Continued (if patchy) growth in gas-fired power
Gas-fired power generation accounted for around 23% of the 25,570 TWh of electricity generated worldwide in 2017, according to the International Energy Agency (IEA) – an increase of 1.6% (95 TWh) and representing almost 15% of the total growth in global electricity generation.
However, this overall growth in gas-fired generation conceals a rather a patchy picture worldwide.
In the USA, there was a decline of 7.6% (110 TWh) in electricity generated from gas in 2017 – bucking the trend of a steadily increasing share for gas over the last 25 years which saw its share exceed that of coal in the USA for the first time in 2016 (a 33.8% share compared to coal’s 30.4%). The 2017 decline highlights the importance of relative prices in determining emissions intensity trends in the power sector: a slight rise in US natural gas prices in 2017 saw gas-fired generation squeezed by both renewables and coal.
This decline contrasts with a growth of 4.6% (205 TWh) in the rest of the world, with the most notable contributions coming from the European Union (EU), China and southeast Asia. In the EU, some of the increase was weather-related, for instance due to a poor year for hydroelectric power. In China, part of the official policy drive to “make China’s skies blue again” has led to reduced coal burning in power generation, as well as in industrial boilers and residential heating.
Mixed fortunes for GT OEMs
Given the overall upwards trajectory that global gas-fired electricity generation has taken over a the last quarter of a century, and given its potential role in the global transformation of electricity systems, one might presume that the large gas turbine (GT) ‘original equipment manufacturers’ (OEMs) would all be reaping the rewards and making optimistic noises about the future. However, despite the positive market conditions, two of the largest GT OEMs – GE and Siemens – have had to restructure their power businesses.
GE’s acquisition of Alstom’s power and grid businesses in November 2015 against competing bids from both Siemens and Mitsubishi Heavy Industries (MHI) – parent company of Mitsubishi Hitachi Power Systems (MHPS), another major GT OEM, was considered a wise move by many industry and investment pundits at the time. However, the deal hasn’t worked out as planned, with the Alstom parts of the business performing below GE’s expectations, necessitating the sale of GE’s Electrification Solutions business (to ABB) and Water and Process Technologies business (to SUEZ), a halving of GE’s dividend to shareholders and an announcement of a reduction of some 12,000 positions in its global workforce. These events have contributed significantly to a 60% decline in GE’s stock price over the last two years.
Siemens, too, has been struggling. In November 2017 the company announced that it would reduce its workforce by 6,900 and consolidate its Power and Gas, Power Generation Services, and Process Industries and Drives divisions, with a goal of increasing capacity utilisation at its production facilities, driving higher efficiency and enhancing expertise by the bundling of resources. “The power generation industry is experiencing disruption of unprecedented scope and speed,” a spokesperson for Siemens AG Managing Board said in a press release announcing these changes. “Today’s action follows a nearly three-year effort to right-size the business for this changing marketplace.”
While GE and Siemens continue to struggle and restructure, MHPS has, according to a report from Barclays Plc, received more than half of all global orders for GTs in the first quarter of 2018 – the company’s best-ever performance. This success builds on the news that MHPS took the top spot in global orders for heavy-duty gas turbines last year, according to data from McCoy Power Reports, which said MHPS had a market share of almost 32% for its ‘advanced class’ GTs, with its JAC turbine (an air-cooled J-series model with flexible ramping capability and high efficiency) helping drive the company’s success.
Market signs remain positive
The general consensus (IEA and various market analysts) is that gas-fired electricity generation – and hence the market for GTs – will continue to increase, particularly in terms of distributed power generation. Efficiency improvements in GTs also are expected to advance global sales.
In its latest report on the global GT market in May, global technology research and advisory company Technavio stated that the Asia-Pacific region “is expected to become the largest revenue contributing region in the market by 2020 and is projected to occupy more than 49% of the overall market share. The high demand for power generation is attributed to the rising economic developments in the region. Factors such as the surge in carbon emission concerns due to prominence of coal-based power generation fueled the demand for gas turbines in the market. The growing need to replace coal-fired plants with natural gas-based gas turbine plants influence the market’s growth.”
In previous reports on this market segment, Technavio has said “The growing demand for distributed power generation is one of the primary drivers for this market. Distributed power technologies use natural gas and are highly flexible, and applicable across various sectors including electric power, propulsion, and mechanical power. They are widely available, compact, more efficient, and less expensive, and help in meeting the global energy requirements. Gas turbines form an integral part of distributed power technologies, and the growth of distributed power systems will augment the demand for gas turbines.”