Business Trends

US President Barack Obama ended his African tour in early July by pledging support for a multi-billion dollar initiative to help power the continent, ‘Power Africa’. The ambitious goal is to double access to power in sub-Saharan Africa, where two-thirds of the population is currently without electricity. The initiative has a public-private approach, with the US government, through various of its agencies, providing around $US 7 billion (€5.3 billion), and a range of companies including General Electric, Symbion Power, and Husk Power Systems investing around $US 9 billion (€6.9 billion) in projects across sub-Saharan Africa. The countries to be involved initially are Ethiopia, Ghana, Kenya, Liberia, Nigeria, and Tanzania. (Only Ethiopia, Kenya and Tanzania share borders.) Installing a total of 10 GW of power is the aim of the initiative, with projects including wind energy and small biomass-fired plants, but (assumedly) principally centred around coal- and gas- fired plants. Transmission will also be included in the initiative. The White House hopes that the generation and transmission infrastructure developments will be accompanied by regulation and market reforms in the beneficiary countries, and estimates 20 million homes and commercial entities will become powered.

In other US news, a piece in The Wall Street Journal has reflected on how the government’s new power plan is unlikely to spur growth in the coal power generation industry. Although there is an $US 8 billion (€6.1 billion) ‘advanced fossil energy’ program in place to promote clean coal, emissions laws and the low cost of natural gas make coal uneconomic in most cases, and the business environment is unlikely to change soon. On top of that, the two major carbon capture and storage projects in the US are both more than $US 1 billion over budget, and not yet operational, further darkening the medium term commercial prospects of clean coal, and energy companies are in some cases understandably reluctant to take up CCS. For instance, the recent commercial start of Duke Energy’s Edwardsport coal gasification plant in Indiana (current shut down to iron out some engineering bugs), which came in at a cost of $US 3.5 billion (€2.7 billion) does not include CCS because of the added costs, although there is room for future incorporation of such a process. The chief executive of power generator AEP, Nick Akins, has summed the attitude up, saying there needs to be “a clear indication from someone that we have to build this stuff, and the technology needs to be there”. Despite the currently gloomy outlook and unencouraging regulatory environment, there is still the recognition that development of economic clean coal technology which includes a solution to carbon will be hugely financially rewarding. As one chief executive of a research and development company said, “It’s a $10 billion opportunity”. It could be more.

Vietnam is cutting coal exports in an effort to provide fuel for a new fleet of coal-fired power plants that are under construction. With gas reserves not currently being exploited due to disagreements about sovereignty and commercial terms, coal is the fuel seen as an important way forward by the government, which wants to raise power generation from the 5,800 MW there was in 2010 to 36,000 MW in 2020 – an increase of five times. Several new plants are planned or under construction, including one by Marubeni and Korea Electric Power Co, although government budget constraints will mean that expansion is more limited than it desires. The mechanism used to cut exports has been an increase in the export tax from 10% to 13%, meaning the world coal market will determine just how much exports fall. Coal production in the country has been declining in recent years as deposits have gotten harder to mine.

In an interesting development in Malaysia, the country’s state-owned development company, 1Malaysia Development, has been buying power generation assets within the country. Last year, it bought 10.8 billion ringgit ($US 3.36 billion/€2.62 billion) worth of power generation assets from the country’s second richest man, Ananda Krishnan, and a separate business, Genting. In early July this year, it announced it would purchase a 1.4 GW coal-fired power station from Jimah Energy Group, in a deal worth 1.2 billion ringgit ($US 370 million/€290 million), though the transaction is subject to regulatory and finance approvals. 1Malaysia Development has been in existence since 2009, and its stated focus is strategic development projects in energy, real estate, tourism and agribusiness. It is unclear whether the company has plans to further develop the existing energy assets it has bought so far – if not, it would appear a strange move to take such assets into the ownership of government when much of the rest of the world is moving towards, or has moved to, greater privatisation.

Research, Development and Technology

Back in April this year, Belgian electricity research organisation Laborelec announced that it was developing new guidelines, in conjunction with the Maintenance Competence Center and the Maintenance Support Office (all owned by GDF Suez), for the shut-down of combined cycle gas turbine power plants. With shut-down of such plants quite common in Europe in recent times, with plants being closed from anywhere to weeks to years, the team felt that an up-to-date guideline was needed so that shut down could proceed without damage to plant equipment. Their approach has been to study the existing international guidelines, collect case information from various power plants, and add to these their in-house experience. The resulting new guidelines, when ready this summer, will separate plant shut down into seven domains, and give guidance to each: steam turbines, gas turbines, generators, transformers, water and steam parts, cooling water, demineralization, and pre-treatment plants. They will also suggest areas for further investigation.

The Australian government has announced a new national network of three carbon capture and storage research facilities, for which it will provide $AUD 51.6 million ($US 47.1 million/€36.6 million). The three facilities are the Otway Subsurface Laboratory, where storage of CO₂ has taken place since 2008; GipNet, an offshore submarine environment monitoring program; and CCS Labnet, an imaging and analytical research facility at the Australian National University. The network comes under the existing Cooperative Research Centre for Greenhouse Gas Technologies (CO2CRC), which stated “The network will help to answer many of the outstanding research questions for large-scale CCS projects.” Its primary focus is supporting the state of Victoria’s CarbonNet Project (a $AUD 1.18 billion program), but the network may work on other Australian or international projects.

Keeping with Australian news, state-owned utility Macquarie Generation has announced that it will introduce into its 2.64 GW coal-fired Bayswater power plant an algae-based system to convert a portion of its carbon dioxide emissions into biodiesel and jet fuel. In an agreement with Algac.Tec, around 1.4% (rising to 6.8%) of the plant’s annual emissions of 19 million tonnes of CO₂ will be captured and piped into closed tanks, where it will stimulate the growth of algae, which will then be processed into the biofuel products as well as into pellets for feeding livestock. The scheme is to start next year, and is priced at $AU 140 million ($US 128 million, €99 million), though Algal.Tec must still secure some funding. If successful, both companies see an expansion of the project.

Company News

German utility EnBW has applied to the German transmission grid company and the federal network agency for permission to close four of its fossil fuel-fired power units, citing economic pressure from renewable power generation. The units are the oil-fired block III and gas fired block II at Marbach, and hard coal-fired units 1 and 2 at Walheim, the four units having a combined capacity of 668 MW. The company says 100 jobs are involved. German wholesale power prices are currently at an 8-year low, according to Reuters, and renewable electricity, which takes precedence on the grid, has been expanding, meaning lower operating hours for conventional power plants. These two factors have rendered conventional power plants less economic. EnBW also has a new gas-fired power plant, RDK 4, idling as it waits on a new power market design from the federal government, which may see more financial support for reserve generation capacity. However, it is presently also constructing a 900 MW coal-fired unit at its RDK 8 plant in Karlsruhe and building with partners another 900 MW coal-fired unit in Mannheim, at the GKM 9 plant.

In June, Enel and Gazprom signed a non-binding letter of intent for the sale of Enel’s subsidiary Marcinelle Energie S.A to Gazprom. Marcinelle Energie S.A is owner of a 420 MW combined-cycle  gas power plant in Belgium, and the sale value is said to be €227 million ($US  298 million). The agreement is part of Enel’s overall strategy of divesting itself of €6 billion ($US  7.9 billion) of assets in the 2013-2017 period, and a binding deal is expected by the end of September this year. Enel was 80% co-owner of the plant until last year, when it bought the other 20% off steelmaker Duferco.

The global downturn in commodities demand has led to the postponement of a proposed new 750 MW coal-fired power plant in Chile, by the energy company E-CL (which is majority owned by GDF Suez). A supply contract, which would assure the plant’s income, was expected to come from one of the country’s copper producers, but the softening worldwide of copper demand has meant that such a buyer has not emerged. The Infraestructura Energetica project, in Mejillones, on the coast in the country’s north, is priced at $US 1.5 billion (€1.17 billion), and will be postponed until a supply contract can be secured.