Beyond the Spin
Is the gas turbine spinning away from its control of the global power generation market share? As momentum quickly shifts from fossil-fuel fired power plants to renewable energy sources for electric power generation, the future of the multi-billion dollar gas turbines industry remains uncertain as revenues plummet.
The golden age of gas for power generation as predicted by the International Energy Agency (IEA) doesn’t seem to be really materialising for the world’s biggest gas turbine makers. While, overall, global electricity generation should continue to rise between 2 to 3% annually through 2020, the short-term outlook appears to be quite difficult for suppliers of gas turbines.
Sales for gas turbines in the Middle East, with a global revenue market share of nearly 31.8% in 2017, have slowed as low oil prices have reduced oil revenues and caused delays to capital investment in the region.
But in the face of growing competition from renewable, energy efficiency demands and the expanding adoption of battery storage, the market for gas-fired turbines for power generation is expected to weaken further over the next couple of years.
Gas turbine revenues declined by 8.1% in 2017 and are forecast to peak in 2018, before falling to a low of $12.3bn in 2020, according to MarketResearchNest. Yet in the same year 2017, the world added 98 gigawatts (GW) of solar PV capacity, more than fossil fuels and nuclear capacity together. That’s an increase of about 29% compared to 2016.
This is a trend that continues to cause both anxiety and uncertainty for some of the world’s largest turbine makers, with drastic measures, including liquidation of the gas turbines business, being mooted in response.
But the man who directly oversees gas turbines at General Electric (GE) is not ready to yield to the panic. Speaking to Utilities Middle East recently, Scott Strazik, president & CEO, power services business, GE Power, chooses instead to look at the brighter and more optimistic side of things, fortified by the company’s capability built over 125 years of its existence.
“It is true that the gas turbine market is having a cyclical downturn right now as regards to new demand relative to where we were. But at the same time, for me in leading the services business I see a fleet that is very stable and that is running at a very stable basis in which our customers need us,” says Strazik.
“Our customers are in need of our solutions, and that is increasingly motivating for me, it gives me an immense amount of optimism about where we are going as a business, because we have a market that needs us, with customers that need new and different solutions. The team that I have is the right team to offer the right solutions.”
Strazik says that as a company, GE has evolved over time through various chapters in which the markets have had ups and downs, and that the current state of the gas turbines market is no exception.
But GE’s overall performance in 2017 was far below expectation. Questions had started making the rounds when the company announced the departure of Jeff Immelt, chief executive since 2001. Answers arrived in October, when GE reported a fall in earnings for the third quarter and sharply reduced its guidance for the full year. John Flannery, who took over in August, described those results as “unacceptable, to say the least”, and said the company needed “to make some major changes with urgency”.
Management’s expectations for the third quarter turned out to be wildly optimistic. Sales of aeroderivative gas turbines, used to support grids at times of peak load, were half the planned numbers, while sales of packages for improving the performance of gas-fired plants were just a third of projections.
In 2010, market forecasters were assuming there would be about 300 large gas turbines sold each year, but in 2013 just 212 were ordered worldwide. This year, there were 122.
In the first quarter of 2018, GE sold 12 gas turbines, down from 20 in the equivalent period of 2017, and profits from the division dropped 38% to $238mn.
For the year as a whole, GE planned for the worldwide market for large gas turbines to be about 30-34 gigawatts of generation capacity. The company had calculated detailed projections for 2019-20, and concluded the market would be 30 gigawatts or less in each of those years.
“I don’t see a short-term fix here, we are not trying to project this as a V-shaped rebound for the power division,” says Flannery.
For the foreseeable future, the gas turbine market is likely to remain difficult, according to Jeff Sprague, an analyst at Vertical Research Partners. “I don’t see light at the end of the tunnel in 2019, and there is no particular reason to think it will be better in 2020,” he says. “The question is whether this is just a cyclical problem, or whether there is something structural in the industry that is really starting to cause problems.”
GE’s response has included a decision to cut 12,000 employees from GE Power’s worldwide workforce, about 18% of the total, and $1bn from the division’s costs in 2018. It plans to improve the performance of the division centred on its ability to win business servicing existing plants.
Jamie Miller, GE’s chief financial officer, in an April 20 conference call with analysts said the gas market has not kept pace with the company expectations. He added, though, that GE expects business will improve in the second half of 2018, with more turbine shipments.
Other gas turbine makers such as Siemens and Mitsubishi Hitachi Power Systems (MHPS) are facing similar challenges, with Bloomberg reporting recently that Siemens was considering a departure from its gas turbines business, following its announcement last year to cut about 6900 jobs, or close to 2% of its global workforce.
Siemens Chief Executive Officer Joe Kaeser has previously said in interviews that the turbine activity isn’t part of the company’s future “industrial core.” The unit, which produces giant turbines in Berlin, Charlottesville, Virginia and Finspong, Sweden, has suffered from a collapse in orders.
Both GE and Siemens are now significantly boosting their investment in renewable energy, with officials from both companies saying that they were going ahead to explore the best synergies between their renewables and gas turbines businesses.
But despite the growing appetite for renewable energy in the Middle East, regional utilities have said it categorically that they have no intentions of scaling back on current or future fossil fuel powered electric generation.
“We want the best of all possible power generation sources. We do not intend to play one against the other,” says Khalid A. Al-Falih, Saudi Arabia’s Minister of Energy, Industry and Mineral resources. “To cope with the fast rising demand of electricity, we will need renewable energy to complement other sources of power generation.”
It is this decisiveness that fires up Strazik’s optimism about the future of gas turbines in the Middle East. “In trying to navigate the changing landscape, even when I look at places like the Middle East where the renewables momentum is high, I look at our business and the fit we have within the grid and I feel good about it,” says Strazik.
But survival in the evolving energy landscape will mean radical changes in business strategy, as well as scaling up innovations geared towards improved performance for gas turbines, and this is what Strazik is firmly setting out to do.
“A lot of what we are investing in right now is around efficiency gains. You want to continue to be economically advantageous for the customers that you are serving, so how do you create the same amount of power consuming less fuel? How do you produce more power taking up less space? Our solutions have become increasingly power dense over the last half decade,” says Strazik.
“Then there is the element of flexibility that enables one to quickly ramp the machines up and down to support some of the other power generation sources. So, through efficiency gains, power density gains, flexibility gains, we are giving options to our customers at a time in which optionality and flexibility is incredibly important. As the grids become complex, the problems they are trying to solve too become complex.”
Over the past years, GE’s Advanced Gas Path (AGP) technology has been installed on 435 units across four of its gas turbine fleets, generating $775mn a year in benefits to power producers and the markets they serve in 39 countries on five continents.
“It is time consuming and expensive to build new plants, but if you can upgrade the gas turbine and get an incremental 5%, 10% or 15% output out of an existing plant, that is very attractive to the customers, not only for the timeliness of it, but the economics of it also,” says Strazik.
“So this is a priority. In the Middle East, the biggest demand factor is output because they are craving demand. There is an immense demand for these solutions because there is an immense demand for power.”
GE’s AGP solution has delivered significant market-based benefits around the globe, including providing about 7 gigawatts of additional power capacity. AGP is generating nearly 19.4 million additional megawatt-hours (MWh) of power a year, which is enough to power approximately 2 million homes.
With AGP upgrades, GE 9F gas turbines can achieve up to an 8% output increase and up to a 2% efficiency increase, whereas GE 6F gas turbines can realise up to a 4.2% output increase and up to a 1.2% efficiency increase. GE’s 9E gas turbine operations with AGP upgrades have achieved up to a 6.2% output increase and up to a 1.7% efficiency increase.
In May, Dubai Electricity and Water Authority (DEWA) announced that it had signed an agreement valued at $52.4mn with GE Power for an advanced technology upgrade of the GE 9E gas turbines at the Jebel Ali Power & Desalination E Station. Work on the AGP upgrade will commence in the first quarter of 2019 and is scheduled for completion in the first quarter of 2021.
Similar upgrades have been made for the Najibiya power plant, one of the eight sites where GE is installing a total of 36 AGP units as part of the Iraq Power Up Plan II, as well as Dubai Aluminium and Aluminium Bahrain for their respective captive power plants.
GE announced also in May that it was expanding its cross-fleet service offerings to a broader portion of the F-class market, including Siemens’ SGT6-5000F and SGT-800 models, and Mitsubishi Hitachi Power Systems’ (MHPS’s) 501F technology.
“Cross-fleet solutions offer the ability to take Siemens and Mitsubishi technology and “fit it out with AGP hardware, particularly combustion and hot gas path through the turbine—new blades, new coatings, modified components, modified airfoil geometry, also addressing some known reliability issues, particularly on the 5000F with two-stage exhausts, bearing sag, and a number of other technical remedies,” says Strazik.
And in June, GE’s Power Services business announced the world’s first upgrade with additive manufactured components for GT13E2 gas turbines, the new MXL2 with Additive Manufactured Performance (AMP). The technology helps gas plant power producers save up to $2mn in fuel annually, while opening up the potential for additional revenue of up to $3mn annually in new power capacity.
“We are continuing to invest in new technologies to keep our installed base competitive. We are providing more optionality to our customers to operate the machines in different ways and to use the data that is available from those machines to extrapolate it into a better performing and predictive machine that supports better operations,” says Strazik.
As the flagship of the GE Power division, the HA units are the company’s most powerful, technologically advanced and efficient turbine generators. They are the latest in GE’s array of 7,000 turbines sold to 140 countries that, along with GE’s other power generation equipment, together produce one-third of the planet’s electric power.
GE has sold 70 HA turbines, has shipped 40 of these and has 23 in operation. Its sales of large gas turbines over 2015-17, including the HA series, beat closest rival Siemens by 21% and nearly tripled the sales of Mitsubishi Hitachi Power Systems, according to the McCoy Power Reports survey.
The company spent $2bn to develop the HA units, which went on sale in 2014. GE does not reveal its price list, but sales of the first 15 HA units produced $1bn in revenue, according to GE, which equates to about $60 million for each HA-based power plant. Some sales include long-lived support contracts as part of the price, GE says.
In 2016, GE added 9,000 sqm of manufacturing space to the GE Manufacturing Technology Centre (GEMTEC) gas turbine assembling facility in Dammam, Saudi Arabia, taking the total area to 26,000 sqm. The centre has already completed and delivered its first 7F turbine to Saudi Electricity Company’s (SEC) Waad Al Shamal combined-cycle power plant.
Following the expansion, the facility serves as a manufacturing, repair and research hub, with capabilities to build GE’s advanced gas turbines such as the HA, which GE says will soon be manufactured from Saudi Arabia as part of its localisation agenda.
As part of GE’s $1bn investment in the Kingdom, GEMTEC has intensified its computerised numerical control (CNC) machining capabilities, coding and analytic services and robotics.
With over 500 skilled workers, 70% of them Saudis, GEMTEC today serves more than 70 customers from 40 countries around the world, servicing components from more than 600 turbines.