Courtesy of Dora Partners & Co. and McCoy Power Reports
BY DREW ROBB
Gas turbine orders have been down for five straight years. Most experts agree that 2019 will see that trend continue, although unit orders should level off in 2019 and 2020. The industry is clearly reeling from the influx of renewable generation onto the grid.
Energy storage is now the darling of legislators, utilities and renewable advocates, garnering heavy investment. Some see the influx of subsidized battery storage as the beginning of the end for gas turbines (GTs) used as standby peaking power. We hear from the President of Western Turbine Users, GE Power, Dora Partners, Wood Mackenzie, the Energy Storage Assn., Invergy, Axford Consulting and Arizona Public Service on what is happening in the industry, where we might be heading and what can be done about it.
California is a microcosm of what is going on in the U.S. market, if not in the world as a whole. Chuck Casey, President of Western Turbine Users Inc. (WTUI) is in the midst of it. As the Utility Generation Manager for the City of Riverside Public Utilities, he has lived through vast changes over the past decade.
Casey has watched fossil fuel and nuclear plants shut down, and the Clean Power Plan mandate historic levels of renewable energy and energy storage. This has challenged GE LM turbine operators like him to start faster and more often, operate at lower emissions, at lower power turndowns and higher output while staying reliable and available and performing under budget. His aeroderivatives, therefore, have been operating fewer and fewer hours.
“To stay relevant, we need our aeroderivative engines to be more flexible, adaptable and versatile than ever before,” said Casey. “We must challenge equipment suppliers, gas turbine engineers, owners and our operations staff to improve their products and operations, demand new capabilities and extend the life of our GTs and all facility support equipment.”
Riverside Utility has been sending him to battery and solar conferences. Batteries are likely to be deployed on a five-acre lot adjacent to its 200 MW GT peaking plan in the near future. He believes that natural gas will soon become as much a target as coal is now. “Natural gas will fill the gap till renewables and energy storage can feasibly be used 100% of the time,” said Casey. “Be ready to adapt your turbines to bridge the gap.”
His advice to turbine operators is to embrace change. Be willing to incorporate renewables and storage into your GT facilities, as it is coming in any case. “If your plant is not adapting, it will probably go away,” he said.
Caption: Cumulative peaking capacity in plant years.
Energy storage grows
U.S. public consensus leans toward environmentally friendly solutions and greatly lowered emissions. That equates to the adoption of renewables and energy storage, and more fossil plant shutdowns.
Los Angeles, for example, has cancelled plans to spend $5 billion to upgrade three natural-gas generating plants on the California coast. This money was earmarked for the Haynes, Harbor and Scattergood gas plants to meet the requirements of a 2010 law outlawing once-through cooling. Instead, the Los Angeles Department of Water and Power (LADWP) intends to phase out these gas plants over the next decade and invest in renewable energy. LADWP has already received presentations from Navigant and WorleyParsons exploring alternatives to replace the 1.66 GW of gas generating capacity in the city. This includes 1.8 GW of energy storage, as well as deploying more solar, wind, geothermal power and distributed energy resources. Scattergood is to be shuttered by 2024, and Haynes and Harbor by 2029. Other utilities are gradually following suit.
Pacific Gas & Electric in Northern California plans to add three storage projects amounting to 567.5 MW. The California Public Utilities Commission directed PG&E to purchase storage instead of approving upgrades for the three gas plants on the premise that batteries would be cheaper than continuing to operate the plants. Energy storage will include a 300 MW project from Vistra Energy and a 182.5 MW project from Tesla.
Arizona Public Services (A PS) announced that it will install 850 MW of energy storage by the mid-2020s. Some 450 MW will come online by 2021 with an additional 400 MW slated for 2025. This includes 200 MW of energy storage as retrofits to existing solar facilities, 150 MW of standalone batteries and a new 100 MW solar facility paired with a 100 MW battery system. The other 400 MW will comprise storage with three- or four-hour battery durations.
At the same time, APS signed a power purchase agreement for a 463 MW natural gas plant owned by Calpine. The seven- year contract is less than the typical 25-year term. The plan allows the utility to eventually convert to cleaner resources.
Florida Power and Light (FPL) is another utility getting in on the act. It recently announced the world’s largest solar-powered battery storage system. The Manatee Energy Storage Center will be a 409 MW facility due to commence operation in late 2021. The batteries will be placed beside an existing 74.5 MW solar plant. This is being done instead of upgrading two natural gas-fired units at the nearby 1,638 MW Manatee Power Plant. FPL also plans to add 15 GW of solar over the next few years.
Caption: U.S. energy storage by quarter.
Storage is thriving
The U.S. energy storage industry is thriving. It added 311 MW of battery storage in 2018, a record year. That number is predicted to double this year and triple in 2020. Battery storage is gradually rising to utility scale, according to energy research firm Wood Mackenzie and the Energy Storage Assn. These numbers are supported by Deloitte’s 2019 renewable energy industry outlook which predicts 6X market growth over the next five years, and a storage market worth $4.7 billion per year by 2024.
California and the Mid-Atlantic Region dominate U.S. cumulative installed storage capacity. But Hawaii, Texas, Minnesota and Colorado also have added battery projects. Hawaii intends to add over 1,000 MW of battery storage and 260 MW of solar. State-level policy updates in Massachusetts, New York and New Hampshire should see the northeast introduce large-scale battery storage initiatives. Meanwhile, Puerto Rico has mandated up to 900 MW of energy storage within four years.
Further, a new policy tool known as the Clean Peak Standard (CPS) has emerged. Its goal is to increase the share of renewable energy resources used to meet peak demand. With most U.S. peaking capacity aged between 20 and 40 years, it is possible that a good portion of that will eventually be retired, perhaps as much as 152 GW. Massachusetts has already enacted a CPS. Arizona, California and North Carolina have proposed one. The idea is that a portion of power delivered during peak periods must be supplied by a renewable energy generator and energy storage. North Carolina’s scheme applies to its three major electricity retailers. It proposes 5% of peak load be covered by the CPS by 2025 and 10% by 2028.
“Energy storage mandates and subsidies in California and other states will probably kill the GT peaking market,” said Mark Axford, Principal at Axford Turbine Consulting. The Deloitte study noted that utilities have demonstrated strong “voluntary demand,” as opposed to demand driven by policy mandates seen in the past, said the report.
Corporations, too, are demanding renewable generation and energy storage. Some are installing it at their headquarters and other facilities. Last year, for example, corporations signed Power Purchase Agreements (PPA) for renewable energy in excess of 13 GW. Apple purchased enough renewable energy to power all of its facilities across 43 countries last year. Facebook purchased 2.6 GW globally. Google sourced 100% renewable electricity for its global facilities. And Exxon purchased 575 MW of solar and wind via a Texas PPA.
GT market impact
There is no doubt that the rise of renewables and the financial incentives being given to energy storage are impacting GT sales.
Tony Brough, an analyst at Dora Partners, laid out the harsh reality. Since 2012, MW orders for GTs are down 50% and unit orders are down 57%. In 2018, MW orders fell 9.1%, though unit orders were 1.5% up due to a large order for a Russian/Ukrainian pipeline. By far the largest segment of the market lies between 150 MW and 300 MW. This represents almost half of all capacity in the field. However, that only accounts for 9% of worldwide unit orders.
Meanwhile, even larger GTs are experiencing growth. “The range above 300 MW may only represent 8% of MW orders, but it is growing fast, primarily in response to coal plant retirement,” said Brough.
On the vendor side, GE controls 52% of all GTs in MWs and 32% in units. MHI, said Brough, may only be at 9% of MW installed, but is reaping the benefits of hot section and cooling investments. This has enabled the company to grow robustly. Half or all installed units worldwide are in oil & gas, which is the fastest growing sector. Solar Turbines dominates here. As the leader in smaller units, it supplied 40% of all GTs worldwide.
Caption: The outer circle represents MW orders; the inner circle represents unit orders. Courtesy of Dora Partners & Co. and McCoy Power Reports
“Oil & gas is a huge opportunity for service,” said Brough. “Africa, too, is a region that could well explode in the next five to 10 years.” In the aeroderivative market, GE continues to rule via its LM2500 and LM6000 machines. Its five-year share amounts to 66%, with Siemens/Rolls-Royce at 10%, PWPS at 4.5% and United Engine Corp of Russia at 19.3%. The LM2500 and its variants gained more than 50% of all aero orders over the past five years, with the LM6000 taking up another 12%. The LMS100 managed 2.8%. PWPS picked up six FT4000 orders last year.
The overhaul and repair potential for aeroderivatives is worth almost $2 billion per year globally, said Brough. Two thirds of gas turbine sales over the next 10 years will include Dry Low Emissions (DLE) technology. In the U.S., aero unit orders were up 150% and MW orders up 87% in 2018. Globally, aero unit orders were up 15% and MW orders up 2.6%.
Brough predicts a doubling of the renewable share of power generation worldwide by 2030, reaching 20% of the market. That would bring it on a par with natural gas. By 2040, renewables should surpass coal as the biggest source of energy worldwide. Natural gas use will remain relatively flat through 2040.
What is to be done?
Those cited earlier offered a few tips on how to respond to the changing gas turbine marketplace:
• Adapt existing GTs to grid demands and the heavy presence of renewables
• Challenge equipment suppliers to improve their products, add new capabilities and add value
• Target oil & gas, a big opportunity for aftermarket service
• Consider Africa, a burgeoning market within a decade • Sell and maintain aeroderivatives, likely to perform better than heavy-frame machines
• Focus on the overhaul and repair of aeroderivatives
• Follow the U.S, China and other regions expanding pipeline infrastructures
• Embrace LNG, a booming market.
Within the general oil & gas sector, opportunities will vary regionally and within various market niches. Axford called attention to the oil production statistics for Venezuela. In 1998, that nation produced 3.5 million barrels per day. Today production is down one million barrels. Venezuela has more oil than Saudi Arabia, but it is not as easy to produce. The last GT ordered by the country was in 2014.
“If the country stabilizes, there could be heavy demand to fix its turbomachinery as it seeks to ramp up production,” said Axford. In parallel with the decline of Venezuela, the U.S. has emerged as a major oil exporter. “The U.S. has become the peaking plant for world oil. When the price goes up, they turn the wells on,” said Axford.
LNG is another bright spot and good news for aeroderivative GTs, in particular. Brough noted that there will be another 11% jump in LNG trading in 2019, with that sector doubling over the next 15 to 20 years. “Import (and especially export) terminals are likely to benefit aeroderivative growth,” said Brough. “Operators prefer aeroderivatives over heavy frame turbines as they can shut a smaller engine down and still keep their LNG trains going.”
U.S. LNG export capacity has been steadily expanding. Cheniere 1 in Louisiana has a capacity of 27 MMTPY. The Dominion facility in Maryland has a capacity of 5 MMTPY. Three other facilities are coming online over the next year or so, adding 40 MMTPY.
“Oil and gas for export is a strong driver for GTs around 20 MW, especially in trailer-mounted format, as well as mechanical drive for pipelines and gas separation,” said Brough.
If you can’t beat them…
The old phrase, “if you can’t beat them, join them,” could be applicable to gas turbine OEMs, suppliers and the aftermarket. If wind farms, solar plants and battery storage are the wave of the future, it is up to the industry to find ways to fit turbomachinery into the equation.
Case in point: Wellhead Electric’s innovative approach in Norwalk, California. It has paired a GE LM6000 with 10 MW of battery storage for what is called the GE LM6000 Hybrid-EGT. Two units are now in service in California, and Southern California Edison has ordered two more. It offers quick-start, fast-ramping capabilities. The GTs can provide 50 MW of spinning reserve, flexible capacity, or peaking power, as well as reactive voltage support and primary frequency response when not online. The turbine can operate in standby mode powered by the batteries instead of consuming fuel. The control system blends output between the battery and the GT.