Note:  WEFA has made some interesting points in their conclusions of this 
study.  

Gas Turbines Headed for a 50% Meltdown

High natural gas prices, performance issues and higher than expected 
maintenance costs, a general economic slowdown and several other key factors 
will combine to create a "near-term meltdown in the gas turbine market," 
according to a report by WEFA, Inc. 

Reporting on a study about to be published by the analysis and consulting 
firm based in Eddystone, PA, one of its authors predicted "a substantial 
short-term correction in the gas turbine market..which could render 50% of 
current North American projects uneconomic." Jason Makansi, principal of 
Makansi & Co., pointed to other factors, such as the inexperience of many 
generating companies with the hedging and trading skills necessary to 
optimize profits in the peaking market, the rise of "stealth capacity" from 
refitted or otherwise optimized coal and nuclear plants, "gas transportation 
bottlenecks and persistent issues with safety and explosions," and "a 
protracted quasi-regulatory quagmire." 

Under the heading of stealth capacity, "old assets are being purchased or 
merged into new electric economy organizations that will improve capacity 
factors at coal-fired plants from the typical 60-65% to perhaps 80-85% within 
five years." A major part of the gain will come simply from operating the 
assets to serve the market and not just a single service territory, Makansi 
said. He reported on the soon-to-be released study at WEFA's World Economic 
Conference last week in New York. 

The nuclear industry is experiencing a similar transformation. Several years 
ago predictions were that as much as one-third of nuclear plants would soon 
be retired. Today, with many units sold to new owners and re-licensed, it 
appears the retirement rate will be more like 5-10% and productivity for the 
remaining units will be increased. 

The WEFA report points to a "technological correction" for the advanced 
technology "F-Class" turbines going into most new plants today, as unexpected 
problems crop up with extended use. There are a host of problems in the 
technology area, which can be met, but at a cost: the new units may not meet 
emissions targets without impacting efficiency, heat rate and durability; 
fuel-switching is not living up to its advance billing; units may not perform 
as well at high ambient temperatures; overhauls are required more frequently 
than had been expected; maintenance costs also are exceeding expectations; 
and fuel quality is becoming an issue. 

"Variable O&M costs at some projects with F-class machines are running as 
high as $25,000 to $30,000 per start. Considering that some of these machines 
may exhibit several hundred starts in a year, you have a variation of that 
worn phrase, "a start here, a start there, pretty soon you're talking about 
real money!" 

"The bottom line of all this is that many of the claimed performance 
advantages of the gas turbine have been lost or severely eroded." Makansi 
also pointed to similar experiences with gas turbines in the U.K., Asia, 
Australia, and Chile. He predicted a turbine market correction "and an 
unavoidable plateau to work out technological kinks, modify designs and 
inject reality into business models. We believe all this will push 
consolidation in the generation sector of the electricity industry even 
faster." Makansi predicted about half a dozen major players will control 50% 
of the generation capacity in the U.S. within five to 10 years. 

Co-authors of the report include Robert Swanekamp, a principal of Competitive 
Power Resources; engineering consultant Jeffrey J. Fassett; and Kemm Farney, 
vice president, WEFA Electric Power Service. For more information go to 
www.wefa.com.