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THE ANNUAL WESTERN TURBINE SHOW HIGHLIGHTS LULL IN GT ORDERS IN 2016
By Mark Axford and Tony Brough
The annual Western Turbine Users Inc. (WTUI) Conference took place in Las Vegas in March. As the biggest gas turbine (GT) user meeting in the world, WTUI’s focus is on GE aeroderivatives. But its various presentations cover the entire marketplace. Mark Axford, president of Axford Turbine Consultants, delivered the keynote address for the 12th consecutive year. But it was not happy news.
Axford’s forecast the previous year was for GT orders to be down 10% in 2016. The reality turned out to be far worse (Figures 1 and 2) — a 14% drop in worldwide gas turbine MW orders, with a 30% drop in the U.S. Part of the drop can be explained by the continuing decline in the market for medium-sized turbines.
Indeed, an analysis by Tony Brough, President of Dora Partners & Company, posed the question as to whether medium-sized GTs were still relevant. Case in point: GE recently shut down its GT packaging operations in Houston. This facility had delivered more than 800 generator sets over a 30-year span.
“GE made this tough decision based on several reasons,” said Axford. One was the migration of buyers from medium-size GTs (20 MW to 65 MW) to combined cycle plants taking advantage of larger turbines. For example, the only LM6000 ordered in North America in 2016 was for an oil & gas project in Alaska.
“There was supposed to be an influx of orders for LM6000 gensets for peaking and cycling to back up all the wind turbines,” said Brough. “Those orders never happened.”
With large GT combined cycle plants now rated at 1,000 MW and having greater than 60% thermal efficiency, utilities appear to be placing most of their focus on big iron (Figure 3).
Another factor in the midmarket decline is growing competition from reciprocating engines. Since the turbine bonanza years (1999 to 2001), competition has emerged from large-bore piston engines adapted to operate on natural gas fuel. Over the last 15 years, unit sizes of piston engines have increased from 5 MW to 20 MW. This has created access to project opportunities customarily served by GE aeroderivative GTs.
Led by Wärtsilä, recips have taken orders totaling more than 45,000 MW over the last 11 years. But after a decade of success, big engines have seen orders taper off significantly since 2012 (Figure 4).
By far the biggest competitor to mediumsize GTs is wind and solar power. In 2016, wind and solar comprised about 60% of new generation capacity construction in the U.S. Natural gas accounted for about 33%. In 10 years, solar energy’s share surged from a negligible amount to 30% of new capacity.
Tax subsidies by the U.S. federal government and green energy mandates by state governments have tilted the playing field, said Axford. He pointed out that when a person is opposed to government subsidy, the funding is labeled as a ‘market-distorting subsidy.’ But if the same person favors the generation technology receiving the subsidy, the label is ‘research, development and investment.’
Let us not forget the investment tax credits and accelerated depreciation that gas turbines enjoyed during the 1980s, Axford commented. He characterized the U.S. and other regions of the world as having a gold rush to permit and install wind and solar generation due to generous government incentives.
With the installed base of wind generation in the U.S. vastly exceeding solar, the federal Production Tax Credit (PTC) for wind is being phased out. In 2016, wind’s PTC (2.3 ¢/kwh) was more than 60% of the wholesale price of electricity in some regions. This subsidy will drop to 1.84 ¢/kwh in 2017. That may herald the last big year for wind (Figure 5).
Meanwhile, the investment tax credit for solar generation remains strong through 2021 at a time when the installed price per kW for photovoltaic (PV) solar continues to drop. Expect solar installations to outpace wind during the next few years.
With the ascendancy of renewables and the decline of the GT midmarket, many expect tough times ahead. But Axford’s prediction was not all doom and gloom. He anticipates that worldwide GT orders will be down 10% in 2017 from 2016 levels. However, despite ominous headwinds, he believes there will be a 10% uptick in orders for 2017. He bases this on a likely increase in electricity consumption brought about by an expanding commercial and industrial sector supported by a more favorable climate for investment.
Mark Axford is principal at Axford Turbine Consultants, which offers selling, sourcing, appraisal, valuation, forecasting and market analysis. For more information, visit www.axfordconsulting. com
Tony Brough is President of Dora Partners & Company, a consulting firm, specializing in marketing, business development, business improvement, engineering and project management. For more information, visit www.dorapartners.com