Energy Biz - March/April 2008 - (Page 10) » FINaNCIal FRONT asian Energy Surge hits america The ImpacT of chIna and IndIa by Gary m. STern humming in Asia in 2006 and 2007, China and India needed to build new coal-fired power plants. In fact, the number of power plants developed in Asia is so staggering that its impact is being felt by U.S. utilities. In 2006, China built 90,000 megawatts of coal-fired power plants, which exceeds the entire generation capacity of the United Kingdom by 13,000 megawatts, notes Jeremy Carl, a research fellow at Stanford University’s program on energy and sustainable development. India built 22,000 megawatts of new electricity plants in the last five years and has plans to add 70,000 megawatts in the next five years, though Carl expected only 45,000 megawatts to be completed. “China dwarfs everything, and India’s development is growing,” Carl says. What impact is this massive, unprecedented power generation in Asia having on U.S. utilities? Carl says that Asia’s electricity boom is causing them several problems. “China has vacuumed up the technology and personnel needed to implement these power plants,” he says. Hence, domestic utilities are having problems with “equipment availability, getting construction equipment on time, and obtaining the necessary number of engineers,” he says. Because of this development in Asia, material costs of steel and copper have been skyrocketing. Carl says the increasing cost of capital development may limit the building of coal-fired power plants in the United States, which are already more expensive to build than natural gas plants. “With regulatory uncertainty involving carbon emissions, it’s hard to justify spending $2.5 billion to build sizable coal plants and then have to make major modifications,” he asserts. Based on the worldwide demand for raw material and equipment, Siemens, which provides equipment and oversees building of coal, steam and natural gas power plants, has been facing delays on orders of steel fabrications and piping, explains Phil Karwowski, Siemens’ director of energy solutions for the Americas, based in Orlando, Fla. A combined cycle power plant that took 24 months to build several years ago now takes 30 to 32 months because of the competition for equipment and raw material. Hence utilities are confronted with sticker shock due to raw material price increases. Copper, which cost $1 a pound four years ago, skyrocketed to $4 a pound, so a $1 million purchase of copper wiring for a new power plant now costs $4 million, Karwowski points out. Moreover, the dollar is weak compared to foreign currencies, so purchasing any equipment or material overseas is more costly. Labor costs are also on the rise in certain markets. Power to keeP the industriAl revolution China is rapidly adding new coal-fired generation plants, including the Waigaoqiao plant located in Pudong, Shanghai, which provides 40 percent of Shanghai’s power. The $1.9 billion plant opened in 2004. PhOTO cOurTEsy OF siEMEns plant contractors must compete with oil and gas projects for welders and pipefitters. Moreover, companies like Siemens are in a worldwide competition to hire qualified engineers who are in considerable demand. Because of rising costs combined with pressure from environmental groups and an expected restriction in carbon emissions in the future, many U.S. utilities are exploring alternatives to building coal-fired electricity plants. Siemens has been ramping up building new natural gas plants, particularly in Utah, California, Oregon and Washington. Utilities are developing natural gas plants, which are often smaller in square footage and infrastructure and can be built in half the time of coal plants and usually at one-third to one-half the price, Karwowksi notes. MaTERIal IMPaCT As the utility with the largest capital construction program in the United States, AEP has been contending with the effects of the spike in Asian power plant construction. It 10 E n E rgyB i z March/April 2008
For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.