50 years,
meaning there is always the risk of a competitor emerging with a better
technology. The climate debate has added to this uncertainty, with the
landmark Kyoto agreement of 1997 and the European Union’s (EU)
20-20-20 targets established in 2007–08 driving a major and long-
lasting shift in focus to addressing concerns around carbon dioxide
(CO2) and other greenhouse gas (GHG) emissions.
Carbon reduction and renewable energy legislation has been
enacted in the majority of European countries, prompting an increase
in the number of wood and biomass burning plants, as well as greater
interest in carbon capture and storage (CCS) technology. The major
players have programmes to develop green energy production and
have accepted they must now build power plants on the basis of clean
power. The utilities are increasingly recognising renewables, especially
wind and solar, as being the way forward.
However, regulatory boundaries continue to change in respect of
GHG emission restrictions, emission limits and carbon pricing; the
cost and availability of fuels; and the opposing positions being taken
on the development of nuclear since Fukushima. Some would argue
that nuclear has not been a realistic alternative since the disasters at
Harrisburg (Three Mile Island) in the US and Chernobyl in the Ukraine,
that coal is cheap but dirty and that despite gas turbines (and combined-
cycle) having developed to high ef� ciency and capacity, the historical
rise in the cost of oil, and as a consequence gas, has countered these
bene� ts to some degree.
Likewise, although shale gas is having a major impact on lowering
gas prices and ensuring security of supply, especially in the US, it
is facing signi� cant opposition in Europe because of concerns
surrounding the environmental impact of ‘fracking’. It is argued that
if shale gas projects were properly executed, there would be minimal
impact, making development of standards a priority and work has
already been started in the US by the Environmental Protection Agency.
THE EVOLVING ENERGY MIX
Moving forward, the industry must look much more closely at the
energy mix, because each type of fuel resource will have its place and
there will no doubt be other technologies emerging. Wave and tidal
power, for example, could be complementary, as will energy storage
via improved battery technology and pumped hydro. Both storage
and conversion of whatever the end product might be will be hugely
important because renewables, such as wind and solar, introduce
an increasing amount of non-synchronous energy into the electricity
system. This creates operational issues in the form of frequency stability,
voltage stability and provision of reserve.
Several pumped storage plants are being constructed in countries
such as Switzerland, Germany and Austria, for example, while most
countries are looking at how to address the need for large-scale
storage. In a fully sustainable world, natural gas and biogas will offer
the most economical solution for peaking power, covering contingency
demand and for bridging seasonal differences. For the time being,
there is a suf� cient supply of natural gas to act as a buffer.
There is also the issue of expanding the grid and deploying new
transmission lines to accommodate renewables, especially offshore
renewables, such as wind, which are traditionally located some
distance from the load centres. Obtaining the necessary permits and
public acceptance is currently proving dif� cult.
Similarly, doubts persist as to whether CCS is a realistic option,
given public opposition to transporting CO2 via pipeline and storing
it underground. Using excess energy from solar or wind to transform
CO2 into methane could provide a viable alternative. Meanwhile, � ue
gas cleaning and other emission reduction technologies will remain an
important aspect of the clean energy mix.
BUILDING A FLEXIBLE AND SUSTAINABLE SYSTEM
Another key development will be the Smart Grid, which is currently
undergoing a tremendous amount of development work, and will be
extremely important to the operation of electricity systems in the future.
There will also be parallel development of wind, solar and wave, as
well as geothermal and storage. Of course, the � nancial crisis of the
past three or four years has meant not just a slowdown in electricity
demand, but has led to a reduced appetite for investment in renewables.
Nevertheless, the long-term outlook for renewables is good and there is
optimism that the EU’s 2020 renewables target can be met.
For some countries with hydropower, wind and solar energy, a
decarbonised power industry is entirely possible. But for others, such as
the UK, Germany and the Netherlands, it remains a much more distant
prospect. That does not mean the industry cannot reduce the use of fossil
fuel to a large extent. Natural gas will be required as a buffer for times
when there is little wind or solar energy available, while development
of coal � red plants incorporating CCS will need to advance if the
industry is to able to utilise the large reserves of coal that remain in an
“Further deregulation, the ‘green agenda’, the integration of renewables into the power system, plus new uses of electricity, such as electric vehicles, bring fresh challenges, but
also create exciting opportunities”
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and product identity used herein, are trademarks of Caterpillar and may not be used without permission.
The Baltic nuclear power plant being built in the Russian exclave of Kaliningrad, located between Poland and Lithuania, is based on Russia’s new generation of VVER pressurised water reactors and
will comprise two identical units with individual generating capacities of 1200 MW.
The recent award of the contract for the conventional turbine island marks an important milestone for the project. Apart from featuring the new generation of Russian reactors, the project represents the � rst nuclear power plant project in Russia to involve the participation of foreign suppliers for its critical components. The conventional island will be built by Alstom-Atomenergomash (AAEM), a joint venture established in 2007 between Alstom and OAO Atomenergomash, part of Russia’s state-owned Rosatom Group.
Under a €875 million ($1.15 billion) contract signed this February, AAEM will supply and install the major equipment, including Alstom’s Arabelle™ steam turbines, generators, condensers, moisture separator
reheaters, low-pressure and high-pressure feed water heaters, feed water tanks and various other auxiliary equipment. This is the joint venture’s � rst large order and the share of equipment to be manufactured in Russia will exceed 50 per cent in accordance with the Arabelle turbine production localisation programme for nuclear power plants based on Russian reactor designs. In the future, this share is expected to exceed 70 per cent.
Under a separate contract, AAEM will deliver conceptual and basic design studies of the turbine island, turbine hall layout studies, process studies and steam and water loop studies to its customer OJSC NIAEP, the general contractor of the project, and again part of the Rosatom Group.
The Baltic nuclear project has two main goals: to provide a reliable supply of electricity to the Russian enclave of Kaliningrad and to offset the lack of electricity in neighbouring nations by exporting power to those countries.
Last month Alstom-Atomenergomash signed a €875 million deal to supply and install the critical
components for the Baltic nuclear power plant in Russia. The company’s Philippe Anglaret and
Olivier Mandement explain why this is a landmark contract, both for Alstom and Russia
Olga Gassan-zade & Kristian Tangen, Point Carbon
Baltic project marks milestone in Russian nuclear power sector
Machining of the rotor of the Arabelle steam turbine, which is now designed to work with the new generation of large-scale nuclear reactors
Nuclear new build project
PEi - March 2012 www.peimagazine.com 43
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Nuclear new build project
44 www.peimagazine.com March 2012 - PEi
HALF-SPEED TURBINE TECHNOLOGY THE NATURAL CHOICE
In a nuclear power plant, the reactor unit size in general dictates
the choice of the turbine technology. With full-speed steam
turbine technology reaching its limits at around 1000 MW,
half-speed technology is clearly the dominant technology for above
1000 MW. At 1200 MW, half-speed technology can be used
ef� ciently under a large range of reactor and site conditions. The
decision to move to the new reactor unit size under AES-2006 (VVER-
1200) therefore made steam turbines based on half-speed technology
the natural choice for the Baltic nuclear power station.
Half-speed technology is the only technology that can ef� ciently
handle the very large quantity of relatively ‘cold’, wet and low-pressure
steam produced by large nuclear reactors. The lower stress levels
achieved with steam turbines that use half-speed technology ensure high
reliability and longevity over long periods. Half-speed technology also
allows the use of longer last-stage blades (LSB) offering large exhaust
areas, which is a key parameter to achieve the best performances in
relatively cold areas.
Consequently, around 85 per cent of all nuclear power plants with
a power output above 900 MW are equipped with half-speed steam
turbines; and all nuclear power plants with a power output greater or
equal to 1200 MW are equipped with half-speed turbines.
AAEM was established to equip the turbine islands of nuclear power
plants constructed in Russia under the Federal Target Programme with
half-speed turbines based on Alstom’s Arabelle technology.
The Arabelle steam turbine is widely acknowledged as the best
half-speed turbine on the market. It offers outstanding power output (from
1000 MW to 1900 MW), ef� ciency and reliability, using a speci� c
architecture and welded-rotor technology developed by Alstom. A fully
validated and advanced Arabelle design provides proven reliability
and performance for the new generation of reactors.
Previous generations of steam turbines for nuclear plants feature one
double-� ow high-pressure (HP) cylinder in which the main inlet steam
� ow is divided into two symmetrical � ows. After expansion, the steam is
led to the moisture separator reheaters (MSRs), where it is � rst dried and
then superheated by a derivation of the main steam. Superheated steam
is then fed to each of the four or six low-pressure (LP) � ows (with two or
three LP modules respectively, depending on back-pressure conditions)
for � nal expansion down to the condenser pressure.
ARABELLE’S UNIQUE IP SECTION
In an Arabelle turbine, the steam expands in a single-� ow HP path
and is then divided to feed the two MSRs. The two superheated
steam � ows are again joined and expanded in a single � ow
intermediate-pressure (IP) section. This IP section is unique, and
Arabelle is currently the only saturated steam turbine for nuclear
plants with an IP expansion not integrated in the LP modules. The
� nal split, to feed two or three double-� ow LP cylinders, is done at
a relatively low-pressure level – around three times lower than in the
earlier generation of nuclear steam turbines.
In order to reduce overall turbine length, the HP and IP expansions
have been regrouped in a combined HP/IP cylinder, similar to those
sometimes used in fossil � red applications except for their much larger
size. A saturated steam nuclear steam turbine will accommodate an
inlet volume � ow roughly � ve times greater than a fossil � red unit
of the same nameplate rating because of the combination of much
lower steam inlet pressure and temperature.
The most striking feature of the Arabelle technology is an
architecture that makes the best use of the high-ef� ciency single-
� ow steam expansion. The single-� ow arrangement ensures higher
ef� ciency because of the reduction of secondary losses that develop
at the root and at the tip of the steam path blades.
With this unique arrangement, the single-� ow steam expansion is
maintained typically from the inlet pressure of 60 bars to 70 bars
down to approximately 3 bars. Sixty per cent of the delivered power
PEi: In your role heading up ABB’s business activities across sub-Saharan (Southern and East) Africa, what is driving your company’s particular interest in the region at this time?
CP: We want to be in Africa for many reasons, but here are just a few headline facts: Africa is forecast to have GDP growth at a rate twice that of the rest of the world, it has 30 per cent of the world’s mineral resources, it has a fast growing population and currently 600 million people still have no access to electricity. We are seeing a steep increase in population growth and in GDP growth across the region.
PEi: What extent of this growth do you see being in the electricity sector?
CP: Figures produced by the Energy Information Agency predict power generation capacity doubling by 2035 across Africa. Rehabilitation will see investment of $4 billion by 2015, new transmission and distribution (T&D) about $10 billion and new power generation $12.5 billion over the same period. When it comes to access to electricity, the average is around 15–17.5 per cent and even less if you just take sub-Saharan Africa.
PEi: What are some of the key factors driving this growth?
CP: The mining and minerals industry, as well as the oil & gas sector are looking at massive growth in the coming years. Capital expenditure in these sectors is expected to be $35 billion up to 2015 and these industries rely for the most part on electricity from the grid. Without grid connection, these projects are not viable. ABB is involved in building infrastructure to enable power to reach these mines, for example.
PEi: What is ABB’s strategy in approaching business in this region?
CP: Our intention is to work from our existing hubs in Egypt and South Africa to focus on the ten countries where we see the best potential in power infrastructure, usually driven by investment in oil & gas. These countries are Angola, Cameroon, Democratic Republic of Congo (DRC), Kenya, Mozambique, Nigeria, Ghana, Senegal, Tanzania and Ivory Coast. Of course we are in other African countries as well, including projects in Namibia and Botswana in recent years, but the ten countries mentioned above are where we see the best prospect of investment.
With electricity generation capacity predicted to double and new T&D � nancing to hit $10 billion,
Africa offers vast power potential. Carlos Poñe, ABB’s manager in South Africa, tells PEi how he has
picked his ‘top ten’ countries for investment and why he expects Africa to be one of his company’s
outstanding growth region.
Out of Africa comes unlimited opportunities
Poñe expects to see a number of private investors moving into solar in the region, and a signi� cant solar capacity being added over the next 20 years
Carlos Poñe, ABB’s Africa country manager
PEi - March 2012 www.peimagazine.com 49
Q&A
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50 www.peimagazine.com March 2012 - PEi
Q&A
PEI: How do you plan to operate out of these two hubs?
CP: We have established a strong foundation in Egypt and South Africa from where we can service the two African sub-regions (Southern and Central). We have local production and engineering centres, providing resources to neighbouring countries which we can supplement with high-tech imports from our European operations and cost-competitive technology from India and China.
PEi: How does Africa compare to other parts of the world in terms of business opportunities?
CP: If you take Africa, excluding the Maghreb, we have achieved orders of around $1 billion a year. Going forward, we expect ABB in Africa to produce growth faster than the ABB Group as a whole. By 2015–2016 we would target to double the annual order intake from present levels.
PEi: What do you see as the main challenges to this vision of business opportunities?
CP: Outside of the two hub countries, I believe the two main challenges will be � nancing and skills. The projects we are working on are often complex long-distance transmission lines using sophisticated technology and local utilities currently rely on international consultants to bridge the knowledge gap.
PEi: To what extent is energy ef� ciency an issue in Africa?
CP: In South Africa, for example, Eskom has a big drive for energy ef� ciency and last year they placed a big � rst phase order with us to replace or upgrade most of the motors and variable speed drives in their power system. Motors and machines are areas where utilities can really make a lot of ef� ciency savings. Also, big industrial customers who use a lot of electricity will be looking at ways to improve ef� ciency and reduce carbon emissions either by reducing power consumption or to produce more with the same amount of electricity.
PEi: Just referring now to South Africa, what prospects do you see for independent power producers (IPPs)?
CP: The question for IPPs up until now has been a lack of clarity in policy but this is likely to be resolved fully soon. The department of energy recently received 53 expressions of interest for renewable energy project bids, representing a potential capacity of more than 2000 MW – so we see a huge interest. There is also interest from big customers planning independent power projects in conventional power generation, either building their own or seeking outside investors. Sasol has bought a number of gas turbines and is producing power using its own gas, whereas Anglo American is working with investors to invest in power for their own mines. On a smaller scale we also see the sugar industry interested in ethanol plants.
PEi: Do you see any issue with access to the grid for IPPs?
CP: The government will produce its policy document on this early this year, and then it will be up to them and the regulator to make sure investors in the power sector are comfortable with the rules for grid access. Although Eskom owns all the transmission and distribution assets, the government is its principal shareholder so the decision will be out of its hands.
PEi: How do you foresee the prospects for meaningful amounts of wind and solar power generation across Africa?
CP: If you exclude the Maghreb, few African countries have enough wind resources to sustain big investments, whether it is onshore or offshore. In South Africa you do not have long periods with wind and the coastal depths make offshore more challenging. In solar however, South Africa is already planning a 1500 MW development near Upington and that is just the beginning. In addition to this, you will see a number of private investors coming into solar and I can see signi� cant solar power capacity being added over the next 20 years. We see good prospects for CSP [concentrating solar power] in the region and have experience in Spain and Germany we can point customers to.
PEi: Where else can South Africa expect to get its power from?
CP: There is a huge debate about nuclear. I would not rule out South Africa adding another 8000–10 000 MW of nuclear power in the next 20 years or so as it seeks to maintain its position as the powerhouse of the region. It has no more hydroelectric resources to exploit so any hydropower would need to be imported from neighbouring countries, but South Africa has been asking itself the question as to how reliant it wants to be on other, potentially unstable countries? Either way, South Africa needs to build the capacity equivalent to a new Eskom in the next 20 years.
PEi: How do you see ABB contributing to this growth?
CP: There are huge opportunities in Africa. ABB is really making a difference here. We are linked with the big steps that Africa is taking, for example the HVDC link we built in the DRC, and are currently upgrading, was the � rst one in Africa. The � rst HVDC Light project in Namibia was executed by ABB, we have done two small solar projects for Eskom and the � rst big mine in Mozambique was electri� ed, with the DCS from ABB, so we are everywhere there is big investment.
“Africa is forecast to have GDP growth at a rate twice that of the rest of the world, it has
30 per cent of the world’s mineral resources, it has a fast growing population and 600 million
planning process required in setting up new plants re� ects this. In general, the UK’s power market represents potential for growth in conventional power.
THE MARKET IN EMERGING ECONOMIES
Outside the European Union, the power industry is growing � ercely to meet the needs of developing economies, such as those of the BRIC territories: Brazil, Russia, India and China. In Russia and Korea, the nuclear industry has potential for growth, and Tyco is watching these markets with interest. With new power plants in different stages of development in Russia, Ukraine, China, Korea, Czech Republic and France, the service industry looks set to expand.
In emerging territories, cost plays a larger role. Currently, many plants carry out their own servicing and repair. Outsourcing MRO is less common, as the in� uence of the stringent standards evident in the European and North American industries slowly grows in emerging markets. For example, plants in Asia are increasingly looking for higher levels of training and experience from their engineers. China still builds, on average, one conventional coal � red station each week, providing great market potential for MRO suppliers, ensuring that the speed with which the industry is growing does not mean quality or safety-compromised plants.
CASE STUDY: ELECTRABEL DOEL POWER STATION, BELGIUM
Tyco Valves & Controls completed a €1.5 million ($2 million) service contract in November 2011, encompassing a major shutdown service package at Electrabel’s Doel nuclear power station, near Antwerp in Belgium. SABO and Sempell – two of Tyco’s specialist service brands – together completed shutdowns at all four Doel sites, including the 1000 MW Doel 3 and 4.
SABO and Sempell collaborated to provide streamlined, ef� cient and consistent service with a single point of contact, and to ensure an optimal number of engineers were available on site at all times. This approach minimised downtime and allowed the plants to restart as quickly as possible. The four Doel sites provide around 30 per cent of Belgium’s energy demand, so ef� ciency of service was a key requirement. The length of shutdown for each plant was about two-to-three weeks, with up to 40 highly quali� ed service technicians working on the project around the clock, managing the shutdowns from start to � nish.
As with all nuclear projects, MRO services require thorough documentation to enforce strict guidelines. This documentation was provided as part of the service package. The sites were visited six weeks before commencing the shutdown to scope the project and create an inventory of spare parts needed before work began.
Metso enters globe valve business by acquiring South Korean technology and service company Valstone Control
Conference & Exhibition
6 - 8 November 2012Sandton Convention Centre
Johannesburg, Republic of South Africa
www.powergenafrica.com
GLOBAL TECHNOLOGY FORLOCAL SOLUTIONS
Owned and Produced by: Co-Located with: Presented by:
About POWER-GEN Africa
The inaugural POWER-GEN Africa event will provide comprehensive coverage of the power needs, resources, and issues facing the electricity industries across Sub-Saharan Africa.
Global attention is being paid to Africa’s power requirements as the continent continues to experience rapid growth and development, driving the need for more widespread and reliable electricity.
With POWER-GEN Africa’s conference and exhibition focusing on all aspects of the power industry and bringing together the world’s leading power equipment suppliers with those developing power infrastructure in this dynamic region of the world, this is a new event you cannot afford to miss.
Invitation to Exhibit
If your company supplies products or services to the power generation and transmission and distribution industries in Africa, then POWER-GEN Africa is essential to reaching the key industry professionals and decision makers.
A three day event, POWER-GEN Africa serves the industry’s information and networking needs with a dedicated trade show �oor featuring the prime movers in the power industry.
For further information on exhibiting and sponsorship, please contact:
FOR FURTHER INFORMATION PLEASE VISIT WWW.POWERGENAFRICA.COM
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EquipmentRoundup
64 www.peimagazine.com March 2012 - PEi
Setra Systems has announced the
global market introduction of the Model
730, a compact, low-cost variable
capacitance (capacitive) vacuum
manometer.
Available in full-scale pressure
ranges from 10 Torr to 1000 Torr,
the Model 730 offers 0 to 5 VDC or 0
to 10 VDC output that is both linear
with pressure and independent of
gas composition. Its standard ±0.5%
percent of reading accuracy, with
option for optimization to ±0.25%,
ensures a wide dynamic range,
along with negligible temperature
coef� cients across its 0 to +50°C
compensated range, making units
relatively insensitive to thermal
transients and environmental changes.
Temperature coef� cients of ±0.25% of
reading/+50°C on zero; and ±1.35% of
reading/+50°C on span are standard.
Units operate from a standard 12
to 30 VDC power source and can be
con� gured with a 9- or 15-pin D-sub
or 5-pin terminal strip electrical
connection, all with ‘plug-and-play’
industry standard pin-outs. A variety
of vacuum � ttings and interconnecting
cables are also available.
Design of the Setra Systems Model
730 employs a welded, all Inconel
wetted parts sensor for compatibility
with virtually all process chemistries.
Suzlon Group has announced a new
turbine in the 1.5 MW range focused
on harnessing Class III, low-wind
sites. The new turbine is speci� cally
designed to deliver high ef� ciency
and cost effective power generation
even at low wind speeds, therefore
increasing the size of the market and
making wind power projects even
more � nancially competitive than
they are today, said the company.
The S8X is designed for the Indian
market, where most potential lies
in medium-to-low wind sites. This
turbine is designed with advanced
rotors, with diameters of 86.5 and
89 metres, and a tower height
of 90 metres, which will bring
improvements in energy yields of
between 15 to 20 per cent over the
current S82 – 1.5 MW offering in low
wind conditions. Additionally, the S8X
is designed speci� cally to operate in
high temperatures, and to meet the
current and future grid requirements
in India.
This turbine is an evolution of
the proven S82 – 1.5 MW platform,
with about 2400 MW in installations
consistently delivering 97 per cent
plus availability (uptime). The new
design also incorporates several
key features from the S9X suite of
turbines, helping to achieve higher
reliability, improved power output,
higher safety and improved lightening
protection. Like the S9X, the new
turbine offers an improved pitch and
yaw system, hub assembly, main
frame and other key components,
ensuring easier maintenance, greater
reliability and higher uptime.
Emerson Process Management is
automating two new 1000 MW,
ultra-supercritical, power-generating
units at the Jiangsu Xinhai power
plant with its OvationTM expert
control system. The new units are
the � rst 1000 MW units to be built
by Jiangsu Guoxin Investment Group,
which owns and operates the plant
in Lianyungang city, near the East
China Sea in the Jiangsu province.
By using ultra-supercritical
technologies – which offer both
higher ef� ciency and lower
emissions than traditional coal-
based electricity generation –
Jiangsu Guoxin Investment Group
is supporting economic growth in
Eastern China in an environmentally
responsible way.
Emerson’s Ovation technology has
been selected for 40 of 64
1000 MW ultra-supercritical units in
China. The system’s ability to more
tightly control operations is essential
for achieving and maintaining ultra-
supercritical unit ef� ciency.
Because it was the company’s
� rst experience constructing and
operating 1000 MW units, Jiangsu
Guoxin Investment Group’s leaders
and experts wanted to be sure
they selected a supplier with a
successful track record automating
these types of plants. Emerson
offered a proven, state-of-the-art
control solution backed by superior
technical expertise that was just
what the company was looking for,
which is prompting Jiangsu Guoxin
Investment Group’s interest in
collaborating with Emerson on future
energy projects.
Dating back to 1941, Jiangsu
Xinhai is one of the oldest operating
power plants in China. The facility
currently has a generating capacity
of 660 MW (2 X 330 MW). The new
units, Units 5 and 6, will replace two
old, less-ef� cient 220 MW units that
have been decommissioned. Unit
5 is slated to go into commercial
operation during fall 2012; Unit 6
is scheduled to come online the
following year.
Emerson will supply a total of
66 Ovation controllers and 16
workstations. Ovation technology
will monitor and control boilers
and turbines supplied by Shanghai
Electric Group. The Ovation system
will also perform data acquisition,
as well as manage each unit’s � ue
gas desulphurisation (FGD) system,
modulating control system, sequence
control system, electrical control
system, furnace safety supervisory
system, feed-water turbine control
system and balance-of-plant
processes. In all, Ovation will manage
28 000 I/O points. In addition to
Ovation, Emerson will also supply
nearly 1000 Rosemount differential
pressure, level and � ow transmitters.
“Industry leaders like Jiangsu
Guoxin Investment Group understand
the importance of choosing the right
automation for ultra-supercritical
and supercritical power plants,” said
Bob Yeager, president of Emerson
Process Management’s Power &
Water Solutions.
Setra Systems Variable Capacitance Vacuum Manometer
Suzlon launches S8X 1.5 MW low-wind turbine for India
Emerson automates two 1000 MW USC units in eastern China
19-21 APRIL 2012, PRAGATI MAIDAN, NEW DELHI, INDIA
SWITCHING ON INDIA’S POWER FUTURE
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JOIN INDIA’S WORLD-CLASS POWER EVENT
POWER-GEN India & Central Asia together with Renewable Energy World India and HydroVision India is the region’s premier power event that features a world-class conference programme, with discussions about topical issues, recent developments and dynamic exhibition �oor showcasing the very latest products and equipment serving the conventional, renewable and hydro power sectors all under one roof.
Major Attractions
67 78��7�������7�����������7����� 7���7 ������ 7���7�����7 the globe