A “genuine boom” is under way in some regions, with the gas-turbine market growing more than 9 percent annually in the Commonwealth of Independent States, Roland Fischer, the head of Munich-based Siemens’ Fossil Power Division, said in an interview. The division generated 14 percent of Siemens’s total 74 billion euros in revenue last year.
Siemens, which claims the No. 1 spot in larger, flexible turbines, is betting rising U.S. shale-gas output and its focus on gas-turbines will help it outflank GE and Alstom SA (ALO), which focused more on steam-turbines. U.S. spending on upgrading power plants to meet tighter emission rules may touch $100 billion, and falling gas prices will likely tempt utilities away from coal, said Peter Reilly, an analyst at Deutsche Bank.
“We believe our technology is two to three years ahead of the competition,” Fischer said by phone on Jan. 17. “Competition is tough. It’s been hard work to get where we are today. Our rivals are surely not happy. We will do our utmost not to allow anyone to take that position from us.” His unit added 3,000 employees in the past 1 1/2 years, Fischer said.
Statistics on turbine suppliers are compiled by McCoy Power Reports. Since 2003, GE has averaged 44 percent of the market for 20 megawatt or more plants, though a single large order could swing annual market share figures, Paul Browning, president of thermal products at GE’s energy division, said in an interview. Figures for 2011 will be released around March, and McCoy declined to give details before then.
Fossil power-generation, the largest of Siemens’ 10 main divisions, has long been an earnings driver and a swelling order book will help offset sluggish demand in areas such as health- care equipment. Under Fischer, sales last year rose 6.8 percent to 10.2 billion euros and earnings jumped 85 percent to 2.83 billion euros, eclipsing the entire profit produced by the Munich-based company’s health-care operation.
Chief Executive Officer Peter Loescher is banking on energy products to help push sales past 100 billion euros. The company is expanding gas-turbine factories in Charlotte, North Carolina and Berlin, as well as building new ones in Saudi Arabia and St. Petersburg, Russia. Northeast Asia, including China, and the Middle East will also show above-average growth in gas turbines going forward, Fischer said.
Siemens, which has about 1,300 gas turbines installed, has almost doubled its market share to 40 percent in larger turbines with power output exceeding 100 megawatts in recent years, Fischer said, without giving a specific time frame.
“They are clean to operate and cheap and quick to build, that’s how gas-fired power plants became, as one utility executive put it, the ’crack cocaine’ of the power industry,” said Martin Prozesky, a Sanford C. Bernstein analyst.
Alstom today reported a 20 percent gain in thermal-power orders, helped by gas-turbine orders in Iraq and the U.S. It booked orders for 13 turbines in the first nine months of its current fiscal year, compared with nine in the entire previous year. Alstom in September said it’s targeting U.S. orders in the U.S. with a new turbine, and CEO Patrick Kron today said he is considering entering the Chinese market.
The German company spent a decade and 500 million euros on developing its flagship turbine for the so-called H-Class market. Siemens has had the minimum 10-unit-a-year market to itself while Mitsubishi Heavy Industries Ltd. (7011) and GE developed their own offerings, Fischer said.
Mitsubishi has been testing it’s “J-Series” since February 2011. It has sold eight of the turbines, the first of which will begin commercial operation in 2013.
“We expect to sell additional J-Series turbines within the next few months,” said Takao Tsukui, director of business development at Mitsubishi Power Systems Americas. During the next few years, Mitsubishi plans to produce as many as 50 gas turbines per year, including the J-Series, Tsukui said.
As well as replacing aging power plants, the turbine market is also driven by stricter legislation on emissions, with gas being a lower carbon polluter than coal. That will ultimately lead to half of all U.S. coal plants being upgraded or replaced, Deutsche Bank’s Reilly said.
“Over the next decade, unconventional gas is going to become a major source of fuel around the world,” GE’s Browning said. “That’s a near enough timeframe that customers are going to start betting on it now.”
GE in September told investors its goal for the energy division, the Fairfield, Connecticut-based company’s largest industrial unit, expects about $45 billion in sales this year, with a goal of more than doubling that over the next decade.
Siemens is also poised to benefit from growing resistance against nuclear power, said Bernstein analyst Prozesky. Germany has opted to shutter its atomic sites by 2022 and China halted new projects after Japan’s Fukushima nuclear disaster.
In the U.S., the gas glut created by the development of shale gas reserves is set to push the gradual transition toward gas-powered plants.
“Gas-power plants have been cheaper and faster to build for some time now, but what’s really changed is that the fuel cost with a $3 Henry Hub price is now also cheaper than coal,” said Heenal Patel, a Bloomberg Industries Analyst. “It’s this fact which may impact most on U.S. utilities coal plant retirement plans.”
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