Like so many industries, the power sector had been coasting along on the crest of a wave for some time before the last October’s unravelling of the global economy and the resulting credit crunch. On the one hand developed economies were enjoying unprecedented growth while developing economies – namely the BRIC countries of Brazil, Russia, India and China – entered unchartered territory with regard to their economic development.
The result was exponential demand for power across the world, and with it the accompanying ‘picks and shovels’ to support its development. Tighter regulations being imposed by governments in Europe and elsewhere on carbon emissions helped to create new markets also, such as CCS (carbon capture and storage) biomass co-fire conversion and others. In short it was perfect storm of opportunity for suppliers of power equipment and services.
Now, some six months into a storm of an altogether different kind, the mood is understandably glum, especially with so many of the world’s major economies sliding deeper into recession, leading to forecasts of a large-scale decline in energy consumption. Yet while no one in the power industry is under any illusions about the implications for business, the bad news is still yet to appear as red ink on the balance sheets for many companies.
Weathering the storm
Speaking at the International Power Summit in Rome in early March, managing director of Italian environmental engineering technologies company Magaldi, Fulvio Zubini, said that while most industry sectors are clearly down the power industry is yet to see much of the fallout. “Business is generally worse, but the crisis [for the time being at least] does not seem to have affected the power industry all that much.” Zubini said.
But this did not mean he did not harbour concern for the fortunes of developing economies. “I expect, however, some delays and cancellations in projects developed by private companies in emerging areas such as India.”
Magaldi is a niche provider of environmental engineering solutions including bottom ash handling systems for bottom-fired boilers. Zubini said environmental regulations were expected to provide further insulation for his area of trade along with emerging cost benefits. “2008 was the best ever for the company – we now have a very satisfying order backlog. We are still confident of achieving good results in 2009 despite the financial crisis.”
Nevertheless, it would seem that buyer behaviour is changing with some in the power industry reporting that the sales process has become noticeably more difficult and protracted over the last few months as a result of the global financial crisis.
Camfil Far sales director Jose Frias said his company – a global cooling and ventilation specialist – is seeing finance executives take a deeper interest in procurement as companies work harder to tighten up their balance sheets. “Finance people are much more involved now; procurement is requiring approval at a far more senior level,” Frias said.
Suppliers of power equipment and solutions hope that customers can temper their anxieties about the state of their balance sheets by considering the long-term benefits of investing in new equipment for improved efficiency and environmental performance, all ultimately leading to reduced costs.
“Naturally all of our customers want to spend as little as possible, however, utilities are wise to the benefits they get in operation and maintenance and they buy from us eventually,” Zubini said.
Austrian Energy and Environment (AE&E) spokesperson Martin Pogoreutz said the world’s power stations convert on average only 22% of the fuel they use into energy. This contrasts with today’s newest state-of-the-art power plants which convert at up to 50%. Also, the proportion of energy generated via biomass is increasing exponentially throughout Europe, with power plants reporting higher efficiency and reduced CO2 emissions.
A €1bn global supplier for power generation and environmental technology, AE&E has helped a number of throughout plants to convert to biomass, often resulting in dramatic cost savings.
“We offer a range of activates to optimise efficiency,” Pogoreutz says. Nevertheless, the current aversion to spending spreading throughout all economies and sectors isn’t expected to pass for a while yet.
Zubini said he expects that it will be at least a year before confidence returns fully to the market, if that soon. “In my opinion we are now hitting the bottom and would expect some improvement starting from Q4 2009. We must wait until Spring 2010 to see full confidence back in the markets,” Zubini said.
Defying the odds?
One company that is not anticipating a fall in demand for its products and services is power rental company Aggreko. Formed in the Netherlands in 1962 and listed on the London Stock exchange, Aggreko is one of the world’s leading providers of portable gas and diesel power generators, cooling systems and other solutions.
The company was awarded the contract to deliver power for the construction of the 2012 Olympic village in London. Aggreko is also a leading provider of power to organisations in need of emergency solutions.
Aggreko Eastern Europe BDM Andy Boyd told IPS attendees that demand for temporary solutions would increase in response to the current economic problems, mainly because they allow companies to be a lot more specific in their costings.
Providers of temporary solutions are often more adept at designing the most efficient power solution matrix for a particular client. A representative from the London Olympics estimated that the decision to use gas instead of diesel on site resulted in fuel savings of around €11m.
Boyd said while there’s not a great deal more in the way of better efficiency that can be extracted from gas or diesel generators per se, Aggreko is managing to squeeze more juice for its customers from combined solutions such as heat and power mode. “The main driver going forward is going to be combined cycle applications,” he said.
One thing’s for certain, the power sector will not remain insulated from the economic storm raging around it, and demand will most definitely fall this year as companies look to reduce their spending. How much of the slack can be taken up by sales of more efficient technology and smarter services remains to be seen. The answer probably depends on how clever customers manage to be in response to the times.