Power Magazine, International January 2014

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Vol. 158 No. 1 January 2014

2014 Industry Forecast:
Global Forces Shape Generation
U.S. Regulations to Watch
Global Shale Outlook
Generating Company Advisory
Team Insights
PRBCUG Award-Winning
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January 2014
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POWER www.powermag.com 1
On the cover
The power industry generates power locally but operates within a global market. This true-
color image shows North and South America as they would appear from space 22,000
miles above the Earth. The image is a combination of data from two satellites. An instru-
ment aboard NASAs Terra satellite collected the land surface data over 16 days, while a
NOAA satellite produced a snapshot of Earths clouds. Source: NASA
COVER STORY: 2014 INDUSTRY FORECAST
20 A Rising Tide of Regulation and the Kick-the-Can Gambit
U.S. power generators are bracing for an onslaught of new federal environmen-
tal regulations in 2014, but instead of scrambling to meet new requirements, they
may be faced with months of legal wrangling and extended uncertainty about final
rules.
25 Black & Veatch Foresees U.S. and Global Opportunities
Dean Oskvig, president and CEO of Black & Veatchs Energy Business, sees this years
business outlook improving both globally and in the U.S.
26 How U.S. Power Generators Are Preparing for 2014
Our Generating Company Advisory Team (GACT) members, who have agreed to
serve two-year terms and provide strategic input to the editorial team, are seasoned
professionals with an understanding of both plant-level concerns and big-picture
business challenges. They represent a variety of regions, regulatory environments,
generation portfolios, and business typesgiving you insight into both situation-
specific and common concerns.
29 Burns & McDonnell Sees U.S. Market in Transition While Asian Market Grows
Grant Grothen and Block Andrews look at the market drivers both domestically and
in overseas markets experiencing load growth.
32 Europe Faces Capacity and Cost Challenges in 2014
The European Union (EU) has long been on the forefront of efforts to reduce green-
house gas emissions and transition away from fossil and nuclear generation. It now
faces not only economic consequences and future infrastructure needs resulting from
individual EU country goals but also overcapacity and undercapacity scenarios.
35 Day & Zimmermann Focuses on Flexibility
Michael McMahon, president of Day & Zimmermann ECM, discusses the value for
the industrys future of alliances, partnerships, and workforce development at all
levels.
36 Shale: The Rock That Rocked the World
The U.S. is the first nation to fully enjoy the benefits of accessing shale gas economi-
cally, but it wont be the last. Heres a look at where youre likely to see the earliest
second-wave action.
SPECIAL REPORT: POWER IN CHINA
41 Chinas Shale Gas Development Outlook and Challenges
As one of the worlds largest and fastest-growing energy consumers, China is focus-
ing on securing new and diverse supplies of energy to maintain a healthy rate of
economic growth and societal development. Though the nation hopes shale gas will
be part of its future, significant challenges need to be met.
Established 1882 Vol. 158 No. 1 January 2014
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www.powermag.com POWER
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January 2014 2
FEATURES
PRBCUG AWARDS
62 TransAltas Centralia Plant Earns PRBCUG Award
Completing the careful transition to 100% Powder River Basin coal earned
TransAltas Centralia plant in southwest Washington the Powder River Basin Coal
Users Group (PRBCUG) Plant of the Year award in the Large Plant category.
63 OPPDs North Omaha Station Takes PRBCUG Honors
The PRBCUG Plant of the Year winner in the Small Plant category introduced materi-
al-handling and other upgrades to increase safety. Its measures can be a model for
others burning the low-sulfur coal.
DEPARTMENTS
SPEAKING OF POWER
6 Global Change Agents
GLOBAL MONITOR
8 IEAs World Energy Outlook 2013: Renewables and Natural Gas to Surge
Through 2035
9 Future of Australias Carbon Pricing Scheme Hangs in the Balance
9 EPRI Plans High-Burnup Spent Fuel Demonstration
10 THE BIG PICTURE: Regulation Reckoning
12 Milestones for Major Nuclear Projects
1 2 A Novel Solar-Fossil Hybrid Power Plant
14 POWER Digest
FOCUS ON O&M
16 Upgrading a Wired Public Address System with a Wireless Option
LEGAL & REGULATORY
18 Financial Performance-Based Utility Bonuses: Unnecessary Exposure
By Steven F. Greenwald and Jeffrey P. Gray, Davis Wright Tremaine LLP
66 NEW PRODUCTS
COMMENTARY
72 Is Distributed Generation Really the Future?
By Ted Nordhaus, Michael Shellenberger, and Alex Trembath, The Breakthrough
Institute
Redefining Priorities
for Qubecs Hydro
Power Cluster
63
9
16
Connect with POWER
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January 2014 4
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With worldwide energy consumption expected to double to an estimated 39.0 billion MW hours
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of experience building gas-red power plants, Fluor recently completed Dominions 590 MW
combined cycle project, the Bear Garden Generating Station. www.fuor.com

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FLUORS LEGACY AS YOUR ASSET
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Fossil Generation, Renewables, Alternate
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January 2014 6
SPEAKING OF POWER
Global Change Agents
N
ow more than ever, the power generation business is a
global business. Supply chains are more international than
in the last century. Thanks to more easily retrievable re-
serves of shale gas, the prospect of increased liquefied natural
gas exports from countries on six continents promises to shake
up global fuel markets. Cyber crime knows no borders. Even hu-
man capital is subject to global dynamicsremote equipment
monitoring can be managed a continent away, and skilled work-
ers take temporary or permanent assignments wherever demand
for their talents is strongest.
Responding to a Changing Industry
Even as many regions seek to source more energy locally, the
technologies and services for both distributed and centralized
generationfrom American-designed boilers to Chinese-manu-
factured solar modulesare being provided by companies that
conduct business globally. U.S. companies are participating in
that trend, in part as a consequence of nearly flat load growth
and limited opportunities for new project construction at home.
As less-electrified nations, especially in Asia, have accelerated
their economic development plans, the biggest markets for many
companies in this industry, and some of the most interesting
projects, now lie beyond North American borders.
Does that spell the decline of U.S.-based businesses serving
the industry? Not necessarily. Shifts in economic growth from
one nation to another are nothing new. Major players that have
long been involved globally are simply looking abroad for a larger
chunk of new business. Westinghouse, for example, in a Novem-
ber promotional release said it sees a promising future for nuclear
energy in Brazil. Other companies may find themselves involved
in new lines of business closer to homeperhaps more retrofit
and upgrade work rather than new builds.
Do low demand growth and increased regulation in the U.S.
mean domestic power plant workers have hit a career dead end?
Not necessarily. Those willing to acquire new skills and, yes,
maybe even move, should find jobs, especially given the overall
aging industry workforce.
Global Fuel Dynamics
The shale revolution is typically acknowledged as the biggest
near-term industry disruptor. Every nation with any reserves, it
seems, is at least considering its options for developing shale
gas. South Korea, for example, plans to mitigate its reliance on
energy imports by focusing on the unconventional gas, and Chi-
na is cautiously optimistic about development of its substantial
shale reserves. Europe in particular has reason to hope that the
evolving global gas market will break the linkage between natural
gas and oil prices while increasing fuel diversity.
Though shale is the most obvious global change agent in the
fuel arena, the escalating demand worldwide for coal-fired gen-
eration makes it imperative to use this resource in ways that ad-
dress environmental, health, and climate change concerns. Europe
has made arguably the fastest switch from coal to cleaner fuel
sourcesthough not without some backtracking and higher-than-
promised costs. But the story doesnt end with Europe. To under-
stand the need for improved coal combustion practices globally,
you only need to look at the daunting challenge China faces with
air pollution, especially during the winter heating season. Though
coal-fired facilities providing heat and power are not solely re-
sponsible for air through which you cannot see the person next to
you, they are certainly a major contributor in parts of China.
Growing economies are unlikely to abandon coal anytime soon.
That means the global market opportunity for affordable and truly
cleaner coal usage is huge. Of course its not a simple problem to
solveespecially while also protecting other resources, like water.
But thats exactly where the best and brightest from all nations
can contribute new solutions to a mature industry. After all, those
shiny tech gadgets continue to depend upon electricity, and reli-
ance on those gadgets is growing globally, along with standard of
living improvements.
After the 2011 Fukushima disaster, it seemed that event would
go down in history as a long-term negative change agent for
nuclear generation globally. In Japan, recovery for the nuclear in-
dustry is proving very slow. But it appears that other nations are
proceeding more or less according to previous agendas. Though
several European nations, including the historically nuclear-heavy
France, are holding firm to post-Fukushima nuclear pull-backs,
the UK is moving forward with plans for new nuclear genera-
tion. In the U.S., the handful of unit shutdown announcements
have been prompted by poor economics and equipment problems
rather than fears about nuclear energy, and the development of
small, modular reactors is making slow but deliberate progress.
Renewables will continue to have a disruptive effect disproportion-
ate to the megawatt-hours generated. Adding large amounts of grid-
integrated intermittent sources creates challenges both for countries
like China that are faced with building new transmission infrastructure
and those like the U.S., coping with some of the oldest lines. Wherever
wind and solar power become significant contributors to the grid,
the market for affordable, flexible technology solutionsfrom energy
storage to hybrid generation schemes to smart gridenabled demand
responsepresents an opportunity for new business.
Profting from Global Change
In response to the changing market, POWER continues to expand
its coverage of developments around the world while remaining
committed to the industrys success in North America, where, like
them or not, new regulations present new business opportunities
for some as they pose threats to others. This industry forecast
issue offers insights into the levers of change not just in the U.S.
but also in selected, key international markets.
Change is rarely easy, but its inevitableeven in the power
industryand it can be good for business. Whatever role you
play in the global power generation industry, we wish you a hap-
py, healthy, and prosperous New Year!
Gail Reitenbach, PhD is editor of POWER. Follow her on
Twitter @GailReit and the editorial team @POWERmagazine.
770.810.9698 power2@amec.com amec.com/power
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January 2014 8
IEAs World Energy
Outlook 2013: Renewables
and Natural Gas to Surge
Through 2035
By 2035, renewables will hold a 30% share
of the global power mix, but only 1% of
the worlds fossil fuelfired power plants
will be equipped with carbon capture and
storage (CCS), reports the International
Energy Agency (IEA) in its newly released
World Energy Outlook (WEO-2013).
The annual report presents a central
scenario in which global energy demand
rises one-third by 2035, driven higher by
the growing populations and expanding
economies of India and Southeast Asian
countries rather than by China. Mean-
while, more than half of the projected
increase in global primary energy demand
will come from the power sector (Figure
1), the agency projects.
Coal is expected to remain a cheaper
option than natural gas for power genera-
tion in many regions, though that could
change, depending on policy interventions
to improve efficiency, curb air pollution,
and mitigate climate change. Coal demand
is set to increase 17% by 2035, with two-
thirds of that increase occurring by 2020.
While coal use will decline by half in Eu-
rope (despite current price dynamics) and
plateau in China by 2035, India is poised
to become the worlds largest coal im-
porter by 2025. In the U.S., coal use is
expected to decline by 14%.
Though several initiatives to mitigate
climate change are under wayas with
the U.S. Climate Action Plan, Chinas plans
to limit coals share in its domestic energy
mix, Europes debate on 2030 energy and
climate targets, and Japans discussion of
a new energy plan that may or may not
include nuclear powerglobal energy-
related carbon dioxide emissions will still
rise by 20% by 2035. That means, accord-
ing to the IEAs New Policies Scenario,
which takes into account the impact of al-
ready announced climate change measures
and other policies, the world will be on
a trajectory consistent with a long-term
average temperature increase of 3.6C, far
above the internationally agreed 2C tar-
get, the report says.
Though the global average efficiency of
fossil fuel conversion in power plants is fore-
cast to improve by 15%, the IEA makes the
significant, if dismal, admission that wide-
spread deployment of CCS technology could
stall. Only about 1% of global fossil fired
power plants (about 67 GW) will be equipped
with CCS by 2035, mostly in the U.S., China,
and the European Union (EU). CCS appears
well-suited to resolving at least some
of the tension between rapidly increasing
power demand and the need to limit carbon
emissions and local pollution, yet many
significant challenges have still to be over-
come, the agency says. These include the
need to integrate component technologies
effectively into large-scale projects, identify
viable storage sites and put the necessary
financial incentives in place.
By 2035, natural gas demand will out-
pace that of any other individual fuel and
end up nearly 50% higher than in 2011.
Demand for gas will come mostly from
the Middle Eastdriven by new power
generationbut also from Asian coun-
tries, including China, India, and Indone-
sia, and Latin America. Power generation
continues to be the largest source of gas
demand, accounting for around 40% of
global demand over the period. New gas
plants, meanwhile, are expected to make
up around a quarter (or 1,000 GW) of net
capacity additions in the worlds power
sector through 2035.
Nuclear generation will also increase by
two-thirds, reaching 4,300 TWh in 2035,
led by China, South Korea, India, and Rus-
sia. But demand for nuclear power will
be driven mostly by expansion in just a
few countries. China accounts for around
half the global increase, while South Ko-
rea will see the next-largest increase, fol-
lowed by India and Russia. The prospects
for nuclear power are less uncertain than
after Fukushima in 2011, the IEA notes.
What remains murky, however, is how the
sector could be affected by further policy
changes, implications of the ongoing safe-
ty upgrades for plant economics and pub-
lic confidence, and notably, the impact of
increased competition from shale gas.
Nearly half of the increase in global
power generation will be from renew-
ablesand generation from wind, solar,
and hydro will make up an expected 30%
share of the global power mix by 2035.
That will put it ahead of natural gas and
just behind coal as the leading fuel.
China will lead the world in renewables
installations by 2035, its total renewable
output totaling more than in the EU, the
U.S., and Japan combined. Overall, the
massive renewables increase will likely
create challenges, the IEA foresees, rais-
ing questions about current market design
and its ability to ensure adequate invest-
ment and long-term reliability of supply.
Electricity prices will also vary, the
agency forecasts. By 2035, average Japa-
nese, Europeanand even Chinesein-
dustrial consumers will pay twice as much
for power as their counterparts in the U.S.,
which could have important ramifications
for competitiveness, the report says.
The report also notes that substantial
investments in the power sector will be
required over the projection period to sat-
isfy rising power demand and to replace
or refurbish aging infrastructure. By 2035,
around 50% of todays grid infrastructure
will have reached 40 years of age, the
agency notes. Cumulative global invest-
ment could amount to as much as $17 tril-
lion through that period, averaging $740
billion per year. New plants will account
for 58% of the total, while the rest will be
10,000
8,000
6,000
4,000
2,000
0
Coal
OECD (2011) OECD (2035) Non-OECD (2011) Non-OECD (2035)
Gas Oil Nuclear Hydro Other
renewables
1. The changing face of world power generation by source. The power gen-
eration mix (in TWh) in member countries of the Organisation for Economic Co-operation and
Development (OECD) and non-members is expected to evolve variedly. Source: IEA
January 2014
|
needed in transmission and distribution
networks.
Future of Australias
Carbon Pricing Scheme
Hangs in the Balance
Australias freshly elected prime minister,
Tony Abbott, introduced a bill in Novem-
ber to scrap the nations controversial
carbon pricing plan, which is slated to
transition to an emissions trading scheme
(ETS) in July 2014. But the government
also declared it wont extend the carbon
tax beyond June 30, even if the Senate
does not pass the repeal legislation by
thenprompting alarm among generators
and other stakeholders, who say the possi-
bility of a retrospective repeal, even for a
short period, will create risk for all partici-
pants and complicate the repeal process.
Abbott was elected in September partly
on an election pledge to repeal the pre-
vious Labor governments pricing plan,
which sought to reduce greenhouse gas
(GHG) emissions in coal-rich Australia by
5% below 2000 levels by 2020 and 80%
by 2050 (Figure 2). The carbon-pricing
scheme became effective in July 2012
as part of a broad energy reform pack-
age called the Clean Energy Plan. It
currently taxes 370 major carbon emit-
ters the worlds highest carbon price of
A$24.15 per metric ton of emitted carbon
dioxide and is set to switch to an ETS this
July, moving from a fixed carbon price to
a floating price of about A$6.
But Abbott has instead called for a so-
called direct action plan, which includes
an emission reduction fund and a market-
based incentive for businesses to reduce
GHG emissions. Observers in November
noted that the bill is expected to easily
pass the lower house, where the Liberal-
National Coalition has a clear majority, but
could face a standoff in the Senate, which
is dominantly held by the Labor, Greens,
independents, and several smaller parties.
Abbott has promised to call a double dis-
solution of parliament if the Senate blocks
the bill, which would mean elections to
both the lower and upper houses.
If, however, the repeal bill has not been
passed by July 1, 2014, the fate of the
legislation will be handed to a new Sen-
ate that will meet on that date. But for
the countrys power and gas transmission
industries, that could mean confusion
and uncertainty. This stated intention to
backdate repeal to 30 June 2014 does not
mean that businesses can ignore the car-
bon tax while it remains law, a number of
industry groups said in a joint statement
on Nov. 4. The possibility of retrospective
repeal, even for a short period, will create
risk for all participants in the market and
complicate the repeal process. If repeal
cannot be secured well in advance of 30
June 2014, the industry is eager to work
with the Government to find ways to ad-
dress the challenges this will create.
The groups are opposed to the car-
bon price, which they said already posed
several uncertainties. It has increased
the costs of fossil-fueled generators and
therefore increased wholesale prices as af-
fected generators sought to recover their
increased costs. They noted, however, it
is impossible to precisely quantify the
extent to which the carbon price has in-
creased wholesale energy prices, as they
vary based on the changing mix of gen-
eration output. Further complicating this
scenario is the inability to attribute a
specific value to the carbon price at the
time of trade. Where a forward contract is
all-inclusive, as is the case for exchange-
traded products, each participant makes
their own assessment of the value of the
fully-inclusive price, including the impact
of the carbon tax, the groups said.
According to Matthew Warren, CEO of
the Energy Supply Association of Australia,
a more efficient means of reducing GHG
emissions than putting a price on carbon
has been to increase the renewable energy
target (RET) to 20% by 2020, which he
noted has already forced in 1.8 GW of
large-scale renewable generation into the
electricity market. But theres a problem,
he said. The RET was passed in 2009 when
it was assumed demand for energy would
soar. With demand falling, the RET target
is now approaching 30%. This means we
will have to build even more renewable
power stations trying to sell electricity
into an already over-supplied electricity
market. The higher cost of gas means in
many instances more efficient, more mod-
ern and lower emissions gas generators
are being stranded and older, cheaper coal
generators remain online, he observed.
The kicker is that with no carbon price,
the oversupply means that the wholesale
price is likely to drop so low that even
the value of Renewable Energy Certifi-
cates wont be enough to pay for more
new renewables, he said. You could try
and fix this with a carbon price, but now
with higher gas prices it would need to be
$70 or more per tonne of carbon. Austra-
lias current fixed carbon price is $24.15 a
tonne. If we link to the European scheme
in 2015, it will fall to less than $10.
Around the world, meanwhile, Austra-
lias proposed retreat on its climate plan
has been received with mixed reactions.
Canada, which withdrew from the Kyoto
Protocol in 2011 and has failed to meet
its own international GHG emissions tar-
gets, issued a formal statement in mid-
November applauding Australias move to
repeal the carbon tax. The decision will be
noticed around the world and sends an
important message, said Paul Calandra,
parliamentary secretary to Canadas prime
minister, Stephen Harper. Canada in 2009
agreed to align its climate plan with the
U.S. target to slash GHG emissions 17%
from 2005 levels by 2020.
And in November, Japans Minister of Envi-
ronment announced that country was chang-
ing its own carbon emission reduction target
from 25% below 1990 levels by 2020 to a
3.1% increase from 1990 levels, or a 3.8%
reduction from 2005 levels. Japans shifting
stance was prompted by the countrys shut-
down of all 50 nuclear power plants, which
has forced the resource-poor country to rely
on vast imports of coal and liquefied natural
gas. The countrys power sector carbon diox-
ide intensity soared to levels in 2012 that
were 39% greater than when the countrys
nuclear plants were operational.
EPRI Plans High-Burnup
Spent Fuel Demonstration
A study proposed by the Electric Power
Research Institute (EPRI) could shed more
light on how safe it is to store high-burn-
up used nuclear fuel in dry casks.
In an August 2013released draft test
plan developed by the research institu-
tion for the Department of Energy (DOE)
sponsored study, EPRI proposes using a
specially instrumented dry storage cask to
2. Curbing carbon. While the future
of coal-rich Australias carbon pricing scheme
remains murky, the country is forging ahead
with demonstration projects to capture and
store carbon dioxide. The A$208 million Callide
Oxyfuel Project at the Callide A Power Station
in Queensland, shown here, began a two-year-
long demonstration of oxyfuel carbon capture
in December 2012. Courtesy: CS Energy
|
January 2014 10
THE BIG PICTURE: Regulation Reckoning
E
S
T
I
M
A
T
E
D

C
A
P
I
T
A
L

S
P
E
N
D
I
N
G
E
S
T
I
M
A
T
E
D

A
N
N
U
A
L
I
Z
E
D

C
O
S
T
S

MATS
Finalized in February 2012 (and
later updated in March 2013), MATS
sets the rst nationwide limits on
power plant mercury emissions.
Coal and oil generators of more
than 25 MW are required to slash
emissions of mercury, arsenic, and
metals by 2016.
CSAPR/CAIR
Tightens limits on emissions of ne
particulates, sulfur dioxide, and
nitrogen oxide from power plants
in 28 states in the eastern U.S.
CAIR remains in place as the
Supreme Court reviews a federal
courts decision to vacate the
2011-nalized CSAPR.
BOILER MACT
Finalized in January 2013, the
Boiler MACT rule requires stringent
emissions reductions of hazardous
air pollutants from industrial,
commercial, and institutional
boilers in the U.S.
This rule proposed in April 2011
under Section 316(b) of the Clean
Water Act could require more than
670 fossil fuel and nuclear power
plants that withdraw at least 2
million gallons per day of cooling
water and use once-through cooling
systems to retrot to closed-loop
cooling via cooling towers. A nal
rule is expected in January 2014.
E
S
T
I
M
Finalized in n February 2012 (and Tigh
MMMATS
n February
EPA:
$35B
upfront capital
spending
INDUSTRY:
$84B$130B
for MATS
and CAIR
combined
$11.9B
per year by 2015
(25% more than EPA)
$9.6B
per year by
2016
$3.6B
per year in
2015 for
CAIR
$14B$18B
per year by
2020 for combined CSAPR
and various rules
(~400% more than EPA)
$1.9B
per year for
major
sources in
2013
PR
A)
$2.7B
per year in 2013
(42% more than EPA)
No estimate
MACT
ry 2013 th f ne
BO BO BO O
Finalized in Januar
OOOOIIILER M
in Januar
INDUSTRY:
$14.3B
EPA:
$5.1B

EPA:
No estimate
INDUSTRY:
$149B
COAL ASH
When nalized as expected in 2014,
the EPAs June 2010proposed rule
could be rst-ever national mandate
that governs the disposal and
management of coal ash from
coal-red power plants under the
nations primary law for regulating
solid waste, the Resource Conserva-
tion and Recovery Act (RCRA).
$7.6B
per year
(~400% more than EPA)
$1.5B
per year under
Subtitle C
$587M
per year under
Subtitle D
he he
CO CO CO CO
When nalized Wh
SH
d as expected in 2014
OOOAL AS
d as exp
INDUSTRY:
$33.4B
EPA:
$20.3B
for Subtitle C
$8.1B
for Subtitle D
Notes: MATS = Mercury and Air Toxics Standards; CSAPR = Cross State Air Pollution Rule; CAIR = Clean Air Interstate Rule; MACT = Maximum achievable
control technology; NAAQS = National Ambient Air Quality Standards. Sources: POWER, Environmental Protection Agency, National Manufacturing
Association, Electric Power Research Institute, NERA.
January 2014
|
COOLING WATER INTAKE
This rule proposed in April 2011
under Section 316(b) of the Clean
Water Act could require more than
670 fossil fuel and nuclear power
plants that withdraw at least 2
million gallons per day of cooling
water and use once-through cooling
systems to retrot to closed-loop
cooling via cooling towers. A nal
rule is expected in January 2014.
EFFLUENT GUIDELINES
Technology-based efuent
limitations and guidelines proposed
in April 2013 could set the rst
federal limits on the levels of toxic
metals in wastewater discharges
from steam electric plants. A nal
rule is expected in May 2014.
OZONE NAAQS
More stringent ambient air quality
standards for ozone that were
proposed in January 2010 were
deferred by President Obama to
lighten the regulatory burden. The
EPA is expected to nalize the rule in
2014.
$90B
per year
No estimate
$0.3B
$4.6B
per year
$8B
per year
(74% more than EPA)
$499M
per year for
bottom ash only
(Option 4a)
$942M
per year for Option 4a
(88% more than EPA)
WATER INTAKE KE KE
posed in April 2011
EPA:
No estimate
INDUSTRY:
$149B
EFFLUENT GUIDELINE EESSS
Technology based efuent
INDUSTRY:
$6B
for Option 4a
EPA:
$2.6B
for Option 4a
When nalized as expected in 2014,
the EPAs June 2010proposed rule
could be rst-ever national mandate
that governs the disposal and
management of coal ash from
coal-red power plants under the
nations primary law for regulating
solid waste, the Resource Conserva-
tion and Recovery Act (RCRA).
400% more than EPA)
014
d
c
proposed in January 2010 were
deferred by President Obama to
lighten the regulatory burden The
a
OZONE NAAQS
More stringent ambient air quality
$90B $
er yeaar p
No estimate
M
$1T
per year
(~1,000% more than EPA)
The Environmental
Protection Agency (EPA)
has justied promulgating
sweeping proposed and
nal new rules for air
emissions, water use, and
the disposal of combus-
tion residuals by conclud-
ing that the benets of
these emerging rules
would far outweigh their
costs. But the power
industry contends that,
while estimated health
and economic benets are
highly uncertain, the
cumulative impact of the
EPAs rules could cost, by
conservative measures,
roughly $100 billion
annuallyand that that
cost burden conicts with
the Obama administra-
tions pledges to
strengthen the nation's
economy. Copy and
artwork by Sonal Patel, a
POWER associate editor
|
January 2014 12
monitor conditions and changes to high-
burnup used fuel stored for a test period
of a decade or more.
The plan calls for a Transnuclear TN-32
demonstration cask and fuel, supplied by
AREVA and Westinghouse, to be placed at
the independent spent fuel storage instal-
lation (ISFSI) at Dominion Virginia Powers
North Anna nuclear energy plant. However,
Dominion Virginia Power (which is part of
the EPRI team) must first secure a license
amendment request for the existing ISFSI
from the Nuclear Regulatory Commission
(NRC) by 2015 for the test cask to be
loaded by July 2017, as planned. Measure-
ments of conditions inside the cask and
the state of the stored fuel at the end of
the storage period will be compared with
data on about two dozen sister fuel as-
semblies examined at the beginning of
the test. The DOE, meanwhile, has sought
comments from public stakeholders to en-
sure project resources are invested wisely.
The project is part of efforts that are
gaining more urgency to demonstrate
the ability to safely storefor many de-
cadesand then transport spent nuclear
fuel (SNF). The U.S. has stored lower-bur-
nup SNF of less than 45 GW-days per met-
ric ton uranium since 1986 in dry casks
(Figure 3), but dry storage of high-burnup
SNF has been more recent. About 200 dry
storage casks (out of more than 1,700 na-
tionwide) were loaded with at least some
high-burnup SNF as of December 2012.
Furthermore, almost all SNF being load-
ed in the U.S. is now high burnup, EPRI
points out. Thus, industry needs data
on high burnup SNF under typical condi-
tions.
EPRIs planned test would update the
results of a similar study, concluded by the
Idaho National Laboratory (INL) in 1999,
that examined fuel with characteristics
that were typical at that time, the Nuclear
Energy Institute notes. Since that study,
the industry increasingly has been able to
extract more energy from nuclear fuel by
operating reactors at higher power levels
and by using longer cycles between refuel-
ing. The resulting higher-burnup used fuel
is both more radioactive and hotter.
But another reason the study is impor-
tant is a continuing need for a permanent
solution for the disposal of used nuclear
fuel from reactor sites, which makes it
more likely that fuel is stored in dry casks
for periods longer than the original 20-
year license, the nuclear industry group
said. Based on the INL study and other
information, the NRC in 2011 revised its
used fuel storage regulations (10 CFR Part
72) to increase the licensing period for dry
casks to 40 years with the option for ad-
ditional renewals of up to 40 years.
EPRI said the data obtained from the
test could also help answer NRC requests
for information from applicants for dry
storage license extensions on the condi-
tion of high-burnup SNF after the initial
20-year license period.
Milestones for Major
Nuclear Projects
Several new nuclear plant construction
milestones were recorded worldwide in
October and November.
CPR-1000. On Nov. 23, Chinas 18th
large reactor, Hongyanhe 2, was connect-
ed to the grid. The $8.2 billion CPR-1000
pressurized water reactor began construc-
tion in 2008. Two more units are under
construction nearby in northern Liaoning
province, about 420 kilometers from Bei-
jing across the Bo Hai Sea.
AP1000. On Nov. 4, safety-related con-
crete was poured for the basemat of the sec-
ond AP1000 unit at the V.C. Summer plant
in South Carolina. Later that month, Georgia
Power poured safety-related concrete for the
basemat of the second AP1000 unit at Plant
Vogtle. Meanwhile, four AP1000 reactors are
being built in China, at Sanmen and Hai-
yang. Sanmen Unit 1 (Figure 4) is expected
to be the worlds first AP1000 to begin op-
erating when it goes online in 2014. The
U.S. AP1000 units will come online between
2017 and 2018, while the Chinese reactors
will all be operational by 2016.
AES-2006. The foundation slab of the
first of twin Russian reactors at Ostrovets
in Belarus was poured in November at a
site in the Grodno region close to the Lith-
uanian border. The 1,200-MW AES-2006
reactors are being built by AtomStroyEx-
port and mark the first major milestone for
the project after the turnkey contract was
finalized between Belarus and Rosatom in
July 2012 for the supply of the two reac-
tors. Construction of each unit could take
up to five years.
EPR. On Oct. 24, the AREVA-Siemens
consortium that is building the Olkiluoto
3 EPR for Finnish power company Teol-
lisuuden Voima Oyj (TVO) installed the
reactor vessel head, marking completion
of the installation of heavy equipment.
The project has been besieged by delays
since it began construction in 2005. TVO
has warned that the plant may not be op-
erational until 2016.
At Flamanville 3, where AREVA is build-
ing Frances first EPR, the reactor vessel
was delivered to the construction site. Civil
engineering work is now almost complete
at the Normandy site. Though originally
expected to begin operation in 2013, the
reactors construction is expected to be
completed in 2016. Taishan 1, which is an
EPR under construction in China, has been
under construction since 2009 and is ex-
pected to start up in 2014, while Taishan 2
is scheduled to begin operating in 2015.
A Novel Solar-Fossil
Hybrid Power Plant
The Pacific Northwest National Laboratory
(PNNL) is developing a promising solar-
fossil hybrid power system for integration
with a conventional combined-cycle power
plant. The hybrid system uses concentrat-
ed solar power (CSP) from a parabolic dish
to drive the endothermic steam-methane
reforming (SMR) reaction (see Equation 1)
in a reactor mounted at the focal point of
the dish (Figure 5). The mixture of carbon
3. A dry cask task. Since 1986, the U.S.
has stored lower burnup spent nuclear fuel in
dry casks like these at the Diablo Canyon site
near Avila Beach, Calif. But almost all spent
nuclear fuel being loaded in the U.S. is now
high burnup, the Electric Power Research In-
stitute notes in a draft test plan to study the
safety of high burnup fuel dry storage. Source:
NRC
4. The first of a bevy. Construction at
the State Nuclear Power Technology Corp.s
Sanmen Unit 1 in Chinas eastern Zhejiang
province is nearing completion. When the plant
is commercially operational in 2014, it will be
the worlds first nuclear power unit to employ
Westinghouses third-generation AP1000 tech-
nology. Courtesy: Sanmen Nuclear Power Co.
January 2014
|
monoxide (CO) and hydrogen (H
2
) result-
ing from the reaction, called syngas, has
27% more chemical energy than the enter-
ing methane. The syngas is then routed to
the combustion turbine instead of using
methane (natural gas) directly.
Equation 1: CH
4
+ H
2
O = CO + 3H
2

The hybrid power system has several
advantages that suggest promise for de-
veloping a cost-effective system. The
parabolic dish concentrator is always
pointed directly at the sun, which results
in 50% more solar energy reaching the so-
lar receiver on an annual basis, per unit
of concentrator area, compared to fields
of heliostats pointing to a receiver on
top of a tower or parabolic troughs, the
most commonly implemented CSP tech-
nology to date. This performance advan-
tage is particularly important because the
concentrator, with its mirrored surface, is
typically the most costly component in a
CSP system.
The parabolic dish provides the so-
lar concentration necessary to reach the
temperature (an estimated 800C) required
to drive the reforming reaction forward.
High heat and mass transfer rates made
possible via small channels in the reac-
tor allow a compact design to minimize
cost and thermal losses. After recovering
most of the thermal energy in the product
stream by preheating the reactants, ther-
mal losses are minimal compared to that
experienced in other CSP piping systems.
Best of all, capture of solar energy in syn-
gas allows its conversion to electricity
via a combined-cycle power plant. Col-
lectively, these advantages translate into
solar-generated chemical energy (i.e., the
solar fraction of syngas chemical energy)
that is projected to cost no more than
forecast natural gas prices in the U.S. over
the lifetime of the power plant, assuming
a site with solar insolation typical of the
Southwestern U.S.
PNNL has completed the first of three
research and development phases planned
in work funded by SolarThermoChemical
LLC and the U.S. Department of Energy
through its SunShot Initiative. Much of
the first phase was spent fabricating and
assembling the single dish system (shown
in Figure 5). The system uses an early ver-
sion of a parabolic dish concentrator de-
veloped by Infinia Corp. of Ogden, Utah.
Infinia developed the concentrator to mate
with its Stirling engine generators, but it
works equally well providing concentrated
solar energy to the PNNL steam-methane
reformer.
Phase 1 testing achieved solar insola-
tion to chemical energy conversion ef-
ficiency as high as 69% for periods of
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5. SolarSMR test system in late
afternoon. Source: PNNL
|
January 2014 14
several hours, which is believed to be a
world record. One objective of Phase 2
will be to achieve similar or better per-
formance for more extended operations.
Developing control methods for automatic
operation is another. Phase 1 activities
also included computer simulations of the
reactor, manufacturing cost studies of the
reactor and recuperator (for preheating
reactor feed stream with reactor product
stream), and laboratory investigations of
reaction catalyst durability and regenera-
tion. The results of these activities have
identified several design changes for im-
proving performance and reducing cost
that will be implemented in Phase 2.
Phase 2 will use the same concentrator
as Phase 1, which is a quarter of the size of
Infinias commercial-scale unit, but an im-
proved reactor design. During Phase 3, the
reactor and recuperator will be scaled up to
match a commercial-scale concentrator. If
all goes well, the system will be ready for
commercial demonstration in 2016.
Contributed by Daryl Brown (daryl
.brown@pnnl.gov), a senior staff engineer at
the Pacific Northwest National Laboratory.
POWER Digest
Jordan Picks Russian-Built AES-92 For
First Reactor. Jordan in early November
chose Rosatoms reactor export subsidiary
AtomStroyExport to supply AES-92 nucle-
ar technology for its first nuclear power
plant. Rosatom Overseas will be strate-
gic partner and operator of the plant. The
plants financing has yet to be finalized,
but an official of the Jordan Atomic En-
ergy Commission (JAEC) told local media
that Russia could contribute at least 49%
of the projects $10 billion cost with the
remainder from the Jordanian government.
The first reactor of the two-unit plant
could begin operating in 2020. The JAEC
had narrowed down possible vendors for
the plant to an Areva-Mitubishi Heavy
Industries consortium for the ATMEA 1
and Russias AtomStroyExport for the AES-
92 or VVER-1000.
RWE Shelves 1.2-GW Atlantic Array
Project. RWE on Nov. 26 halted develop-
ment of the 1.2-GW Atlantic Array, one of
the UKs largest offshore wind farms, citing
technical challenges that made the proj-
ect uneconomic. The facility planned in
southwestern England would have featured
240 wind turbines, but it had faced fierce
opposition from environmental and heri-
tage groups, which said the 722-foot-high
turbines could cause lasting damage. RWE
Innogy said technical challenges within
the Bristol Channel Zone are significant,
pointing to substantially deep waters and
adverse seabed conditions. Costs to over-
come such technical challenges are pro-
hibitive in current market conditions, it
added. RWE also said, however, that it will
continue building the 576-MW Gwynt-Y-
Mor offshore wind farm in the UK, a project
that is slated for completion in 2014. Re-
newables made up 15.5% of the UKs total
generation portfolio in mid-2013. The gov-
ernment wants to meet 30% of its electric-
ity needs with renewable power by 2020.
Italy Looks to Sell Eni Stake. Italys
government on Nov. 21 approved plans
to sell up to 12 billion ($16.13 billion)
in assets, including a 3% stake worth 2
billion in energy giant Eni, in an effort
to ease austerity measures and cut its na-
tional debt. The electricity sector in Italy
was nationalized in 1962 with the creation
of the state-controlled generation, trans-
mission, and distribution company ENEL.
In 1999, the sector was liberalized with
the Bersani decree. In 1995, the Italian
government sold a 63% share of Eni earn-
ing 21 billion. The Treasury and the pub-
lic Cassa Depositi e Prestiti own a 30.1%
stake in Eni, which is a power generator
in addition to engaging in a number of oil
and gas operations. Enis installed power
generation capacity was 5.3 GW at the end
of 2012, which represents a fraction of the
countrys total installed capacity of about
118 GW.
Malaysia to Increase Electricity Tar-
iffs by 15% in 2014. Electricity charges
in peninsular Malaysia will increase by
14.89% on average in 2014 as part of
subsidy rationalization measures out-
lined in the countrys annual budget, the
countrys energy minister, Maximus Ong-
kili, said on Dec. 2. Prime Minister Najib
Razaks budget announced in October tar-
geted cuts of 15.6% in the governments
total subsidy bill in 2014. It also calls for
a new consumption tax that could be en-
acted in 2015. The tariff hike is expected
to save the government $1.25 billion in
subsidies next year, even though 71% of
consumers in peninsular Malaysia would
be affected by the increase due to exemp-
tions for low-income Malaysians.
Vietnam Implements New Electricity
Law. Vietnam in late October issued a de-
cree implementing the Law on Electricity,
which essentially provides a master plan
for investment in electricity development,
power purchases and sales, power prices,
power operating licenses, and state admin-
istration of power activities and power use.
Under the decree, the countrys master plan
on power development will be amended ev-
ery five years or in shorter cycles. The Min-
istry of Industry and Trade (MoIT) will
carry out the preparation and approval of
a proposal and cost estimate to amend the
national master plan. MoIT will also admin-
ister the master plan and guide preparation
of an annual plan on investment in electric-
ity development. Among its key attributes,
the decree requires investors in generation
projects to provide adequate funding for
site clearance, compensation payment, and
relocation and resettlement assistance. It
replaces Government Decree 105/2005/ND-
CP (17 August 2005). For more on Vietnams
power sector, see Vietnam Works Hard to
Power Economic Growth in POWERs March
2012 issue at powermag.com.
Indias NHPC to Commission De-
layed Hydro Projects by 2018. Indias
largest hydro power producer NHPC ex-
pects to commission five projects of more
than 3,800 MW that have been mired in
environmental or contractual gridlock by
2018. The projects include the 2-GW Sub-
ansiri Lower project in Assam, which was
expected to be commissioned by Decem-
ber 2012 but will now likely come online
by December 2017. The controversial proj-
ects costs have doubled since 2002 to
an estimated $1.9 billion because it has
been held up by issues about the dams
safety and downstream impact, NHPC
said. The 520-MW Parbati-III project in
Himachal Pradesh, which was stalled due
to contractual issues, will now be commis-
sioned in March 2014a delay of more
than three years. The 800-MW Parbati-II,
which should have been commissioned
this March, is now scheduled for commis-
sioning in March 2018. The 160-MW Teesta
Low Dam Project-IV in West Bengal and
the 330-MW Kishanganga in Jammu &
Kashmir are to be completed by November
2014 and November 2016, respectively.
Brazil Could See $8B Grid Boost.
Brazils energy research agency Empresa
de Pesquisa Energtica (EPE) predicts
that the country will need to spend up
to $7.8 billion to build more than 13,000
kilometers of new transmission lines and
39 substations by 2018 to ensure grid re-
liability. The Transmission Expansion Pro-
gram announced on Nov. 26 will be open
for bidding in 2014. The country is looking
to mitigate delays affecting expansions to
the National Interconnected System. The
projects outlined by the EPE refer to proj-
ects whose feasibility studies have been
completed but not yet bid.
Sonal Patel is a POWER associate edi-
tor (@POWERmagazine, @sonalcpatel).
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January 2014 16
Upgrading a Wired Public
Address System with a
Wireless Option
The management at a 1,094-MW coal-fired
power plant in the Midwest sought to aug-
ment their hardwired public-address (PA)
system. With hundreds of employees work-
ing in varied conditions, a means of com-
municating messages to everyone on site
was needed, whether their normal daily
activities were limited to a few blocks or
if they traversed the entire 200 acres and
multiple buildings. What the plant found
was a wireless PA system so effective that
it actually supplanted the original model.
A Mixed Bag
Communications in this facility, as in
many plants where components are added
over the years, was a mixed bag. There
was a hardwired PA system in place, but
the staff wanted to supplement it with a
system that could interface with it. The
new system had to be loud enough to be
heard by employees wearing hearing pro-
tection, but soft enough for those working
in confined areas like trailers or offices.
Messaging had to be broadcast through-
out the 200-acre facility, even reaching
employees who might be traversing de-
commissioned areas of the plant. Addi-
tionally, many (though not all) employees
carry portable radios, which needed to
be integrated into the new system. As
an added wrinkle, the plant was planning
to upgrade to a digital radio system and
wanted the ability to integrate the new
radios into the supplementary PA system.
Given the many nuances of the messag-
ing footprint, coupled with installation
concerns and pricing questions, the proj-
ect was neither routine nor easy.
Site officials contacted Cardinal Wire-
less, which supplied a demonstrator model
of a Ritron LoudMouth wireless PA system
to test at the facility. Plant and Cardinal
Wireless representatives toured the site,
stopping in areas where communications
were a concernlike those with high am-
bient noise, elevated temperatures, and
the decommissioned areas. After the dem-
onstration, the company decided to pro-
ceed with the system.
Installation Benefits of a Wire-
less System
Installation of the wireless PA system was
far simpler than for a traditional hardwired
PA and was accomplished at a fraction of
the price. Still, one challenging aspect
was finding suitable mounting surfaces.
Though the facility has abundant I-
beams and catwalks, it was not replete
with flat mounting surfaces. So instal-
lation crews from the local electrical
contractor used beam clamps and other
innovative methods to secure the wireless
speakers (Figure 1). Each installation, in
the absence of a difficult mounting sur-
face, took about 30 minutes.
Significant time was saved due to the
wireless nature of the product, which avoid-
ed trenching and re-wiring the entire facility.
Installation costs were reduced by eliminat-
ing the need for thousands of feet of copper
wiring and the labor required to install it.
Can You Hear Me Now?
The wireless system did not sacrifice sound
volume or clarity. Recall that many of the
employees are equipped with two-way ra-
dios, so it could be argued that reaching
these personnel would be more effective
with a radio broadcast than with a tradi-
tional PA announcement.
Areas with high ambient noise posed
additional problems because employees in
these areas wear foam ear inserts to protect
their hearing. Again, the wireless nature of
the system makes it easy to add additional
speakers to ensure that messages are clear-
ly audible even when employees are wear-
ing hearing protection (Figure 2).
Wireless PA Speeds Response
Time
Another advantage is that the LoudMouth
allows faster response times because of its
ability to make announcements through
the two-way radios from a nonspecific lo-
cation. Previously, personnel would have
had to travel to one of the PA stations
to make an announcement. With the wire-
less system, any radio-equipped employee
can make an announcement, eliminating
travel time and allowing emergency mes-
saging to occur in real time.
Flexibility Yields Additional
Benefits
Because portions of this plant built in the
1920s, many areas posed a challenge for
locating PA speakers. There were portions
of the plant that had been decommis-
sioned but through which personnel rou-
tinely travel, so these were included in the
messaging footprint.
Certain areas of the cavernous facility
were where the flexibility of the speak-
er installation really came into play.
Some of the zones had large open areas
where speakers needed to be located.
In some instances, installers were able
to locate speakers on alternate floors
and still achieve adequate coverage. In
other cases, there were rooms within
rooms, so they had to deal with each
area individually.
1. Public address speakers mount-
ed on an I-beam. Courtesy: Ritron Inc.
2. Public address speakers mount-
ed in a high-noise area. Courtesy: Ri-
tron Inc.
January 2014
|
The ability of each receiver to support
two PA speaker horns was helpful in cus-
tomizing areas with appropriate sound
levels. With two speaker horns installed,
and though effective sound pressure
level is reduced by half, the PA speakers
can each be positioned independently
for example, 180 degrees from each oth-
erproviding added flexibility to cover
more areas with a single installation
point (Figure 3).
Each receiver can be fine-tuned for
volume as well, depending upon ambi-
ent noise and environmental conditions.
Speaker volume was set at 90% for the
first 225 speakers installed, though those
in office areas or control rooms were much
lower. Following some complaints, volume
was turned down in four or five areas
mainly job trailers and control rooms
while speakers in areas like the gas turbine
facility continue to blast their messages
at a high level.
While many of the receiver installa-
tions are protected from the elements,
those that are not can be put into all-
weather boxes. It is also possible to
place them within National Electrical
Manufacturers Association enclosures,
when necessary.
Nuts and Bolts of the
Installation
The contract was signed in November 2012
and the projectincluding 300 speakers
was delivered in January 2013.
The facility uses approximately 100 por-
table radios with two or three repeaters,
providing four or six talk paths. This Loud-
Mouth system uses one analog repeater,
which provides communication capability
throughout the facility based on its stra-
tegic location.
The new wireless PA system has been
so successful in delivering messages that
it has supplanted the hardwired system
that it was originally intended to aug-
ment. It was installed in much less time
and at a fraction of the cost of a tradi-
tional hardwired PA system. In addition
to delivering audible messaging through-
out the 200-acre, multi-building facility,
each receiver is fine-tuned to the ambi-
ent noise and working environment in
which it is located. This allows delivery
of routine and emergency messagesin
real timeto all of the facilitys hun-
dreds of employees, regardless of where
they work. And although the time and
cost savings are important, the ability to
safeguard employees is the most impor-
tant aspect of the new system.
Steve Rice is president of Ritron Inc.
3. Public address speakers posi-
tioned 180-degrees. Courtesy: Ritron
Inc.
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WERE ENHANCI NG THE
OF STRENGTH.
|
January 2014 18
Steven F. Greenwald Jeffrey P. Gray
Financial Performance
Based Utility Bonuses:
Unnecessary Exposure
A
series of derivative lawsuits has recently been filed against
the officers and directors of Pacific Gas and Electric Co.
(PG&E) based on the explosion of a PG&E gas transmission
line in San Bruno, Calif., in September 2010. The incident caused
eight deaths and destroyed approximately 35 homes.
Derivative lawsuits are brought on behalf of a companys
shareholders. They assert that managements breaches of their
fiduciary duties and other misdeeds have financially harmed the
companys owners (the shareholders) and request that the court
order the defendant management to alter their ways.
Misdirected Incentives Expose Utilities
The allegations highlight important utility industry issues that
transcend the San Bruno explosionto what extent should bo-
nuses for utility management be based on financial performance?
In economic theory, correlating bonuses on financial perfor-
mance should incent utility managers to benefit ratepayers by
increasing operating efficiencies and implementing cost-saving
measures. Conversely, rewarding financial performance exposes
utility managers to claims of sacrificing safety.
The plaintiffs argue that the tragedy at San Bruno was precipi-
tated by the emphasis on financial performance that the PG&E
Short-Term Incentive Plan (STIP) offers management. Prior to
San Bruno, PG&E based 50% of STIP bonuses on financial perfor-
mance (the remainder reflected safety and customer satisfaction
criteria). The lawsuits contend that PG&E inappropriately reduced
maintenance and other infrastructure expenditures to meet fi-
nancial performance criteria.
Plaintiffs allege that PG&E diverted more than $100 million
intended for natural gas pipeline maintenance to other purposes,
including bonuses. Bluntly stated, plaintiffs accuse PG&E manage-
ment of intentionally sacrificing public safety for company profit
and personal gain. Plaintiffs contend that linking company financial
achievement and personal compensation made a San Brunomagni-
tude catastrophe inevitable: It was not a question of if there would
be an explosion, it was only a question of when and where.
The lawsuits accuse PG&E management of promoting an at-
mosphere and culture in which short term profits, cost cutting,
and personal profiteering was put ahead of the proper manage-
ment. Plaintiffs ridicule a particular PG&E backwards incen-
tive program, alleging it rewarded employees for electing not to
report or fix leaks, or otherwise report any dangerous conditions
that would cost PG&E money to fix.
This article does not comment on the possible (or lack of)
merits of these allegations; the objective is to alert the utility in-
dustry that it must extricate itself from the untenable position of
defending against accusations that senior executives sacrificed
safety for personal profit.
Utilities Are Different
The economic theories that cost cutting should increase profits
and that shareholders should correspondingly reward management
for increasing profits makes sense for most unregulated industries.
However, an initiative by Apple or Ford to cut costs to increase
profits is constrained by the reality that any resulting decline in
product quality risks a decrease in sales and revenues, and corre-
spondingly, profits. Thus, economically rational entities cut costs
only if they can produce the same product at a lower cost or be-
lieve that consumers will continue to purchase a lesser product.
In contrast, the captive customer base within its exclusive
service territory enables a utility to reduce operating costs, es-
sentially without risk of customer loss due to product decline
customers cannot forsake electricity and have extremely limited
alternative purchase options. Moreover, when expenditures are
cut on maintenance of infrastructure, the utility customer has no
notice of the resulting deterioration of service.
Zero Tolerance for Financial Performance-Based
Bonuses
Over the last several decades, utility compensation has tended
to mimic financial and technology companies, transitioning
pay from almost all salaries and benefits to appreciable per-
centages of total compensation being bonus-based and the
bonus in part being based on financial performance. For in-
stance, even after San Bruno, PG&Es STIP remains based at
30% on financial performance.
The best industry practices and stringent regulatory oversight
should reduce the occurrence of accidents such as San Bruno.
However, the combination of aging infrastructure, population
growth, and increased demands on existing facilities renders it
statistically likely that a tragedy of the magnitude of the San
Bruno explosion will again occur.
In the wake of the San Bruno event, utilities must appreci-
ate that even the slightest nexus between cost cutting and
executive bonuses poses undue risk. The California Public Utili-
ties Commission and likely the courts will ultimately determine
liability for San Bruno. Regardless of the outcomes, plaintiffs
arguments that PG&Es management sacrificed safety for personal
gain will continue to attract disparaging headlines, incite critical
political rhetoric, and encourage additional legal actions, wheth-
er the financial performance component in the incentive program
is 50%, 30%, 10%, or even less.
Utilities would best serve their customers, employees, and
shareholders by eliminating company financial performance as
a criterion for bonuses altogether. Financial incentives for util-
ity management and employees should be based on safety, reli-
ability, and customer satisfaction. The public relations and legal
nightmare PG&E confronts daily in the media, legislature, regula-
tory agencies, and the courts should persuade utility executives
to demand zero tolerance and totally delink financial perfor-
mance from incentive compensation programs.
Steven F. Greenwald (stevegreenwald@dwt.com) and Jeffrey P.
Gray (jeffgray@dwt.com) are partners in Davis Wright Tremaines
energy practice group in the firms San Francisco, Calif., office.
Categories for 2014:
Plant of the Year
Marmaduke Award
Smart Grid Award
Top Plants: Gas, Coal, Nuclear, Renewables
Get more information, past winners, and entry forms
at www.powermag.com/power-awards
DEADLINE: APRIL 30, 2014
PROUD
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PROJECT?
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|
January 2014 20
2014 INDUSTRY FORECAST
A Rising Tide of Regulation and the
Kick-the-Can Gambit
An array of federal regulation is coming down the pipe in 2014, but whether any of
this represents real change remains to be seen.
Kennedy Maize
A
tidal wave of pent-up federal regula-
tions could surge across much of the
electricity industry in 2014.
In recent years, Congress has been unable
to enact new laws in energy, which has led a
frustrated executive branch to substitute the
slow-motion process of regulation for new
legislative authority. The judiciary has be-
come deeply involved in second-guessing the
executive branch and Congress, introducing
new delays in policymaking. In Washington,
this pattern of active inaction has become
known as kicking the can down the road.
While 2014 likely will be busy, that does
not mean that major new rules will be firm-
ly in place at the end of the year. The tools
of delay remain available to partisans and
policy advocates of all stripes. In the most
complex and contentious rulemakings, such
as carbon dioxide reductions from coal-fired
plants, new rules wont be scheduled for full
implementation until 2015 and 2016. Court
challenges could easily boot any resolutions
further into the future.
Complicating this picture is that 2014
features a midterm election. All 435 seats
in the House of Representatives are in play
(at least nominally), along with a third of the
100-member Senate. The partisan balance of
power in Washington is tenuous. All sides
will scrutinize upcoming executive branch
rules and regulations not just for their sub-
stance and economic impact but also for how
they play politically.
Environmental Protection Agency
As has been the case for many years, the U.S.
Environmental Protection Agency (EPA) will
be the locus of the most contentious regula-
tory battles impacting the electricity sector in
2014. At the top of the EPAs agenda are a
brace of rules aimed at reducing carbon di-
oxide emissions from power plants, known
to many of the combatants as the war on
coal. But the metaphorical rhetoric may be
overstated, as coals real troubles today are
a product of market forces, including the rise
of natural gas and lagging demand for new
electricity. The EPAs new regulations will
add to the weight, but they may not prove
decisive.
Nonetheless, the EPA, lacking new legis-
lative authority, is attempting to use the 1990
Clean Air Act as the foundation for limits on
CO
2
emissions from both new and existing
coal plants. President Obama outlined his ap-
proach last June, calling for a regulatory as-
sault on carbon dioxide emissions.
The EPA has already rolled out its plan
for new plants. In September, it arrived at
a somewhat-altered proposal from one an-
nounced in April 2012. Under the Septem-
ber plan, new coal-fired plants must meet a
limit of 1,100 pounds of CO
2
per MWh and
use carbon capture and storage as the best
available control technology. These rules are
likely to be the first the EPA promulgates this
year for carbon reductions, probably in the
first quarter.
But the rules for new plants, yet to be
published, face congressional and legal road-
blocks. The U.S. Chamber of Commerce is
pushing legislation, sponsored by Sen. Joe
Manchin (D-W.Va.), and Rep. Ed Whitfield
(R-Ky.), to scuttle the carbon capture and
sequestration requirements as unachievable.
Coal interests will also challenge the EPA
rules in federal court. They argue that carbon
capture and sequestration technology is not
proven, so the EPA rule is invalid.
Complicating the subject is a recent find-
ing from the House Energy and Commerce
Committee that the EPAs conclusion that
carbon capture is a commercially proven
technology may be illegal. The committee in
late November sent the EPA a letter assert-
ing that provisions of the 2005 Energy Policy
Act say the EPA may not base a determina-
tion that a coal technology is commercial if
the projects on which that determination is
based have been funded by the Department
of Energys (DOEs) clean coal technology
program. According to the letter, all three of
the projects the EPA has cited have received
DOE clean coal funds.
The EPA is on a slower schedule for its plan
for existing plants. This rule is likely to reach
deeper into the ways the industry operates
and the prices consumers pay for electricity,
because coal remains the major generating
fuel in the U.S., with about 40% of the mar-
ket. While utilities are willing to close older
plants that are no longer competitive, they are
unwilling to shutter viable plants that the new
regulations, by themselves, would render ec-
onomically unproductive.
The structure of the Clean Air Act makes it
difficult for the EPA to come up with clear and
consistent rules for existing units, according to
many analysts. The agency must work through
state governments to implement its rules, and
many statesparticularly those with large
coal producers or generatorsare unlikely to
go easily into the new regime. So the agency
will have to negotiate many different state ap-
proaches to carbon dioxide reductions.
That sets up a nasty political collision. In
the meantime, the EPA is under White House
orders to come up with the plan for existing
plants by June 1 and implement them a year
later, with the rules going into effect by June
30, 2016. At that point, Barack Obama will
have long been a lame duck president. Much
of the nations attention will be focused on
who will replace him.
Several industry groups have made it clear
they will sue to overturn the rules for existing
plants. Litigation will add more uncertainty
and more delay.
Climate rules are not the only big-ticket
items on EPAs Clean Air Act agenda that
have an impact on electricity. Ozone pollu-
tion crossing state boundaries, a thorny issue
that goes back to before the second Bush ad-
ministration, is still a regulatory uncertainty.
The U.S. Supreme Court is likely to weigh
in on the topic early this year. The D.C. Cir-
cuit Court of Appeals has rejected both the
Bush administrations plan for cross-border
pollution and the Obama administrations
somewhat different follow-up on the topic,
|
January 2014 22
known as the Cross-State Air Pollution
Rule (CSAPR). Once the high court rules to
unravel the legal knot it has tied for itself,
thats likely to kick off a regulatory sprint
at EPA to put something in place that will
satisfy the court.
Next comes regulation of coal ash stor-
age, a vexing non-air EPA issue long en-
tangled in the courts. The EPA has toiled
for years on new rules for coal ash disposal
under the Resource Conservation and Re-
covery Act. The impetus for the regulation
comes from a massive 2008 collapse of a
coal ash pond belonging to the Tennessee
Valley Authority. Following four years of
EPA regulatory wheel-spinning, environ-
mental groups in 2012 sued the agency to
expedite an agency rulemaking. Late last
year, U.S. District Court Judge Reggie
Walton gave the agency 60 days to publish
a plan and schedule for final rules. The
litigants will be poring over the EPA plan
early this year. Action may kick off again
in the first or second quarter.
Nuclear Regulatory Commission
The EPA is not the only federal agency with
an agenda driven by court oversight of its ad-
ministrative actions. The Nuclear Regulatory
Commission (NRC), and its predecessor, the
Atomic Energy Commission, for half a cen-
tury have been entangled in the tendrils of
nuclear waste disposal policy. Today, spent
fuel from power plants is again at the top of
the agencys regulatory agenda.
The NRC is under order from the D.C.
Circuit to resume licensing activities at the
Yucca Mountain site in Nevada, which the
Obama administration and the NRC have
largely abandoned. In a 2-1 decision in Au-
gust, the court said the NRC did not have
the authority to halt its licensing proceed-
ings. The court said that the president may
not decline to follow a statutory mandate or
prohibition simply because of policy objec-
tions. So the agency is restarting review of
the underground activities at the site.
But the NRC is caught in a bureaucratic and
political trap. Congress has never repealed the
1982 Nuclear Waste Policy Act and the 1987
amendments that singled out Yucca Mountain
for storing the nations high-level nuclear
waste. But Congress has also not appropriat-
ed any money for the NRC to move forward,
driven by the opposition of Senate Majority
Leader Harry Reid (D-Nev.), and the Obama
administration to the Yucca Mountain project.
NRC Chair Allison Macfarlane has said her
agency has only about $11 million in hand for
Yucca Mountain activities, a pittance given
the scope of the regulatory activities required
for licensing. Nevertheless, the NRC in late
November ordered a restart of the licensing
for the Nevada repository.
But shortly afterward, the same court
threw another monkey wrench into the pro-
cess. The D.C. Circuit said the federal gov-
ernment no longer has any justification for
collecting a 1 mill/kWh fee on consumers of
nuclear power to fund the waste program, be-
cause the DOE has essentially abandoned it.
The court ordered the DOE to ask Congress
to zero out the fee. But Congress is not likely
to act, since the $750-million-per-year fee is
used to finance general government activi-
ties, not the nuclear waste program.
Meanwhile, the blowback from the March
2011 catastrophe at Japans Fukushima nu-
clear station continues. The NRC is imple-
menting a series of regulatory tweaks from
its examination of the disaster. The units that
melted down were of the same design as
many General Electric boiling water reactors
in the U.S.
Macfarlane recently told the American
Nuclear Society, Were reassessing our
licensees ability to mitigate seismic and
flooding events and requiring them to en-
sure adequate emergency response training
and communication to cope with prolonged
accident conditions. Theyre strategically
placing backup equipment on-site to help
maintain reactor cooling in the event of a
loss of power. Weve also required enhanced
instrumentation to better measure the water
level in spent fuel pools. While many of
these activities are well on their way to com-
pletion, well need to address some items
through rulemaking at our agency.
Federal Energy Regulatory
Commission
While the Federal Energy Regulatory Com-
mission (FERC) flies under the public atten-
tion given to the EPA and the NRC, FERCs
activities have major impacts on the electric-
ity sector. That looks like a pattern that will
persist in 2014.
The agency in November gave final ap-
proval to the latest version of the North Amer-
ican Electric Reliability Corp.s (NERCs)
Critical Infrastructure Protection (CIP) stan-
dards, which will begin to go into place in
the spring. These are the fifth generation of
rules designed to protect the bulk electric
system from cyberattack. CIP 5 takes a new,
more-integrated approach. Prior rules on cy-
bersecurity were often formalistic, checklist-
oriented procedures that both NERC and the
National Institute of Standards and Tech-
nology found cumbersome and ineffective.
FERC Commissioner John Norris described
the new CIP standards as shifting from man-
aging compliance to managing risk.
CIP 4 was scheduled to go into effect this
April, but FERC decided that CIP 5 was such
an improvement that it gave a green light for
the latest version to hopscotch over version
4. The latest rules will see phased implemen-
tation, although the commission has not yet
decided on a timetable. The proposal will re-
quire three years to become fully implement-
ed. The commission wants public comments
on that schedule, hoping to collapse it some-
what. While highly technical, the cybersecu-
rity rules, in FERCs judgment, are among
the most important facing the utility industry
and the nation in the years ahead.
Also on FERCs regulatory agenda is
NERCs implementation of a commission
order aimed at protecting the grid and ma-
jor infrastructure depending on electric grid
services from solar storms and geomagnetic
disturbances. The commission had in mind
the 1989 solar storm that damaged grid in-
frastructure from Canada to the Middle At-
lantic states, including major blackouts and
millions of dollars to transformers and grid
support equipment.
FERCs May 2013 Order 779 has two
phases. Phase one charges NERC with com-
ing up with day-to-day actions that system
operators can take, such as instituting new
procedures or training staff, to protect the
grid in the short term. The second phase of
the FERC order focuses on hardening equip-
ment and identifying engineering protections
that go beyond soft training and procedures.
NERC must come up with benchmark
standards regimes for utilities to protect
against geomagnetic storms. These should be
tailored to utility specifics, such as geogra-
phy or the configuration of the utility system.
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January 2014
|
Then each utility must develop a plan to deal
with the benchmark solar flux events.
FERC adopted the new solar flare rules
in anticipation of a round of higher solar
activity. The 11-year solar activity cycle
suggested that 20122014 would see a
burst of solar flares. While things started
slowly, NASA at the end of November re-
ported a surge of major activity, including
a strong solar eruption, not directly aimed
at Earth, which caused a brief but wide-
spread radio blackout.
FERC could become a wild card this
year, providing some regulatory and politi-
cal surprises. Chairman Jon Wellinghoff, an
aggressive regulator, departed in late No-
vember. That leaves the five-member com-
mission at a 2-2 partisan tie, with Cheryl
LaFleur, the most senior Democrat, as act-
ing chairman. The agency has generally
avoided the political rancor of the rest of
Washington over the past few years, but
there are still important ideological splits
between the Democrats and Republicans on
the commission, particularly over the role of
state regulators in the federal system.
Following the failed nomination of for-
mer Colorado regulator Ron Binz, the White
House has shown little interest in FERC.
Under the law, the commission has five
members, with a majority and the chairman
appointed by the president. Whether the deci-
sion by Senate Democrats to end filibusters
on most executive branch nominees will has-
ten action on FERC appointments is unclear
at this writing.
The timing for FERC appointments could
be tricky. LaFleurs term is up in June, so
the administration must come up with re-
placements for both her and Wellinghoff
(she could be reappointed). Traditionally, the
White House, regardless of party, has tried to
pair partisan nominations to FERC, matching
a Democrat and a Republican nominee. That
wont be possible this year with two Demo-
cratic seats in play. So a 2-2 division could
remain for some time.
One topic has proven to be divisive: Order
1000, Wellinghoffs signature accomplish-
ment, which requires regional coordination
and planning of interstate electric transmis-
sion. The commissions two Republicans,
Philip Moeller and Tony Clark, have consis-
tently objected to major aspects of the order,
including its revocation of the long-standing
precedent that incumbent transmission pro-
viders can direct the process through a pre-
sumption of the right of first refusal in
transmission cases. With Wellinghoff gone,
Moeller and Clark may try to convince LaF-
leur or John Norris, a Democrat who is also
a former Iowa utility regulator, to reexamine
the issue.
Follow the Bouncing Can
All told, 2014 looks like a year with plenty
of regulatory action in Washington. Will the
regulatory churning, which provides full em-
ployment for many inside the Washington
beltway, result in real changes in behavior on
the part of electric companies, investors, or
consumers? Or will Washington resume its
characteristic game of delay, booting issues
down the road for decisions or delays by fu-
ture administrations and regulatory agencies?
Follow the bouncing can.
Kennedy Maize is a POWER
contributing editor.
ENERGY
U.S. DEPARTMENT OF
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January 2014 24
Black & Veatch Foresees U.S.
and Global Opportunities
Dean Oskvig
B
lack & Veatch expects sustained
growth across global energy markets
in 2014 with several ongoing themes
continuing. Key market drivers support-
ing power infrastructure spend remain
the same, centering on emerging market
growth, regulations (including clean air
and water), aging infrastructure, and the
advancement of unconventional gas tech-
nologies. Competition will continue glob-
ally as engineering and construction com-
panies grow backlog in traditional markets
and with global expansion.
The U.S. Outlook Is Improving
In the United States, modest demand for
new generation capacity will primarily be
met with natural gas and solar photovoltaic
generation given regulations, renewable port-
folio standards, and other market dynamics.
U.S. transmission market investment will
be strong at nearly $200 billion from 2014
to 2023. The continued upgrade and expan-
sion of existing infrastructure, presence of
renewable resources, and Federal Energy
Regulatory Commission Order 1000 are key
contributors to sustained growth.
Opportunities to support clients in their
efforts to improve reliability and efficiency,
as well as upgrade facilities and expand the
use of renewables/distributed generation
all while keeping costs competitivewill
be significant. The air quality control retrofit
market will be driven by owners decisions to
upgrade assets or retire them altogether.
Industry observers anticipate that 2014
will bring improved economic growth in the
U.S. as well as a collision between coal-fired
plant shutdowns and system-supply reliabil-
ity. Several years of weak overall demand
growth, hindered by the slow pace of eco-
nomic recovery, have held reserve margins
in check. Without GDP recovery, margin
overhang will persist through 2020 in most
regions of the U.S., except the Electric Reli-
ability Council of Texas.
Projections of exactly how many giga-
watts of coal-fired capacity will come of-
fline through 2020 in the U.S. vary, but one
thing is certain: The economics associated
with continuing to operate coal assets and
upgrades to preserve life will remain in fo-
cus. A large-scale shift away from coal to
natural gas and renewables will require so-
lutions ranging from new pipeline and trans-
mission development to energy storage and
increased use of on-site liquefied natural gas
(LNG) storage to ensure system reliability.
Global Factors
Globally, there are several factors shaping
the 2014 power outlook. While estimates
vary, roughly $12 trillion will be spent on
power infrastructure around the world from
2014 to 2020, according to IHS Global In-
sight. Worldwide, we are witnessing the larg-
est economic transformation ever seen as
the population of cities in emerging markets
expands and incomes riseproducing a size-
able wave of middle-class consumers with
spending power. As such, rapid urbaniza-
tion will be the biggest worldwide driver of
infrastructure spending over the next several
decades as urban populations expand by 1.5
billion, to 60% of the worlds population.
On the demand side, the tsunami-related
Fukushima Daiichi event in March 2011 con-
tinues to impact the future of many nations
energy mixes. From Germany to Japan, nu-
clear power remains under scrutiny. Although
safeguard efforts continue at many existing
U.S. facilities for Nuclear Regulatory Com-
mission compliance, new build programs are
proceeding with caution in the U.S. and else-
where. Economics-based retirements are also
a consideration.
Gas, as a cleaner alternative to coal and
oil, and more suited to baseload power gen-
eration than renewables, likely has the most
potential for sustained long-term growth.
Worldwide interest in reducing greenhouse
gas emissions and improving air quality, as
well as global efforts to increase fuel diver-
sity, will drive continued investments in ex-
ploration, LNG import terminals, and supply
contracts. Gas-rich regions, the countries that
produce gas cheaply, prefer to sell it at high
value rather than generate electricity with it.
Therefore, gas processing and LNG export
projects represent a strong market opportu-
nity as gas moves from those who have it to
those who need it.
In addition, $3.50 to $4.00 per MMBtu
for U.S. shale gas means domestic project
opportunities in gas processing, floating
LNG/LNG storage, ammonia processing,
and continued growth in the transportation
LNG market.
Yet, natural gas alone will not meet the
worlds power generation needs, particularly in
developing regions experiencing load growth
ranges from 3% to 5% and more. As such,
significant new generation opportunities, pri-
marily low-cost coal fuel, will be sought near
term. These new capacity opportunities also
carry follow-on opportunities to expand power
delivery services in transmission, distribution,
and grid stability.
Workforce Trends
In addition to project work, two other trends
to monitor in 2014 include the pace of per-
sonnel retirements across the energy industry
and continuing skills and knowledge transfer
(SKT) efforts. A large number of workers in
developed regions are at or nearing retirement
age, and their departure will mean experience
gaps in many critical positions. Conversely,
developing regions are furthering SKT pro-
grams to grow the pipeline of technically
trained, indigenous workers, thereby reduc-
ing expat dependence.
Whatever 2014 may bring, Black &
Veatch is optimistic about the global power
industry and the companys future. Plan-
ning and implementing the worlds most
complex infrastructure projects and man-
aging the significant realignment of re-
sources and infrastructure needs will create
opportunities for engineering and construc-
tion firms capable of providing sustainable
energy solutions.
Dean Oskvig is president and CEO of
Black & Veatchs Energy Business.
|
January 2014 26
How U.S. Power Generators Are
Preparing for 2014
Pundits, journalists, and researchers can opine about what the future holds for
power generation, while engineering, equipment, and service companies can
comment on how their businesses are building for the new year. But in the end,
its generating companies that must address complex, ever-changing realities and
keep the power flowing.
Gail Reitenbach, PhD
T
he business environment for generat-
ing companies worldwide continues
to become increasingly complex, and
not just as a result of regulations. Even in the
U.S., the concerns and constraints faced by
generators are many and varied. Some, like
new federal regulations, are shared by all.
Others derive from regional and state-spe-
cific factors. To provide our audience with a
big-picture view of what some major power
producers see in the year ahead, we have de-
veloped a new partnership.
The POWER Generating Company Ad-
visory Team consists of a variable number
of seasoned industry leaders who have both
power plant management experience and
higher-level business side responsibilities.
Members agree to serve two-year terms, con-
tribute their insights to our January forecast-
ing issue, and consult with the editor when
we plan the coming years content calendar.
Our inaugural group includes represen-
tation from three different North American
Electric Reliability Corp. regions that have
both shared and unique operating concerns:
Melanie Green, Director, Strategic Plan-
ning & Analysis, CPS Energy
Randal S. Livingston, Vice President of
Power Generation, Pacific Gas & Electric
(PG&E)
Sharon Pfeuffer, Director and Chief Engi-
neer, Fossil Generation, DTE Electric
In mid-November, the team members
responded via email to the following set of
questions. Their comments have been edited
for style.
Several federal and state regulatory
changes will affect U.S. power producers
in the coming year. Which ones are you
and your company most focused on, and
what do you expect their impacts will be?
Melanie Green: Obviously, as a power
generator we are closely monitoring all the
pending environmental regulations that could
significantly impact our business, for exam-
ple, greenhouse gases (GHG), Clean Water
Act 316(b), and coal combustion residuals
being the highest visibility. While we par-
ticipate in the process, we are also preparing
project options to comply with the potential
outcomes. Fortunately, we have seen some
positive moves in terms of 316(b) compli-
ance requirements here in Texas.
Additionally, as a member of the Electric
Reliability Council of Texas, we are moni-
toring the discussions surrounding resource
adequacy and potential changes to market de-
sign. Current issues revolve around incenting
development of new generation in a very soft
market, primarily driven by low gas prices
and significant wind capacity.
Randal Livingston: At the federal level,
we will be closely following the Environmen-
tal Protection Agencys (EPAs) roll-out of
the GHG new source performance standards.
PG&E has one of the cleanest energy port-
folios in the nation from a carbon standpoint
and currently operates under Californias
cap-and-trade program for carbon emissions.
At the state level, California will reach an
unprecedented level of renewable portfolio
standard (RPS) generation, led by solar, and the
operational impacts of this are still being evalu-
ated. PG&E will continue to work to integrate
these intermittent resources into our customer
supply, which will drive a need for greater flex-
ibility on all electric resources in the state.
The California Public Utilities Commission
also recently established a policy decision on
a 1,325-MW energy storage target that the
states largest investor-owned utilities must
meet by 2020 through new storage facilities.
It is still too early to quantify the impact
the storage mandate will have on the energy
business, as some storage technologies are
still in the early stages of deployment. Whats
important to note is that energy storage is just
one component in Californias overall strat-
egy of integrating renewables and that the
comprehensive solution needs to be afford-
able for customers.
Sharon Pfeuffer: We will be watching the
EPA CO
2
rules for existing generation sourc-
es; were expecting the impacts to be sig-
nificant for existing coal generation, and will
favor gas generation. With the recent ruling
in U.S. District Court as well as the Steam
Electric Guidelines coming out of the Clean
Water Act, were also expecting the EPA to
move more quickly on ash regulations, which
will certainly impact the cost of, and how, we
manage ash at our coal-fired plants, as well
as our wastewater streams.
Combining these regulations with Mercury
and Air Toxics Standards (MATS) and National
Ambient Air Quality Standards (NAAQS), as
well as the economic realities of an aging fleet,
we continue to look at our portfolio both for
environmental compliance and reliable, cost-
effective generation for the customers we serve.
It seems that every talking head is
saying that the large U.S. shale gas re-
serves and currently low natural gas
prices are game-changers for the pow-
er industry. How do you see the shale
effect playing out in the next couple of
years for your company?
Green: Texas has an abundance of shale
gas, which is benefitting the consumer by
keeping gas cost well below earlier forecasts.
As we continue our move to a cleaner fleet,
the ready availability of gas will maintain a
dependable, long-term energy resource for
the power sector and our customers.
Livingston: With short- and longer-term
gas futures dropping, electric wholesale prices
have likewise declined. This will continue to
put pressure on some of the less-economic
assets to either provide additional value (for
example, operational flexibility), become
more economic, or retire. Assets with greater
degrees of flexibility and dispatchability can
expect to be higher valued in the marketplace.
January 2014
|
Pfeuffer: As gas generation becomes
more competitive, theres no doubt it will
put increasing pressure on coal-fired genera-
tion. As we look at projections on natural gas
prices, coming regulations, and renewables,
we will be firming up plans to add combined
cycle gas generation to our fleet, probably
early in the next decade.
What, if any, supply chain concerns
does your company have for 2014?
Green: One change I have seen over time is
the increased challenge of managing parts and
goods deliveries with many of our plant com-
ponents being sourced overseas. This can cre-
ate significant delays in obtaining replacement
parts and really forces us to become much bet-
ter at inventory management. Identification of
critical spare components and looking for new
opportunities to co-opt with other utilities
in shared ownership of large spare parts (like
transformers) is one solution.
Livingston: Events like Hurricane Sandy
and Katrina and other similar large-scale
events have emphasized the need for mul-
tiple supply chain sourcing. As a result, we
are identifying additional suppliers in 2014
that can support our supply chain needs in
the event that our vendors are not available
to supply a product due to circumstances be-
yond their control.
Pfeuffer: If I had to pick one, I would
say vendor quality control. Weve seen an
increasing trend of reliability challenges re-
lated to vendor QA/QC. This has had impacts
across our company, in steam turbines, gen-
erators, transformers, and wind. In response,
were amping up our own efforts to monitor
vendor quality.
Describe the anticipated changes to
your fleet for 2014 in terms of additions,
retirements, refuelings, and dispatch
priorities.
Green: CPS Energy currently has an ex-
tremely well-balanced and diversified fleet
with nuclear, coal, gas, and significant re-
newable capacity in terms of wind and solar.
CPS Energy has committed to shut down two
of its large coal plants by 2018 and transi-
tion towards highly efficient combined cycle
natural gas plants. In addition, CPS Energy
is the largest wind off-taker in the state, with
over 1,000 MW in its portfolio, and is the
largest solar off-taker, with nearly 100 MW
in its portfolio and another 350 MW in devel-
opment. This enables us to continue to serve
our customers with a variety of products to
keep costs low.
Livingston: There will not be any sig-
nificant changes to the makeup of PG&Es
utility-owned generation fleet in 2014, but
we can expect a number of changes in Cali-
fornias electric supply overall. The recent
retirement of San Onofre Nuclear Generat-
ing Station (SONGS), the build-out of many
new solar generation assets, primarily photo-
voltaic (PV), and the addition of recent dis-
patchable gas-fired plants will all change the
face of daily dispatch. California is closing
out of one of its driest years, and depending
how 2014 shapes up, the water and snowpack
could have a large impact on our available
hydro generation.
Pfeuffer: We will be retiring our Harbor
Beach Power Plant at the end of this year
and will be idling Trenton Channel Unit 8 in
2014. We continue to optimize fuel blends
that will lower cost to our customers and al-
low us to be environmentally compliant.
If increased levels of renewable gen-
eration in the territories you serve affect
how you operate your generation fleet,
what do you see as the results of those
operational changes in the near future?
Green: CPS Energy has over 1,000 MW
of wind under contract and nearly 100 MW
of solar in our portfolio. In addition, we are
actively engaged in projects that will add an-
other 350 MW of solar. We have a strong de-
mand response program as well. All of these
resources are components of a strong genera-
tion plan. Regardless of how much renewable
generation is available, as of today, it is still
an intermittent source. We must manage our
baseload fleet to provide the foundation ser-
vices and continue to integrate our growing
renewable commitments. To successfully ex-
ecute on this plan, we must continue to do a
great job of forecasting our demand.
Livingston: As an increasing proportion
of new solar PV comes online to meet the
RPS, California will see a dramatic increase
in supply in the 0800 to 1600 timeframe.
Other dispatchable generation will need to be
able to ramp up and down around the daily
shoulder periods and back down at noon.
We are working towards increasing dispatch-
ability of our own solar PV facilities and
exploring how energy storage can support
renewable integration.
Pfeuffer: We have continued to add to our
renewable portfolio, primarily wind genera-
tion in the thumb region of Michigan, and
will meet our target of 10% renewable gen-
eration by 2015. Weve been able to integrate
wind without measurable impact on the rest
of the generation fleet.
What will staff in your power plants
notice thats different in 2014, and why
procedures, equipment, staffing levels,
focus on enhanced physical and cyber
security, other?
Green: We continue to focus on improving
safety processes and procedures for our em-
ployees and improving overall engagement.
The coming year will include new training
initiatives and opportunities for growth, con-
tinued emphasis on knowledge transfer, and
increased flexibility of our staff.
We will be focused heavily on becoming
compliant with the North American Electric
Reliability Corp. Critical Infrastructure Pro-
tection (NERC CIP) version 5 standards and
are looking at not only implementation but
One change I have seen over
time is the increased chal-
lenge of managing parts and
goods deliveries with many of
our plant components being
sourced overseas.
Melanie Green, Director, Strategic Planning & Analysis, CPS Energy
We are working towards
increasing dispatchability of
our own solar PV facilities.
Randal Livingston, Vice President of Power
Generation, PG&E
|
January 2014 28
also the additional training requirements to
meet the standards.
With the announced retirement plans for
two of our coal units, we are working to
manage our workforce and staffing levels to
prepare for that event. Recognizing that plant
operations is a highly specialized skill set, we
need to maintain high levels of performance
and prepare for the shutdown in a manner
that will enable us to continue to utilize that
talent in our fleet.
Livingston: Our plant staff are already
seeing the differences in dispatch with more
cycling on and off, with units coming on
later in the day. They are being continually
challenged to provide better turndown char-
acteristics and faster ramping rates. Were
implementing new controls and procedures
to help with this and the skills, knowledge,
and ingenuity of our employees will be key
in accomplishing this.
Pfeuffer: We will be adding activated car-
bon/dry sorbent injection (ACI/DSI) to several
of our plants as part of our MATS compliance
strategy, and the equipment will start to show
up at our plant sites in 2014. We will also
be adding additional measuring/monitoring
equipment to our flue gas streams to support
our compliance efforts. As far as staffing,
well continue to try to match attrition to the
changes that we see coming in our fleet, with
a focus on the cost to our customers.
What workforce and training needs
do you anticipate in 2014 and why?
Green: Results of employee surveys have
indicated a strong desire for additional oppor-
tunities. In response, we have recently rolled
out our CPS University to further provide op-
portunities for our team to improve both their
technical skills and develop leadership skills.
We have a robust e-learning program of
computer-based training modules that works
extremely well with our workforce, enabling
them to stay current on required training at
their work locations. We find that investments
in our staff development directly translate to
improved performance and engagement.
Livingston: Skilled craft and technical
workforce will continue to be in demand,
both for employees and the suppliers who
support this industry. We need to continue
to bring in and train entry level employees
and modernize our training programs to be
relevant to both the technology and genera-
tional differences were all experiencing. At
the same time, we need to continue to be
able to capture and pass on the knowledge
and experience of our current workforce to
a new generation.
Pfeuffer: We are taking a sharper, more
focused look at the skills and training of our
leaders. Weve changed the training program
for our new leaders and are now focused on
our existing leaders. Were putting a lot of
our training focus on human performance
(HP) and continuous improvement, as well
as our regulatory required training.
Our training areas of focus include business
and technical skills as well as soft skills, sup-
porting our aspirations in the area of employee
engagement. Our approach to professional
development includes targeting knowledge
transfer and how technology can be applied to
facilitate this effort, redeveloping an in-house
training program for difficult-to-staff positions
like instrumentation and control (I&C) techni-
cians, and linking HP events and resets to our
professional develop of all employees. This
very much includes a stronger effort towards
our skilled trade positions.
What changes in how you interact
with original equipment manufactur-
ers (OEMs), engineer/procure/construct
firms (EPCs), and other industry partners
would be most helpful to you in 2014
and beyond? Do you have a wish list for
products, services, or contracts?
Livingston: OEMs and other partners that
work to understand our business and work
with us in an open, transparent way will al-
ways be valued. If a unit is down for an over-
haul and we cant verify where a critical part
is or when its due back, its a real problem.
Partners that work with us to figure out how
to do something rather than explain why they
cant will be valued.
I also think that our partners who collec-
tively generate power for California and the
nation can continue to work together better.
Continuing to support our professional asso-
ciations, their committees, work groups, and
councils is critical for operating these facili-
ties safer, more reliably, and more affordably
for our customers.
Pfeuffer: We would like to see a much
stronger focus on QA/QC, in addition to a fo-
cus on cost. Weve had several projects with
significant performance challenges related to
what we are calling vendor quality.
What other concerns keep you up at
night when you look ahead to the new
year?
Green: Its always about the people. With
so much change occurring in the power in-
dustry, it is essential that we continue to
maintain our focus on safety as our highest
priority. Building strong work teams, encour-
aging new ideas, and promoting creativity in
how we accomplish our goals are all compo-
nents of a healthy organization.
Livingston: This will be an exciting year
for us in the West. It will be an important
transition year in the expansion of California-
certified RPS resources, a transition for some
of Californias legacy resources, like SONGS,
and some of the natural gas once-through cool-
ing units, and if we have another dry hydro
year, well have some very unique challenges
ahead of us. I know this industry is up for it!
Pfeuffer: We work really hard to mini-
mize the environmental impacts of produc-
ing electricity, while at the same time trying
to improve costs for our customers, many of
whom struggle to pay their bills. Balancing
those two priorities is increasingly challeng-
ing. I also worry about trying to capture the
knowledge of the really talented people who
are retiring, many of them with 35 to 40 years
of experience in our industry.
Gail Reitenbach, PhD is POWERs editor
(@GailReit, @POWERmagazine).
We are taking a sharper,
more focused look at the skills
and training of our leaders.
Sharon Pfeuffer, Director and Chief Engineer,
Fossil Generation, DTE Electric
Building the 140-
Turbine Macarthur
Wind Farm
The remarkable 30-month
construction of the A$1
billion Macarthur Wind Farm
in Victoria, Australiaa
December 2013 POWER
Top Plantis chronicled
in a 5-minute video on the
powermag.com homepage.
January 2014
|
Burns & McDonnell
Sees U.S. Market in
Transition While Asian
Market Grows
T
he U.S. power generation market is experiencing a unique set
of transitional drivers, the biggest being the current economics
within the energy market.
U.S. Market Drivers
A significant portion of the U.S. operates in a second-day energy mar-
ket. There are some differences in how these markets operate, but the
intent is to have a generator compete against other generation sources
to provide low-cost power. Therefore, generators typically operate
when there is the demand for power and the generators production
costs beat the market price. Some markets also have a capacity market,
which provides some revenue, but not sufficient to cover fixed costs.
Supply and demand market principals are at work in these markets.
Another driver is the integration of intermittent renewables, which
has accelerated the aggregation of load-balancing entities within the
transmission independent system operators. While creating more effi-
cient dispatch of generation resources, this transition more importantly
mitigates the overall system impact from integrating intermittent wind
and solar generation. This approach mitigates system ramping issues,
but it also facilitates the ability of wind generation to operate profitably
in these open markets at a negative power price (due to subsidies from
production tax credits), greatly eroding profitable hours and capacity
factors for baseload generation, particularly nuclear and large coal.
Those baseload sources are often required to run at less-than-opti-
mum loads to balance renewable energy variability or, in the case of
nuclear energy, run for many hours while production costs are higher
than the market price. Generators with higher costs will operate little,
if any, in a second-day market. Generating sources with higher fuel
costs will be affected most. With current natural gas prices, many
higher-cost Eastern coal units are particularly impacted.
Even if variable costs can be covered by market prices, little is left
to cover financing fixed costs of large capital investments. This has
been demonstrated in a variety of recent decisions, including nuclear
plant shutdowns, decisions not to pursue nuclear power uprates, shut-
ting down coal plants instead of investing in environmental project
retrofits (because doing so would make them less competitive in the
marketplace), and market power prices that dont even support com-
bined cycle gas plants in many regions of the country.
In contrast, the larger power markets and renewables penetration has
created market opportunities for projects addressing transmission con-
straints and ancillary service markets, leading to a new class of flexible
gas generation resources to balance wind. Some areaswhere there is
load growth demand or utilities are looking for a more even fuel genera-
tion balancewill be building natural gas combined cycle facilities.
Another factor is that distributed generation is growing in many
areas to the point where the traditional rate structures have changed.
Electric utilities may not be providing continuous energy to the cus-
tomer in these instances yet are still on the hook to provide occasional
energy and maintain a reliable and safe infrastructure. That situa-
tion has led to questions about the fairness of the rate structure being
brought before state public service commissions.
In 2014, we expect these trends to continue.
Growth Abroad
On the demand side, little, if any load growth is occurring in the U.S.,
for a number of reasons, including more efficient appliances, industri-
al processes, and other energy uses; distributed generation; lackluster
economic growth; and demand-response programs. We expect muted
load growth in the U.S. to continue in 2014. However, overseas mar-
kets are seeing a large load growth increase, mainly in Asia, and these
areas are providing opportunities for new, large baseload units.
The blessing of cheap natural gas forecasted for the U.S. market
is unique within the world market. The Asian market continues to
march forward with significant coal, nuclear and natural gas genera-
tion projects.
While growth in some Asian countries is moderately constrained by
world economic conditions, in many cases the growth of the middle
class in these countries has led to increased demand that outstrips this
constraint and results in a significant market opportunity. Burns & Mc-
Donnell continues to leverage this growth and has greatly expanded our
international presence and market, especially within Asia (Figure 1).
The expertise gained in designing and building large-scale, highly effi-
cient and environmentally exceptional generation facilities common in
the U.S. market can be leveraged in Asian markets, as many countries
now have grids of sufficient size to accommodate integration of these
modern, large, efficient, and clean generating units.
Grant Grothen (ggrothen@burnsmcd.com) is principal in the
Energy Global Practice and Block Andrews (bandrews@
burnsmcd.com) is strategic environmental solutions
director at Burns & McDonnell.
Grant Grothen Block Andrews
1. Malaysian coal plant. The 1,400-MW Jimah plant in Malaysia
was completed in 2009. Burns & McDonnell provided independent en-
gineering services, including technical assessment, consulting, certifica-
tion, and audit services for the project. Courtesy: Burns & McDonnell
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January 2014 32
Europe Faces Capacity and Cost
Challenges in 2014
In a financial climate that sees state-of-the-art combined cycle gas plants slated for
closure, the diverse nations of Europe continue to make steady progress towards
ambitious climate goals.
Charles Butcher
T
his is expected to be the year when
modest economic growth at last re-
turns to a recession-hit Europe. Recent
depressed power demand from industry has
already allowed the 27 countries of the Eu-
ropean Union (EU) to meet their 2020 target
of a 20% cut in greenhouse gas (GHG) emis-
sions compared to 1990 levels, but the good
news stops there. Power producers are suf-
fering low or zero margins on their gas-fired
plants, while their customers complain of the
burden of green taxes.
The recession has been bad news for the
EUs wish to have integrated internal markets
for electricity and gas in place by the end of
2014. Infrastructure investment to support
the single energy market needs to increase
by 30% for gas and 70% for electricity com-
pared to 2010 levels, yet it is not clear where
the money will come from. More important-
ly, a single market would have to unravel a
patchwork of national regulations and sup-
port mechanisms (see below for examples
from the UK). It could take decades.
Sooner to materialize could be an end to
the deadlock that has paralyzed biofuels in-
vestment in Europe. In November, a consor-
tium of six major car manufacturers and oil
companies published a biofuel roadmap
that links the oil and automotive industries
and promises significant GHG reductions.
This could help to overcome the fragmen-
tation of national transport policies across
Europe. It would also reassure the biofuels
industry, which is fighting the European
Commission over the extent to which biofu-
els should be allowed to displace food crops
and natural carbon sinks.
As in previous years, decarbonization and
loss of nuclear capacity are the main threads
linking European energy policy and politics.
As POWER went to press, the EU was close
to publishing a first draft of its 2030 energy
and climate framework, which will work to-
wards a GHG cut of 80% to 95% below 1990
levels by 2050.
Accompanying the new policy is likely to
be a change in the way the EU supports green
energy research and development. The pres-
ent system of funding for strategic energy
technologies (the SET-plan) has helped to
cut the cost of solar power and cellulosic bio-
ethanol but has failed to make carbon capture
and sequestration (CCS) happen. 2014 will
see a new roadmap based instead on energy
servicesheat, light, transportplus a new
funding mechanism known as Horizon 2020.
Another reason for lack of investment in
low-carbon technologies is the continuing
failure of the EUs emissions trading scheme
(ETS). CO
2
prices are now below 5/met-
ric ton (mt), whereas a level of 40 to 55/
mt would be needed before new coal-fired
plants could justify CCS, experts say. The
European Commission has now agreed that
structural reform of the system is needed, so
higher carbon prices are at last on the cards.
The six options tabled for the reform include
direct price management, perhaps similar to
a scheme the UK adopted in 2013: a floor
price of 18/mt, rising progressively to 83/
mt by 2030.
Denmark, one of the countries furthest
along the green track, plans by 2050 to get
half its electricity from wind and to be free
from fossil fuels altogether. Even France will
cut the share of nuclear energy in its gener-
ating mix to 50% by 2025, from more than
75% at present. An investment package esti-
mated at 592 billion (including energy effi-
ciency and grid modernization) includes new
offshore wind projects in the 500-MW class.
The UK and Germany face particularly in-
teresting new years.
UK Tackles Capacity Crunch
Just in time to avoid a looming capacity
crunch, the UK government has sorted out a
financial mechanism that should at last per-
suade power companies to build new thermal
generating plants. Its no cheap fix, though,
so energy politics are certain to continue
making headlines through 2014.
Everyone agrees on the basics. Almost a
fifth of Britains generating capacityold
nuclear and coalwill close by 2020, yet
power demand is projected to double by
2050. Government regulator Ofgem says
spare generating capacity could fall to just
2% to 5% in 201516, and that by 2020 the
country will need to spend 110 billion on
generation and networks to stave off black-
outs. Bound by law to cut GHG emissions by
80% by 2050, all three main political parties
agree that most of the new capacity will have
to be low-carbonchiefly wind and nuclear,
with gas as a backup.
UK wind power looks set to continue
doing fairly well. Total installed capacity
reached 10 GW by November 2013, and on a
weekday afternoon in the same month wind
production met a record 13.5% of total elec-
tricity demand at the time.
Yet offshore wind plants are unlikely to
be built fast enough to allow the country to
meet either of two targets for 2020: 16 GW
of installed offshore wind power and a long-
standing plan to get 30% of electricity from
renewables. The more likely figure of 8
GW to 10 GW risks losing the advantages
of economy of scale in terms of both power
prices and job creation, warns a recent report
from RenewableUK.
At the end of November, RWE abandoned
a plan to build the 1,200-MW Atlantic Ar-
ray wind farm off the west coast of England,
citing technical and economic challenges,
though it is still working on offshore projects
totaling up to 5.2 GW. Huub den Rooijen,
head of offshore wind for the Crown Estate,
which controls licensing, said that decisions
of this kind would likely cut the UK offshore
wind pipeline from a potential 40 GW down
to 8 GW to 16 GW by 2020.
The power companies have also been re-
luctant to invest in new thermal plants. Ob-
stacles include recession, high gas prices,
the commercial risks of nuclear power, and
fear that gas plants will become unprofit-
able when they are reduced to backing up
wind turbines.
January 2014
|
Desperate for new nuclear capacity, the
government has therefore set minimum
prices for all types of low-carbon power.
The new Energy Bill, which is expected to
be law by the end of 2014, sets out con-
tracts for difference (CfDs), which guar-
antee a nuclear operator a strike price
of 92.50/MWh (Table 1). The difference
between the strike price and the average
wholesale pricecurrently around 47.50/
MWhwill be paid by electricity consum-
ers (or refunded to them if the market price
should fall above the strike price). Because
they are funded from bills, not taxes, CfDs
are not technically subsidies.
The government wants to see eight new
nuclear plants built, all at existing sites. A
Chinese-backed consortium led by EDF En-
ergy has agreed to go ahead with two new
EPR reactors at EDFs Hinkley Point site,
and possibly two more at Sizewell.
With no equivalent security yet in place for
fossil-fueled plants, however, the big six
suppliersCentrica/British Gas, EDF En-
ergy, E.ON UK, npower, Scottish Power, and
SSEare finding the business climate tougher
when it comes to gas-fired generation.
In February 2013, when UK regulators had
already approved 15 GW of planned new gas
capacity, Centrica CEO Sam Laidlaw said his
firm would hold off building any gas-fired
plants for four years. The following month,
Ian Marchant, CEO of SSE, announced earli-
er-than-expected plant closures and criticized
the government for lack of clarity on the
investment climate for gas plants.
What Laidlaw, Marchant, and others
are hoping for are capacity payments to
maintain the economics of combined cycle
gas turbine (CCGT) plants against high
fuel prices and increasing amounts of wind
power taking priority on the grid. The earli-
est date for Ofgems first capacity auction
is the fall of 2014; first delivery is planned
for winter 201819, though this could be
brought forward.
Meanwhile, energy users across the po-
litical spectrum are fuming at record prof-
its posted by the big six on the back of
inflation-boosting price rises. Conservative
voters also complain loudly about the cost
of renewables, even though the Department
for Energy and Climate Change claims the
consequences of the Energy Bill will be no
more expensive than continuing to burn gas.
Ed Miliband, leader of the opposition Labour
Party, has promised to freeze energy bills if
he wins the 2015 election.
Under pressure to cut energy bills, Prime
Minister David Cameron is alleged to have
said that the solution is to cut the green crap.
He has launched a review of the green levies
that make up around 8% of the average do-
mestic energy bill, though the best he can hope
for seems to be to transfer some of this burden
to other green taxes. Energy-saving measures
remain much talked about but ineffective.
Germany Battles Overcapacity and
Renewables Costs
While the UK tries to keep the lights on,
German power producers are more typical
of those elsewhere in Europe as they strug-
gle with overcapacity and narrow or nega-
tive margins for gas-fired plants. Wholesale
power prices have fallen to half their 2009
values, and spark spreads are firmly negative
(Figure 1).
By August 2013, German energy giant
E.ON had idled about 6.5 GW of capac-
ity and was considering mothballing about
11 GW more. Four months earlier, the com-
pany even proposed shutting down its ad-
vanced Irsching 4 and 5 CCGT units, which
have efficiencies close to 60%. Low power
prices, cheap coal, and low carbon permit
costs had made the units uneconomic, the
company said. Discussions with Germanys
Federal Network Agency (FNA) and grid
operator TenneT TSO yielded enough com-
pensation for E.ON to keep the Irsching
plants running.
The FNA has said that plants operating
for more than 10% of the time on demand
from transmission operators should be paid
for this capacity service. When it comes to
renewables, Germany is still too fixated on
megawatts, said Johannes Teyssen, CEO of
E.ON.
Also in August, Europes third-largest
power provider, RWE, said it would take of-
fline 3.1 GW of natural gas and coal power
plants in Germany and the Netherlands. The
company blamed political intervention,
subsidized renewables, and low wholesale
power prices. These shutdowns will continue
through 2014. Many of our power stations
Strike price per MWh Technology
305 Wave and tidal
155 Offshore wind, falling to 135 by 2018
145 Anaerobic digestion
125 Large solar, falling to 110 between 2016 and 2019
125 Geothermal
120 Biomass
100 Onshore wind, falling to 95 from 2017
92.50
a
Nuclear, falling to 89.50 if EDF builds a second plant
90 Energy by waste
65 Landfill gas
Note: a. The nuclear contract is for 35 years, compared to 15 years for renewables. Whether nuclear is cheaper
than renewables therefore also depends on the discount rate chosen.
Table 1. UK contracts for difference. Contracts for low-carbon generation may
eventually be awarded by auction, making them independent of technology. Source: UK Depart-
ment of Energy & Climate Change
15
10
5
0
-5
-10
Trading Year 2011 Trading Year 2012 Trading Year 2013
CDS Cal 2012 14 Base load (/MWh) (assumed thermal efficiency: 37%) Average CDS Cal 2012 14
CSS Cal 2012 14 Base load (/MWh) (assumed thermal efficiency: 49%) Average CSS Cal 2012 14
1. Clean dark and spark spreads in Germany. Prices for 2013 are through Febru-
ary 13. Source: RWE Supply & Trading
|
January 2014 34
are now in the red, said CFO Bernhard
Gnther. This is the greatest crisis our in-
dustry has faced for many decades.
With this background, the sudden loss of
5 GW of nuclear capacity in 2011 is not the
most significant issue for Germanys Ener-
giewende. Nor, in itself, is the plan to get 80%
of the countrys electricity from renewables
and to cut GHG emissions by 80% to 95% by
2050; after all, the rest of Europe should be
doing the same. The question is how to get
the share of renewables in power production
up from 20% now to 35% by 2020 without
breaking the grid or upsetting the voters. A
secondary challenge will be to avoid relying
too much on coaltraditionally, an impor-
tant fuel in Germany and the obvious fall-
back when gas is too expensive.
In February 2013, Federal Environment
Minister Peter Altmaier met with disbelief
and head-shaking when he suggested that the
energy transition could cost one trillion euros
by 2040. Thats still less than the estimated
cost of German reunification in the 1990s
some might say another crazy scheme that,
nevertheless, had to be carried through. Of
course, Germanys big four are all doing
well out of green power. Renewables are a
mainstay of our earnings, said E.ONs Teys-
sen recently.
Following the election of September 2013,
Germanys new coalition government has
confirmed a target of 55% to 60% electric-
ity from renewables by 2035 and said it will
reform the Renewable Energy Act (Erneuer-
bare-Energien-Gesetz, EEG) by Easter 2014.
The EEGs targets for renewables penetration
remain largely unchanged, but the high costs
of supporting renewables will be pushed
down. Changing the subsidies will be the
central project of the grand Merkel coali-
tion, Altmaier said, with policy becoming
more predictable and lastingly affordable.
Germanys photovoltaic (PV) power in-
dustry has crashed since 2011 as cheap
Chinese solar panels have flooded onto the
market, and tens of thousands of jobs have
been lost. Yet PV growth continues to meet
its ambitious targets, with 226 MW installed
in October 2013 alone. By the end of that
month, total PV capacity was 35 GW and
the country was on course to meet its target
of adding 2.5 GW to 3.5 GW each year. The
new government says it will not change the
support scheme for PV.
Support will be reduced for onshore
wind power, whose installed capacity grew
by 2.4 GW during 2012 to reach 31 GW
by year end. Support will be unchanged
for offshore wind, but capacity targets
have been reduced to 6.5 GW by 2020
and 15 GW by 2030, down from 10 GW
and 25 GW respectively, in recognition of
the technical risks and shortage of capital.
Offshore wind, although expected to form
the mainstay of future growth, has not yet
reached 400 MW installed capacity. Tur-
bine manufacturer Siemens says it plans
to cut the levelized cost of offshore wind
power by up to 40% before the end of the
decade, to less than 0.1/kWh.
Heavy grid investment will be needed
for all this distributed generation, especially
because wind power is concentrated in the
north of the country while industry is biased
towards the south. Fragmented grid manage-
ment and considerable public opposition are
making the job harder. To avoid the delays
associated with getting overhead cables ap-
proved, Germanys four transmission system
operators are cooperating on four high-volt-
age direct current underground lines from
north to south.
Charles Butcher is a UK-based POWER
contributing editor.
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January 2014
|
Day & Zimmermann Focuses
on Flexibility
Michael McMahon
N
ow more than ever, we see the U.S.
power market sharply focused on
maximizing return on investment. We
see power producers responding to economic
uncertainty, high costs for new emission con-
trols, and a decline in new nuclear construc-
tion. Low natural gas prices seem to be the
driving factor in every economic decision.
Power producers, contractors, and vendors
must be flexible and readily adapt to chang-
ing market and economic decisions. For Day
& Zimmermann (D&Z), this means we must
deliver value that can be measured, including
safety, project and labor management, and
processes and tools that drive efficiency and
reduce costs.
Safety remains the number one priority for
the industry, and contractors are continually
challenged to deliver a well-trained work-
force that concludes each shift as it started
safe and injury-free. In 2013, D&Z launched
its Behavior Observation Learning Tool
(BOLT), a web-based worker observation
process designed to identify safe and at-risk
work behaviors. Using web-based mobile
technology, supervisors and craft workers,
both independently and paired with our cus-
tomers, record real-time behavior observa-
tions to correct at-risk conduct and reinforce
safe work practices. We also are enhancing
our Key Performance Indicator (KPI) data
capture and trending tool that correlates lead-
ing vs. lagging indicators.
The Value of Alliances and
Partnerships
Day & Zimmermanns strategic focus is on
the U.S. power operations and maintenance
(O&M) market and on the process and indus-
trial markets. We have a significant industry
footprint in both nuclear and fossil genera-
tion. As such, our customers depend on us to
deliver industry best practices and lessons we
have learned from our experience. Alliances
and partnerships are integral to this busi-
ness philosophy and strategy. We find they
are most effective in multi-site relationships,
where we can leverage the use of consistent
standards and systems across a fleet of fa-
cilities. Our strategy has been successful as
we embark on fleetwide contracts with new
and returning customers, including American
Electric Power, We Energies, Public Service
Electric and Gas Co., NRG, NextEra, Duke
Energy, Southern Company, PPL, Public Ser-
vice Co. of New Mexico, FirstEnergy Nucle-
ar Operating Co., Westar, Portland General
Electric Boardman, and others.
The alliance model provides the optimum
environment for us to work with the custom-
er. It provides safe, quality services at the
lowest cost. When given a seat at the table,
we regularly share ideas and develop the
best solutions together. We establish KPIs
or pay-for-performance measures. These
measures help improve the process and the
work product. We adjust them to continue to
better meet business needs. Our experience
with these types of contracts has enabled us
to focus precisely on areas of improvement
so that the plants we work on can operate
more competitively.
Meeting Workforce Challenges
The development of craft labor and project
management has challenged the domestic
power industry for some time, and we be-
lieve this trend will continue. Labor avail-
ability, skill, and management are essential
to performing O&M work now and in the
future. Many of our clients are seeking one
or more delivery models: supplemental con-
tingent workers, managed task, and project
work. D&Z has been very successful offer-
ing a scalable combination of all three. Our
cost-effective and flexible model is one of the
reasons that we have been successful in this
market. D&Zs focus on increased account-
ability, customer satisfaction, and operational
excellence makes us a valuable option for
customers who seek an alliance or partner-
ship relationship.
One of the ways D&Z has addressed this
is with its workforce training programs. We
are actively involved with trade schools and
community colleges securing government
grants and developing worker training pro-
grams. For example, D&Zs implementation
of the Electric Power Research Institutes
(EPRI) Standardized Task Evaluation pro-
gram complies with EPRIs Administrative
Protocol for Portable Practicals (AP3). Our
program was found to be compliant through
a comprehensive review and audit by EPRI
evaluators and the unanimous vote by 11 in-
dustry partners and utilities.
We also have strengthened our leadership
team and invested in new talent with both
owner and contractor experience in operating
nuclear and fossil plants, in capital projects
execution, and with OEMs. In field opera-
tions, we determined it was important to dem-
onstrate competence in project management
and team leadership and selected the Project
Management Institutes registered Project
Management Professional (PMP) credential.
Many employees have earned the PMP des-
ignation, and we plan to provide boot camp
training for more this year.
The competition for talent at all levels of
the organization is intense. It is not enough to
invest in professional development and offer
a competitive salary and benefits package.
We are finding its the combination of our
betterment culture and family ownership, and
a strong commitment to core values of safety,
diversity, integrity, and success that help us
attract and retain exceptional talent.
Michael McMahon is president of Day
& Zimmermann ECM.
Power producers, contractors, and ven-
dors must be flexible and readily adapt to
changing market and economic decisions.
|
January 2014 36
Shale: The Rock That Rocked the
World
In little more than a decade, the discovery of economic methods to extract natural
gas from shale has exploded traditional assumptions about the worlds energy fu-
ture and reversed trends across the power business. But the shift has only just be-
gun, and more big changes are on the way.
Thomas Overton
I
n the early 1980s, a man named George
Mitchell, who owned an independent oil
and gas company in Houston, began to
see a distressing trend in his companys fu-
ture. Mitchell Energy supplied natural gas to
a pipeline flowing north to Chicago, but pro-
duction had been declining and new sources of
gas needed to be found. Mitchell had an idea.
It had long been known that shale under-
lying conventional deposits was the source
rock for oil and gas. The problem was the
economics: Getting the gas out simply cost
too much.
But Mitchell was certain a way could be
found. Through the 1980s and 1990s, his
handpicked team of geologists and engineers
experimented with one method after another,
while Mitchell fought his board of directors
to keep the project alive.
In 1997, the team finally hit on a combina-
tion of water, sand, and guar gum to fracture
the shale and draw out the gas. Combined with
advances in 3-D seismic imaging, Mitchells
crew had found the golden egg. When Devon
acquired Mitchell Energy in 2002 and the
team applied Devons expertise in horizontal
drilling to the new technique, the shale boom
took off (Figure 1).
In little more than a decade, the U.S. energy
sector has been turned upside down. The enor-
mous influx of shale gas has upended dispatch
orders across the country, reversed decades-
old flow patterns on interstate gas pipelines,
and squelched the much-heralded renaissance
of nuclear energy and clean coal.
But the shale story is far from over, and
has resonated far beyond U.S. shores.
Production Still Climbing
The Energy Information Administration
(EIA) projects that U.S. gas production will
increase from about 65 Bcf/d in 2013 to 73
Bcf/d in 2020, at which point the nation will
be a net gas exporter. This is despite a 75%
decline in gas rig count since 2008, reflecting
impressive growth in well productivity.
The continued production growth has
sparked concerns about pipeline infrastruc-
ture, primarily in the Northeast and North
Dakota. The growth in North Dakotas shale
oil production has run ahead of its ability to
handle the associated gas, leading to wide-
spread flaring. Contrary to public perception,
the reason is not low gas prices reducing in-
centives to build new infrastructure. In fact,
the high percentage of wet gas in the Bakken
shale makes the regions production quite
valuable.
The reason is simply the ever-increasing
volume: Total gas production in North Da-
kota has nearly tripled since 2011. Despite
a flurry of construction in gathering infra-
structuremore than 2,000 miles of it in
2012 alonethe total amount of flared gas in
North Dakota has continued to increase every
year, and reached 160 MMcf/d this past fall.
Six new or expanded gas processing plants
are expected to come online in North Dakota
in the next few years, which should increase
overall capacity by about 50%. Meanwhile,
a proposal is in the works from pipeline
company WBI Transmission to build a new
transmission line that would move gas from
the Bakken field to eastern North Dakota or
Minnesota.
U.S. Regulatory Hurdles
The shale boom has attracted regulatory at-
tention at federal, state, and local levels. Mu-
nicipal bans on fracking, though currently few
in number, are growing in popularity. While
some are purely symbolic gestures in areas
with no shale reserves, others have cropped
up in the heart of shale country. A conflict is
brewing in Colorado between the state gov-
ernment, which favors regulated development,
and cities that have enacted bans. Most recent-
ly, Boulder, Lafayette, and Fort Collins voted
to suspend or ban fracking within their city
limits in early November. The city of Long-
1. Going deep. Hydraulic fracturing at a Devon Energy well site in Texas. Courtesy: Irekia-
Eusko Jaurlaritza/www.ukberri.net
January 2014
|
mont enacted a similar ban last year, and the
state has filed suit to overturn it. A suit against
the three newest bans seems likely, though the
state may wait for the outcome from the Long-
mont suit before acting.
At the state level, New Yorks five-year
moratorium seems unlikely to be lifted in the
near future. Meanwhile, the states highest
court, New York Court of Appeals, agreed in
October to hear a case brought by a drilling
company in opposition to a municipal ban.
More than 150 New York municipalities have
enacted bans or moratoriums on gas drilling,
and all of these could be nullified should the
case succeed (though such a decision would
not affect the state-level moratorium). Mora-
toriums are also in place in New Jersey and
Vermont, though neither has meaningful
shale gas deposits.
The biggest overall impact is likely to
come at the federal level, where the Bureau
of Land Management (BLM) is in the pro-
cess of revising rules on fracking on public
land, including Indian reservations. A draft
rule in 2012 drew heavy criticism, but the
BLM has argued that the inconsistencies in
state schemes warrant federal regulation.
However, to the extent a state or Indian tribe
can show that its existing regulation scheme
meets or exceeds federal requirements, the
BLM will issue a variance allowing the local
rules to control.
The revised rule was open for public com-
ment through August, and a new revision
should be issued in early 2014. Litigation
over the proposed rule seems a certainty.
Power Sector Demand in U.S. May
Grow, but Slowly
Surging supplies and lower prices are not
expected to increase power sector gas con-
sumption in the near term, due to increases
in efficiency. The EIA is projecting that con-
sumption for power generation will remain
between 22 Bcf/d and 23 Bcf/d through
2020, then begin rising to about 24 Bcf/d in
2030 and 26 Bcf/d in 2040.
Over the same period, the EIA projects
that the gas share of power generation will
climb to 27% in 2025 and 30% in 2040. Con-
sumption growth will lag behind as older
steam plants and less-efficient combustion
turbines are replaced with highly efficient
combined cycle plants.
Some observers, however, see these pro-
jections as overly conservative.
Especially since deregulation of power
markets began in the 1990s, gas prices and
coal prices have been bound in a symbiotic
relationship as generators sought to leverage
the least-cost fuel. But that relationship may
be coming to an end.
Estimates are that anywhere from 50
GW to 80 GW of coal generation will be
retired between 2010 and 2020. Only a
handful of new coal plants have come on-
line in the past few years, and only a few
more are in development.
A 2012 study by the National Energy
Technology Laboratory (NETL) lays out
how dramatic the pullback has been. In 2007,
NETL reported just over 19 GW of coal
projects were planned to begin operation by
2012. Less than 1 GW of that capacity was
actually built.
Meanwhile, the EIA projects that nearly
40 GW of gas-fired capacity will be added
between 2010 and 2020. The promise of
long-term sustained supplies of gas at mod-
erate prices has created enormous economic
and regulatory pressure for this switcheven
where other requirements for it are not yet
in place.
Despite persistent supply constraints, the
northeastern U.S. is continuing a strong trend
toward gas-fired power, as several of the
largest coal plants in the region, and at least
one nuclear plant, are poised to shut down in
2014 and 2015. Gas now accounts for around
50% of power generation in the region, and
that level is certain to increase.
As a result, the seasonal bottlenecks that
caused large price spikes and gas shortages
last winter are unlikely to ease until later this
decade. Although several expansion projects
built to increase takeaway capacity from the
Marcellus region are coming online in 2014
and 2015, these are largely designed to trans-
port gas to the New York/New Jersey region.
No significant pipeline expansions into New
England will come into service before 2016
at the earliest.
What these developments mean for the
power industry is that gas may be exiting
its price relationship with coal. Fuel switch-
ing will become less and less of an option as
more generators and regions abandon coal,
and do so less from price concerns than from
regulation. Gas prices later in this decade and
after 2020 are likely to be dictated more by
production costs and overall market demand
than by coal supplies and prices.
Burgeoning production of shale gas is also
creating a wholly unexpected gas export mar-
ket. Gross U.S. pipeline exports to Mexico
have doubled since 2008, and exports to Can-
ada have increased about 50% over the same
period. Both markets are expected to grow
strongly, both in the near term and through
2040. Net exports to Mexico should top 2.7
Bcf/d by 2020, with substantial increases in
cross-border pipeline capacity coming online
in 2014 and beyond.
Perhaps the biggest shift in the gas mar-
ket has been in liquefied natural gas (LNG).
As little as five years ago, the Department of
Energy (DOE) was considering applications
for at least a dozen import terminals. Now,
only one LNG import terminal, Everett in
Massachusetts, is still receiving LNG, while
the DOE has approved four export terminals,
with more approvals expected in 2014.
Collateral Damage for U.S.
Renewables and Nuclear
The boom in shale gas has handicapped re-
newable generation, which fell 6% (from all
sources) in 2012 as gas prices plummeted,
even though installed renewable capacity
rose by 10.5%. This caused alarm in some
quarters that cheap shale gas would under-
mine a shift to renewable generation.
These fears are not without basis, as con-
tinued cheap gas-fired power represents com-
petitive pressure on wind and solar, which
are still more expensive, even with subsidies.
Over the long term, however, observers have
projected that a reliable source of inexpen-
sive gas is likely to provide support for re-
newables.
A 2013 report funded by the Mitchell
Foundationyes, the same George Mitch-
ellargued that natural gas and renewable
generation are natural allies. Renewables,
with their zero fuel cost, offer substantial
hedging opportunities against future gas
prices, while gas-fired plants are ideal for
balancing intermittent renewable output. This
symbiotic relationship is becoming clear in
areas with significant renewable generation,
such as California, Texas, and Colorado,
where generators have rushed to build gas-
fired plants, especially the newest fast-start
models developed by the major suppliers for
precisely this role.
Shale gas has also hit the nuclear industry.
Like coal, a long list of new nuclear plants
and uprates envisioned in the late 2000s were
cancelled as gas prices collapsed. Twelve
applications for new plants were filed with
the Nuclear Regulatory Commission in 2008
alone; only a handful are under construction,
all in regulated markets.
Existing plants were also hit hard: Do-
minion shut down its Kewaunee nuclear
plant in Wisconsin with 20 years left on its
license, and Entergy opted to retire its Ver-
mont Yankee plant in 2014, in both cases
because the plants were unable to compete
in a changed market. Competition from gas
also played a part in the decisions last year
of Duke and Southern California Edison not
to repair the damaged Crystal River and San
Onofre plants.
The EIA projects U.S. nuclear capacity
to rise from the current 102 GW to 110
GW by 2020 (as the new units come on-
line), but remain mostly flat from there
through 2040.
|
January 2014 38
Global Impact
Though exporting the shale boom might seem
like a matter of technology transfer, global
energy experts have been markedly pessimis-
tic about shale gas outside the U.S. Observ-
ers have pointed to a number of factors that
created a sweet spot for U.S. shale gas, one
unlikely to be fully duplicated elsewhere:
A huge oil and gas sector, with a deep pool
of talent and oilfield services to draw on.
Strong private property rights, making min-
eral exploitation relatively straightforward.
A favorable regulatory environment, espe-
cially at the state level, and general public
support for oil and gas development.
Unparalleled natural gas processing and
transport infrastructure.
A highly liquid gas market, creating a
deep pool of potential financing.
Canada and Mexico
The most immediate impact of the U.S. shale
boom has been felt in Canada and Mexico.
Ironically, though Canada has several viable
shale plays, reduced demand for gas in the
U.S. has depressed Canadian gas prices, re-
ducing the economic incentive to drill. Still,
Canada is the only other country producing
meaningful amounts of shale gas, in part be-
cause it most closely mirrors the production
environment in the U.S.
About 15% of Canadian gas production in
2012 was from shale, according to the EIA,
as compared to 39% in the U.S. Total current
production of shale gas in Canada is about 3
Bcf/d. Nearly all of it comes from two plays
in British Columbia and Alberta: the Mont-
ney Basin and the Muskwa-Otter Park forma-
tion in the Horn River Basin. With demand
from the U.S. declining, Canada is exploring
its own LNG exports to Asia. Several export
terminals are under development in British
Columbia, three of which have received ex-
port licenses.
The political environment for shale gas
in Canada is less certain. Though the cur-
rent Conservative government is strongly
supportive of oil and gas development, its
policies have deeply angered the nations
environmental movement. Provincial gov-
ernments in Quebec and Newfoundland have
enacted bans on fracking, and pressure for
similar bans is mounting elsewhere.
Though Mexican gas demand is projected
to grow strongly, shale exploration in the
country is still in its infancy. Mexico is be-
lieved to hold substantial shale gas reserves,
some of it contiguous with shale plays in
Texas. The International Energy Agency
(IEA) estimates that Mexico has around 537
Tcf of technically recoverable shale gas. The
development environment, however, is much
less favorable than Canadas.
Much of the problem is Mexicos highly
centralized and mostly nationalized oil and
gas business, which is handicapped by cor-
ruption and inefficiency. The federal gov-
ernment is considering reform of the energy
sector, but prospects are uncertain. Though
PEMEX, the national oil company, has
launched a $200 million exploration program
in the Mexican portion of the Eagle Ford
Shale, meaningful production is not expected
before 2020.
South America
By far the largest untapped shale gas poten-
tial in the Americas is in Argentina. EIA and
IEA estimates place the nations reserves third
in the world behind China and the U.S. Early
test drilling has shown that Argentinas shale
layers are productive and respond well to
fracking. The IEA projects that, with the right
policies in place, the country could be the
fourth-largest producer of shale gas by 2035.
But the challenges are equally large.
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The nations oil and gas sector is mori-
bund, handicapped by strict price controls
that largely eliminate incentives to explore.
The other problem is endemic labor unrest,
which is certain to increase production
costs. Though the national government has
expressed interest in exploiting its resourc-
es, it has so far shown little willingness to
tackle the challenges head-on and risk a
public backlash should relaxation of price
controls lead to inflationalways a fear in
a country that has seen several episodes of
ruinous hyperinflation.
Still, there are signs of progress. In Sep-
tember, state-run oil company YPF and the
local subsidiary of Dow Chemical signed
an agreement to explore for shale gas in the
Neuquen Basin, thought to be the nations
most promising play. The two companies
plan to drill up to 16 wells as part of a pilot
program.
Brazils shale gas reserves appear to be
smaller than its southern neighbors, but it
has moved more briskly to exploit them. Last
year it held its first auction of shale gas ex-
ploration rights. It has also begun requiring
winning bidders for conventional deposits to
drill exploratory wells into underlying shale,
in hopes of getting a clearer idea of its poten-
tial resources. Unlike Argentina, which has
traditionally been a difficult partner for for-
eign oil and gas firms, Brazil has welcomed
foreign investment. Nevertheless, commer-
cial shale gas production is years away and is
unlikely to be meaningful before 2020.
Europe
The gas market in the European Union (EU)
bears little resemblance to that in North
America. High prices as a result of long-term
oil-linked contracts, declining production,
and supply constraints have led to declining
consumption and the shuttering of gas-fired
power plants. Worse, reduced demand for
coal in the U.S. has resulted in increased coal
exports to Europe, pushing down the price of
coal. A concurrent collapse in the EU emis-
sions trading market has made coal highly
competitive against gas for power genera-
tion. Gas consumption fell 1.6% in 2012, and
the IEA projects flat demand in the EU go-
ing forward, largely as a result of regulatory
support for renewable energy and continued
competition from coal.
Despite high gas prices, prospects for
shale gas in the EU are little better. While the
IEA estimates of total shale gas reserves in
Europe are close to those for the U.S., it is
likely that far less of it will be recovered. The
shale geology is thought to be more com-
plicated, making the gas more expensive to
extract. More significantly, public opposition
to fracking in the EU is high in many areas,
with bans or moratoriums in place in France,
Germany, and the Czech Republic.
The only near-term prospects for shale ex-
ploration in the EU are in Poland and the UK
About 50 wells have been drilled in Poland,
though results have been less than hoped
for. Another 200 wells are planned by 2016.
The IEA projects about 0.8 Bcf/d of shale
gas production from Poland by 2035. The
U.K.s shale reserves are fairly limited, but
potentially severe gas shortages have forced
the national government to push for explo-
ration despite public opposition. Local firm
Cuadrilla briefly attempted to drill for shale
gas in Lancashire in 2011, but it suspended
operations after several small earthquakes
occurred in the region.
Ukraine is thought to have potential for
shale gas development, but a challenging
business and political environment has hand-
icapped exploration. The IEA estimates pro-
duction from Ukraine comparable to Poland
by 2035, but commercial production should
be quite limited before 2020.
Russia
Few countries outside of North America have
been as affected by the shale boom as Rus-
sia, even though it has no direct connections
to the North American market. As recently
as 2007, Russian national gas company Gaz-
prom was preparing to spend $30 billion
developing a gas field in the Barents Sea in
hopes of supplying the U.S. market. That
project was abandoned in 2010 when it be-
came clear there was no need for the gas.
Once the dominant supplier to Europe,
Gazprom has seen its position undercut from
every direction. Cheap U.S. coal exports
have reduced the demand for gas for power
generation, while the collapse in U.S. gas im-
ports has redirected LNG from Qatar to high-
er-priced markets in Europe. Gazproms long
insistence on oil-linked contracts is under
siege, and most observers expect spot markets
to dominate in the future. So threatened has
Russia been by the shale boom that Gazprom
has been accused of funding anti-fracking or-
ganizations in Europe as a means of slowing
its advance. Gazprom officials have loudly
denounced shale gas as a bubble due to burst
at any moment, and media coverage in the
Russian presssome of which is owned by
Gazpromhas been highly critical of shale
development in the U.S. and elsewhere.
Yet, for all this, Russia is thought to pos-
sess substantial shale reserves, though most-
ly of oil. Gazprom has quietly begun its own
fracking explorations, though it is unclear
where this will go. It still has substantial con-
ventional reserves, and with the European
market in turmoil, it has been looking east for
new markets. And it is to the east where shale
gas may see the greatest impact of all.
China
No country has greater shale gas reserves,
or a greater need for them, than China. Both
the EIA and IEA estimate that Chinas shale
gas potential is as much as twice that of the
U.S. The country is also poised for enormous
growth in gas demand and is casting its nets
wide. It currently has five LNG import termi-
nals in operation and at least 10 more under
development. It has secured or is in the pro-
cess of securing pipeline imports from Cen-
tral and Southeast Asia and Russia (though
negotiations with Gazprom have stalled over
prices). But to fully meet its needs, it must
develop its domestic resources.
The impediments standing in the way of
a Chinese shale gas boom, however, are for-
midable, and in many ways present a mirror
image of the advantages enjoyed in the U.S.
Land ownership rules in China are murky,
and endemic corruption makes securing clear
mineral rights to shale deposits difficultall
the more so because oil and gas data are con-
sidered state secrets. The regulatory environ-
ment is heavily weighted toward state-owned
enterprises and against the sort of independent
risk-taking that spawned the shale boom in
the U.S. Chinas natural gas infrastructure is
far short of what it needs, and the domestic
gas market is both illiquid and constrained by
price controls that have made gas develop-
ment deeply unprofitable. The geologic char-
acteristics of many of Chinas shale basins are
thought to be less productive than those in the
U.S., and some of the more promising regions
are hamstrung by severe shortages of water.
Even so, shale gas in China has made prog-
ress in the past year as the central government
has sought to cut through red tape and cre-
ate incentives for development. Two licens-
ing rounds have been completed, and several
dozen producing wells have been drilled. The
IEA estimates Chinas shale gas production
by 2035 at more than 11 Bcf/d, but many ob-
servers remain skeptical that this level of pro-
duction is achievable that quickly. (For more
details, see Chinas Shale Gas Development
Outlook and Challenges, p. 41.)
Australia
Regardless of the level of shale gas produc-
tion China is able to achieve, projections
are that the nation is poised to become the
worlds largest gas importer because of sky-
rocketing domestic demand, for both power
generation and domestic heating. With China
and the rest of East Asia becoming a huge
market for LNG imports, Australia is moving
briskly to meet the demand.
Australia is thought to have significant
shale gas resources, though exploitation is
|
January 2014 40
still in the very early stages. The nation is
handicapped by limited gas infrastructure
and serious water shortages in the interior
regions. Significant production from shale
is thought to be at least five to 10 years
away.
Middle East
Given the regions enormous conventional
gas reserveswhich also enjoy the lowest
production coststhe Middle East would
seem to be a strange place for shale gas de-
velopment. But large shale basins are known
to underlie the Arabian Peninsula, and Saudi
Arabia is beginning to look at exploiting
them. This year, Saudi Aramco began assess-
ing several areas in the countrys northwest,
with a plan to use the gas to power a com-
bined cycle plant in Jizan.
The Saudi government estimates that its
shale gas reserves could total 600 Tcf, more
than twice its conventional reserves. Oddly
enough, the nation has had difficulty meeting
domestic gas demand because of a focus on
oil and price subsidies that make gas produc-
tion uneconomic. Exploration is also under
way in neighboring Oman and the United
Arab Emirates, with production possibly be-
ginning as soon as 2017.
Africa
There are known to be several large shale ba-
sins in Africa, notably in Libya and Algeria.
The Algerian government has expressed in-
terest in exploiting its shale reserves, but so
far little has been done. The IEA estimates
that Algeria could be producing significant
amounts of shale gas by 2035, but little prog-
ress is expected this decade.
The greatest near-term potential is thought
to be in South Africa. By some estimates, that
nation has the worlds fifth-largest shale gas
reserves, despite having virtually no conven-
tional reserves. A reliable domestic source of
gas would do much to aid the nations desire to
wean itself off coal while meeting burgeoning
electricity demand. At the moment, however,
the national government has enacted a mora-
torium as it considers the appropriate regula-
tory regime. Other impediments lie in the way:
Most of the gas is in the southern Karoo Basin,
which is arid and water-poor. The area is also
geologically complex, with numerous igneous
intrusions that may complicate seismic imaging
and fracturing of the shale. As in other nations,
political opposition to fracking is growing.
Where We Go from Here
If there has been one constant in the shale
business, it is that reality has repeatedly de-
fied expectations. Production levels have
leapt past previous estimates every year.
Well productivity has climbed, and produc-
tion costs have fallen. If there is one safe
prediction that can be made, its that current
predictions will be proven wrong in a vari-
ety of ways.
How far can it go? If you listen to indus-
try critics, shale is a bubble on the verge of
bursting much the way the global financial
markets collapsed in 2008. Viewed objec-
tively, these claims have little in the way of
support. The gas is clearly there, and the tech-
nology for recovering it is becoming more ef-
ficient and less expensive every year. While
there has been turmoil in the market, this is
in many ways an industry being the victim
of its own success: So much gas came on the
market so fast that collapsing prices wrecked
the finances of several early entrants. As the
sector matures, financial models will mature
with it.
There is every reason to think shale gas
is an industry with a long future ahead of it.
George Mitchell, who passed away in July at
94, would surely be proud.
Thomas W. Overton, JD is POWERs gas
technology editor.
For information, call Wrights Media at 877.652.5295 or visit our website at www.wrightsmedia.com
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January 2014
|
POWER IN CHINA
Chinas Shale Gas Development
Outlook and Challenges
Developing and using shale gas could alleviate fossil fuel shortfalls in China,
enhance that nations energy security, and contribute to economic and
social development. Though the government has plans to utilize its buried
shale resources, significant barriers to that plan remain.
Zeng Ming, Liu Ximei, and Li Yulong
T
hanks to sustained and rapid develop-
ment of Chinas economy, demand for
natural gas has been increasing. From
2000 to 2010, Chinas demand for natural
gas increased from 24.7 billion cubic meters
(bcm) to 107.2 bcm; the average growth rate
was about 16%. Furthermore, by 2009, natural
gas demand exceeded supply in the Chinese
market. Chinas conventional natural gas pro-
duction exceeded 100 bcm for the first time
and reached 102 bcm in 2011, but the growth
rate of yields was only 8.45%lower than the
average of 13.07% in the past decade.
Additionally, Chinas dependence upon
traditional energy imports is increasing yearly.
Dependence upon foreign oil reached 53.8%
in 2011, and net imports of coal were about
146 million tons in 2010, with year-on-year
growth of more than 41%. Natural gas imports
have been steadily increasing (Figure 1) as
Chinese natural gas demand has been growing
faster than that of coal and petroleum.
Chinas high degree of dependence upon
traditional energy imports is becoming a se-
rious threat to the countrys energy security.
Oil can be purchased from the international
market; however, natural gas imports are
limited by the fact that regional distribution
is mainly by pipelines, which are limited in
adjacent countries.
It is predicted that Chinas natural gas
consumption will maintain an annual growth
rate of 25% in the next five years and that
demand will reach 170 bcm to 210 bcm in
2015. However, it is also estimated that natu-
ral gas production will be only 140 bcm in
2015, with a growth rate of only 15%, which
is far below that of consumption increases.
The gap between supply and demand for nat-
ural gas in China will continue to expand in
2015, reaching 50 bcm.
In light of current environmental pressure,
the high degree of dependence on foreign oil
and gas, prominent nuclear safety concerns,
and renewable energy grid integration issues
(see A Plan for Optimizing Technologies to
Support Variable Renewable Generation in
China in the December 2013 issue of POW-
ER), it is of great significance for Chinas en-
ergy security to accelerate the development
and utilization of shale gas.
Chinas Shale Gas Resource
Potential
Evaluating shale gas resource potential and
defining favorable exploration targets in key
areas, as enacted by the Ministry of Land
and Resources, finds that the resource poten-
tial of Chinas land shale gas is 134.42 tril-
lion cubic meters (tcm) and the recoverable
resource potential is 25.08 tcm (excluding
Qinghai-Tibet district). The area evaluated
where shale gas has been found is about
88 square kilometers (km), with geologi-
cal resources of 93.01 tcm and recoverable
resources of 15.95 tcm. The U.S. Energy
Information Administration (EIA) has re-
leased a report saying that Chinas shale gas
resource is as high as 1.275 quadrillion cu-
bic feet (36 tcm), ranking first in the world
(Table 1). These numbers differ from others
in Table 1, but all are estimates and all sug-
gest abundant shale gas resources.
China has abundant, widely distributed
organic shale. Offshore, marine rocks have
been developed in South China, North Chi-
na, and the Tarim Basin in Xinjiang. The
resource potential of continental rocks with
geological conditions of shale gas reservoirs
is large. Continental shale gas is mainly
found in North China, the Junggar Basin, the
Turpan-Hami Basin, Ordos Basin, Bohai Bay
Basin, and Songliao Basin. The three marine
shale basins are southern Paleozoic marine
shale, North China lower Paleozoic shale,
and Tarim Basin Cambrian/Ordovician Pa-
leozoic shale.
25%
20%
15%
10%
5%
0%
2006 2007 2008 2009 2010 2011
2%
5% 5%
8%
14%
23%
1. Chinese natural gas imports
are increasing. Source: General Adminis-
tration of Customs of the Peoples Republic of
China
Unit
Estimated resources
(trillion cubic meters) Evaluation year Remarks
Oil and Gas Center of Ministry of Land and
Resources
25.08 2012
Main basin and
region
Energy Information Administration (EIA) 36.1 2011 Main basin
Research Institute of Petroleum Exploration
and Development
1020 2009 Main basin
Langfang Branch of PetroChina Research
Institute
11.4 2009 Emphatic basin
China University of Geosciences (Beijing) 26 2008
Emphatic basin
and region
Table 1. Estimates of Chinas shale gas resource.
|
January 2014 42
POWER IN CHINA
The best areas for shale geological condi-
tions are Sichuan Basin, Paleozoic systems in
Ordos Basin, the Middle and Lower Yangzi
Platform regions, and North China Basin;
better areas are Junggar, Songliao and Tur-
pan-Kumul Basin; poor areas are Qaidam
and Liaohe Basin. South China, North Chi-
na, Northwest China, and the Qinghai-Tibet
Plateau account for 46.80%, 8.90%, 43.00%,
and 1.30% respectively of total recoverable
shale gas resources (Figure 2), while Paleo-
zoic, Mesozoic, and Cenozoic formations
account for 66.70%, 26.70%, and 6.60% of
total shale gas.
Status of Shale Gas Exploration
Shale gas resources show great potential
in China, but exploration and develop-
ment of the unconventional gas is still
at its exploratory stage. As research con-
tinues, Chinas shale gas exploration is
making considerable progress, based on
the successful commercial experiences of
Americas shale gas development. (See
Figure 3 in the web version of this story at
powermag.com for details of development
stages from 2000 to present.)
China has carried out shale gas drilling
and hydraulic fracturing tests in Sichuan,
Ordos, Bohai Bay, Qinshui Biyang Basin,
Zhaotong in Yunnan Province, and Gui-
zhou Province as well as South and Ton-
gren regions. The total drilled wells include
35 shale gas wells (including 5 horizontal
wells), 14 hydraulic fracturing wells (in-
cluding 2 horizontal wells), 11 industrial
gas (oil) flow wells (including 1 horizontal
well), of which 7 wells have a daily output
greater than 10,000 cubic meters.
Policy Status
The Chinese government has announced a se-
ries of policies to speed up shale gas develop-
ment, covering a range of issues, including:
Conducting the first round of shale gas ex-
ploration competitive bidding.
Designating shale as independent
minerals.
Releasing shale gas geological resource
reserves numbers.
Enacting the Shale Gas 12th Five-Year
Plan.
Publishing the Guidance Catalogue for
Foreign Investment Industrial (2011 revi-
sion), which defined the regulations for
foreign cooperation and joint ventures for
shale gas exploration and development.
Shale as an Independent Mineral. The
Chinese government has strongly backed
shale gas exploitation and exploration, mak-
ing shale gas part of the countrys new energy
strategy, and has approved shale gas as inde-
pendent mineral to avoid monopoly control
of the original oil and gas resources.
The National Energy Board Shale Gas
Development Plan (2011-2015) aims to
prove shale gas geological reserves are 1 tcm
and recoverable reserves are 200 bcm. Chi-
nas annual output of shale gas is expected
to total 6.5 bcm in 2015, up from zero today,
and to be 100 bcm in 2020, according to the
countrys shale gas development plan for
20112015. In the 12th Five Year Plan peri-
od, in order to support shale gas exploration,
the Chinese National Energy Administration
will promote the setting up of special shale
gas funds and will study price mechanisms
and related financial policy.
Opening Investment to Private Cap-
ital. In late June 2011, China conducted
the first round of shale gas exploration
competitive bidding and invited six state-
owned enterprises to participate in bidding
for four blocks of mineral exploration
rights (in Chongqing municipality and
Guizhou and Hunan provinces). Foreign
companies and private domestic compa-
nies were excluded from the first auction.
Sinopec and Henan Coal-Bed Methane
Co. were the successful bidders.
In order to develop shale gas resources,
China held its second shale gas auction
in December 2011. Although state-owned
companies were still major bidders, private
domestic companies and foreign companies
were also allowed to participate. This is an
important attempt to reform management of
mining rights of oil and gas resources, which
will help to encourage private enterprises to
invest in shale gas exploitation.
Price Policy. Chinas Shale Gas De-
velopment Plan (20112015) has pointed
out that shale gas is different from any con-
ventional natural gas that executes market
pricing. Chinas current natural gas pricing
mechanism can be summarized as a cost-plus
pricing method under state regulation. The
price of natural gas is divided into four links:
the ex-factory price, pipeline fees, the urban
gate station price, and the end-user price.
Pricing is determined mainly by govern-
ment departments according to the produc-
tion and supply cost plus a reasonable profit.
Guangdong and Guangxi Province took the
lead in piloting the natural gas price-forming
mechanism on Dec. 26, 2011. The pricing
of shale gas, coal bed methane (CBM), coal
gasification, and unconventional natural gas
will follow a market regulation mechanism,
which also reflects the governments attitude
of encouraging the exploitation of unconven-
tional natural gas.
Shale Gas Subsidy Policy. In a notice
jointly issued by the Ministry of Finance
and the National Energy Administration
that took effect Nov. 1, 2012, the central
government promises to provide subsidies
for shale gas mining enterprises. The stan-
dard of subsidy is set at 0.4 yuan per cubic
meter for 20122015 and is to be adjusted
based on the development of the shale gas
industry. Two categories of shale gas can
enjoy subsidies: shale gas resources that
have been exploited and utilized and enter-
prises that have installed metering equip-
ment that can provide accurate data on the
amount of shale gas exploited and utilized.
That means companies bidding for shale
gas exploitation rights that have not yet
started shale gas development or utilization
are excluded.
Technical Status
China has a foundation of technical equipment
for shale gas exploration and development
because horizontal wells and fracturing tech-
niques have application in the traditional oil
and gas industry. China has comparatively ma-
ture technology in manufacturing of drill, frac-
turing truck group, downhole tools, and so on.
But the key technologies of horizontal drilling
and hydraulic fracturing are immature.
First, China is lacking a whole set of
technologies for horizontal drilling, includ-
ing rotary steerable technology, logging
while drilling technology, simulation soft-
ware, analysis software, monitoring tools,
and more. Second, it is inexperienced with
these newer approaches. Take drilling for
example: China has been drilling vertical
wells for a long time, but only in recent
years has it gradually shifted to the use
of horizontal well technology to develop
natural gas. Until October 2011 the total
number of CBM drilling wells was more
than 7,230, of which only about 170 were
43.0
8.9
46.8
1.3
South Northwest North Tibet Plateau
2. Regional distribution of Chinas
shale gas. Source: Research Institute of Ex-
ploration and Development of China Petroleum
January 2014
|
POWER IN CHINA
horizontal wells, with most of those drilled
after 2009 (Figure 4).
Major Challenges for Shale Gas
Development in China
Chinas efforts to develop its shale gas in-
dustry may face various obstacles, several of
which are outlined below.
Resource Exploration Problems. Inves-
tigation and exploration of Chinas shale gas
resources is still in its infancy. Exploration is
very difficult in China because the shale plate
is complex and the available area for explora-
tion is relatively fragmented. The main prob-
lems are that:
Investment in shale gas geological explo-
ration is inadequate. Total investment in
survey evaluation and exploration of shale
gas is less than 7 billion yuan, compared
with about 660 billion yuan for conven-
tional oil and gas exploration.
China granted special access regulation of
business exploration for oil and gas, which
is basically controlled by the major oil and
gas companies, which makes it difficult
for private capital to get involved.
Geological data regarding shale gas could
not be shared within the industry.
Policy Problems. Shale gas, involving
faster development and higher investment
risk, is an unconventional low-grade natural
gas resource that needs positive and effec-
tive policies to ensure scientific and robust
development. Nevertheless, China lacks
a law and policy system to encourage de-
velopment of unconventional oil and gas
resources, including shale gas. Although
shale gas has been classified as independent
minerals, specific operational policies for
the industry have yet to be resolved, such
as the management of mining rights, market
access threshold, and standards.
Technical Problems. Technical problems
are the major factors hindering develop-
ment of Chinas shale gas. The shale gas is
difficult to develop because of its ultra-low
permeability and depth (Cambrian shale bur-
ied depth of 2,000 to 3,500 meters), which
requires more advanced technology.
After several years of research and
technical preparation, China has achieved
some initial technology development, but
not enough to meet the needs of shale gas
exploration and development. Key tech-
nologies that are lacking include shale
gas resource evaluation, shale-containing
gas analysis test, horizontal well drilling
completion technology, and long-distance
stage-fracturing, which severely restricts
exploration and development.
China also lags in technology for long-
range multi-branch horizontal wells and
super-tight reservoir stage fracturing re-
form. Additionally, the fracture fluid sys-
tem is not built to effectively protect the
shale reservoir and ensure minimal damage
because the filtrate of different fracturing
fluid systems can harm the shale reservoir
to different degrees.
Additionally, some of the technical stan-
dards for existing natural gas exploration
and development are not suited to shale
gas. Shale gas does not contain hydrogen
sulfide and other toxic components, and
only via fracturing does it produce gas;
in this sense, shale gas is artificial gas
reservoirs. Nevertheless, the regulations
regarding Habitat Safe Distance and Drill-
ing Fluid Density were included in Drill-
ing Well Control Technical Specification
(SY/T6426-2005) and are too large for
shale gas wells, which is not conducive to
lower operating costs.
Furthermore, because it involves an un-
conventional natural gas, exploration and
development of shale gas is much different
than the description in the standard of Oil
and natural gas resource/reserve classifica-
tion (GB/T19492-2004), and its reserves
could not be calculated in accordance with
the existing Oil and gas reserves calculation
specifications (DZ/T0217-2005).
Insufficient Pipeline Infrastructure.
Shale gas must be transported mainly by
pipeline, and Chinas domestic natural gas
pipeline network has been constantly im-
proved. (See Table 2 in the web version of
this article for existing and planned pipe-
lines.) However, pipelines have become more
important for importing foreign gas (at pres-
ent there are three main import pipelines: the
Central Asian natural gas pipeline, Myanmar
gas pipeline, and the Russian natural gas
pipeline), and additional pipeline infrastruc-
ture will be needed for domestic shale gas.
Potential shale gas regions are in mostly
sparsely populated and remote areas; that
creates a problem for transferring the mined
gas to consumers. Infrastructure inadequacy
has become a major obstacle to further shale
gas developments. Despite recent develop-
ments, Chinas pipeline network is unable
to effectively reduce market risk faced by
upstream enterprises. Currently, China has
about 40,000 km of natural gas pipeline.
The planned target is 100,000 km in 2015,
but that is far from the U.S. pipeline total of
460,000 km.
Another problem is that the administra-
tors of oil and gas pipelines have little in-
centive to transport third-party shale gas.
Chinas natural gas pipeline infrastructure
was mainly controlled by Petro China
and Sinopec, which led to highly concen-
trated control for mining, transportation,
and sales. Petro China pipeline mileage
accounts for more than 75% of the gas
mainline, and Sinopec and CNOOC con-
trol less than 20%, which results in a se-
rious monopoly of gas resources and gas
pipelines. In case of tight gas transmission
lines, if the Chinese government does not
create complementary measures or encour-
age pipeline construction or force open the
pipeline, shale gas development will face
a huge cost to rebuild the infrastructure.
Under the existing system, the party con-
trolling the pipeline has no incentive to
transport shale gas.
A Way Forward
We suggest several strategies for accelerating
shale gas development in China.
Strengthen the Strategic Exploration
of Shale Gas Resources. More data about
potential shale gas resources, where they
are distributed, and their geological condi-
tions are needed to enable discovering de-
velopment areas with organic-rich shale and
predicting the potential distribution of shale
gas resource.
Shale gas resources pilot test areas of
strategic investigation, exploration, and de-
velopment should be established. Govern-
ment should establish a shale gas geological
survey data integration system and form
survey research for this series. It should
also build talent teams for shale gas survey,
exploration, and exploitation and develop a
geological data-sharing system and a social
service system. The government should also
launch shale gas geological theory research
and international communication and coop-
eration programs.
Create Policies Encouraging the De-
velopment of Shale Gas. As an unconven-
tional natural gas resource, shale gas needs
government policy support because of high
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Vertical wells
7,060
Horizontal wells
170
4. Chinas shale gas reservoir drill-
ing (as of October 2011). Source: Nat-
ural Gas Industry, Societ Generale Securities
Institute
|
January 2014 44
POWER IN CHINA
exploration and development costs, a long investment recovery pe-
riod, and difficulty in realizing short-term economic benefits.
Policies are needed to encourage strategic survey and exploration
and development of shale gas resources, as has been the case in the
U.S. and other countries. The national financial sector should increase
investment in a strategic survey of shale gas resources and encourage
private investment in shale gas.
In addition, various favorable tax and fee policies should be formu-
lated similar to the domestic development of CBM to promote shale
gas development. At the same time, government should increase sub-
sidies for exploitation of shale gas and launch preferential policies for
key technology research, development, and promotions.
Improve Key Technical Abilities. Investment in science and
technology should be increased to promote technological inno-
vation. We suggest organizing advanced technological forces to
carry out key technology research on shale gas exploration and
development and to encourage enterprises to develop, promote,
and use new technologies and processes that can improve the ef-
ficiency of shale gas development. Additionally, the techniques of
reservoir evaluation, perforating optimization, horizontal wells,
and fracturing should be introduced and improved. Formulation
of technical standards and specifications of shale gas should also
be accelerated.
Accelerate Pipeline Network Construction. We recom-
mend that the government develop comprehensive plans for and
build a nationwide and regional natural gas pipeline network.
Both more miles of natural gas pipelines are needed and an ap-
propriate proportion of trunk pipelines and distribution pipe-
lines. The Chinese government also should strengthen regulation
of its pipeline network. For example, a nondiscriminatory access
policy should be rolled out if it wants to decrease transportation
costs for shale gas.
In order to meet the needs of the developing shale gas sector, con-
struction of pipelines should speed up.
Another need is equitable entrance mechanisms for the natural gas
pipeline network and timely mandatory introduction of third-party
access provisions.
Construction of small liquefied natural gas and compressed natural
gas facilities will also be needed, especially for development areas
farther from the natural gas pipeline network, to minimize transporta-
tion costs.
As shale gas development advances, construction of export pipe-
lines may be needed.
Shale Gas Is Nationally Important
China needs to speed up legislation concerning the management of
shale gas resources, establish technological standards for shale gas
development, introduce competitive mechanisms, improve foreign
cooperation, strengthen supervision, and maintain an orderly and
healthy level of shale gas exploration and development.
The Shale Gas Development Plan (20112015) issued by the Na-
tional Energy Board identified shale gas development goals:
Basically complete the investigation and evaluation of shale gas re-
source potential, understand the distribution of shale gas resources,
and optimize 30 to 50 prospective shale gas areas and 50 to 80
favorable target areas.
Mostly complete the national shale gas resource potential survey
and evaluation in 2015, exploring shale gas geological reserves
of 1 trillion cubic meters, recoverable reserves of 200 bcm, and
achieving an annual output of 6.5 bcm.
Establish geological survey techniques and resource assessment
technical approaches for shale gas that are suitable for geologi-
cal conditions in China as well as key technologies for shale gas
exploration and development and ancillary equipment.
Commercial development and utilization of shale gas in China can
be divided into three stages:
First stagebefore 2015: pilot testing and developing key
technologies.
Second stage2015 to 2020: focusing on the development of ma-
rine shale gas at scale in southern China and recognizing a break-
through in the industrial development of continental shale gas and
realizing its scale development and utilization. Shale gas produc-
tion is expected to reach 20 bcm in 2020.
Third stageafter 2020: forming supporting technologies and ef-
fective management systems and mechanisms for shale gas explo-
ration and development suitable for the characteristics of Chinas
unconventional gas. The goal is to make shale gas a new force to
support rapid development of Chinas natural gas industry within
10 to 20 years.
Although large-scale development of shale gas will take time, ac-
tively looking now for shale gas resources is imperative for national
energy security reasons. As we look forward to the future, the devel-
opment of Chinas shale gas has broad prospects.
The authors would like to sincerely thank Wang Liang for guidance
with the English writing.
Zeng Ming, Liu Ximei, and Li Yulong, School of Economics and
Management, North China Electric Power University,
Beijing, China.
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Redefining priorities for
Qubecs Hydro Power Cluster
Optimizing at home, building new capacity abroad
Gabrielle Morin, Razvan Isac and Sulaiman Hakemy
This report was researched and
written by Global Business Reports
Chaudire hydroelectric
facility, in Quebec.
Photo courtesy of Innergex
2
Global Business Reports // POWER QUBEC January 2014
A land of lakes and rivers, Qubec benefts today from an abun-
dance of clean and green energy, vastly generated by means of hy-
dro power, which is increasingly complemented by the provinces
eastern wind energy farms. Government owned Hydro-Qubec
rules over power generation, transmission and distribution in the
province, and, over the years, the utility has decisively contrib-
uted to the establishment of a world-renowned cluster of hydro
actors across the supply chain. The hydro industrys tradition con-
trasts with the wind sectors youthfulness, whose expansion was
prompted by the recent liberal governments and their 4,000 MW
wind power RFPs. With its energy surplus estimated to last until
2027, Qubec and its players are now looking inwards to optimize
the provinces aging hydro infrastructure, while properly integrat-
ing Gaspsies wind sector contribution. More importantly, they
are looking at foreign markets, where their expertise could shape
many developing countries energy infrastructures.
Qubecs Dominant Hydro Power
Boasting more than a million lakes and 4,500 rivers that represent
over 40% of Canadas water resources, Qubecs choice for en-
ergy generation was destined to be hydroelectricity. At the end
of 2012, the province had an installed capacity of 35,829 MW, but
that fgure should reach 40,000 MW by 2015, as outlined in the
governments Energy Strategy. With 60 generating stations, 26
large reservoirs, 664 dams and 97 control structures, hydro power
currently accounts for roughly 96% of Qubecs power supply;
moreover, it represents over 50% of Canadas total hydro energy.
All this impressive portfolio falls under the management of Hydro-
Qubec, the government owned utility, whose history dates back
to 1944. After the development of the gargantuan 15,000 MW
James Bay complex in the 1970s and 1980s, Hydro-Qubec was
not involved in any major projects for several years. However, that
changed over the last decade: between 2005 and 2013, Hydro-
Qubec commissioned a series of large hydro power generating
units: Eastmain 1 (480 MW), Eastmain 1-A (768 MW), Sarcelle (150
MW), Toulnustouc (526 MW), Peribonka (385 MW), and Chute-Al-
lards and Rapides-des-Couers (138 MW). Furthermore, by 2020,
Hydros new chef-doeuvre, La Romaine (1,550 MW), comprising
four units, will also come online. La Romaine 2 is scheduled for
commissioning in 2014, while La Romaine 1 will follow suit in 2016.
The nature of hydro power has also allowed for a healthy di-
versifcation of Qubecs energy landscape over the last 10
years, with the government deciding to create a wind power
sector in the province. Qubec has the best energy mix
people can hope for, with wind and hydro power. We can use
wind power in winter, when the output is good, and store
precipitation in the dams. Then, during summer, when wind is
low, we can use that winter precipitation to smoothen output: it
is the ideal scenario, added Daniel Laplante, president of AIEQ,
Qubecs Electric Industry Association.
Hydro-Qubecs activity over the years has led to the formation
of a tremendous hydro knowledge base in the province. Com-
panies across the hydro supply chain have fourished in Qubec
and their expertise has become sought-after worldwide. Exp is
a diversifed engineering frm with presences across the US and
Canada. In Qubec, the company employs over 1,000 people. In
recent years, Exp has been involved in the La Romaine, La Sar-
celle, and the Chute Allard and Rapide-des-Coeurs projects, as-
www.gbreports.com
Global Business Reports
POWER QUBEC
Where hydro power
is king
La Belle Provinces Energy Mix: a task
made easy by nature
Boralexs Ocean Falls hydroelectric dam. Photo courtesy of Boralex
3
Global Business Reports // POWER QUBEC
January 2014
3
www.gbreports.com
POWER QUBEC
suring mechanical and electric works for
their auxiliary units. However, the benefts
of working in Qubec extend abroad. Jean
Lavigne, Exps vice-president for energy,
explained: In Qubec, we have developed
expertise in hydro-electricity alongside
Hydro-Qubec. We leverage and apply this
to other markets as well, in places such
as Western Canada, Africa and India. The
experience we have gained working with
Hydro-Qubec has enabled us to export
our expertise and develop a similar relation-
ships with other clients as well.
Essential actors of the hydro cluster in-
clude turbine manufacturing powerhouses
such as Alstom Hydro, Andritz Hydro, and
Voith Hydro who all have a strong presence
in Qubec. French giant Alstom has had a
powerful impact on Canadas hydro market,
as discussed by Pierre Gauthier, president
of Alstom Canada: Alstom has serviced
over half of the Canadian hydro power ca-
pacity through its manufacturing plant at
Sorel-Tracy. Furthermore, we were recently
awarded the La Romaine 2 and 3.
Beyond new projects, however, Alstom
is targeting the rehabilitation market.
Since 2012, the town of Sorel-Tracy hosts
Alstoms global center for technology for
innovation in hydro retroftting. We se-
cured the rehabilitation contract for La
Grande 2, Hydro-Qubecs biggest power
plant. Through our technology we can
provide dramatically increased effciency.
Alstom can increase power outputs by
30% just by replacing the plants equip-
ment, which accounts for only 10% of the
projects cost. Multiply this through the
next 50 years and you see that the returns
are impressive, added Gauthier.
Alstom is not the only global turbine
manufacturer to have one of its technol-
ogy centers in Qubec. In 2008, Austrian
Hydro-Qubecs Chenier Static VAR Compensator Substation, 735 kv. Photo courtesy of Exp.
Daniel Laplante,
president of AIEQ
www.gbreports.com
POWER QUBEC
4
Global Business Reports // POWER QUBEC January 2014
Please give us an overview of Hydro-
Qubecs evolution within the prov-
ince, from your founding to your
position today as one of the worlds
largest producers of hydropower?
Hydro-Qubec was founded in 1944. We
gained scale in the 1960s with the acquisi-
tion of a number of local and regional pow-
er companies, and in the 1970s and 1980s
we developed the 15,000-MW James Bay
Hydroelectric Complex. This development
really gave us a global standing in terms
of generation and transmission. The 1990s
saw little development taking place be-
cause of lower demand growth. Over the
last fve to 10 years, however, we have
been able to launch a signifcant new phase
of large hydro development, adding 4,000
MW to the system. Our most recent devel-
opment is at Romaine, which is a $6.5-bil-
lion project. We are currently investing $1.8
billion into high voltage transmission to
bring this resource to market.
One key aspect for Hydro-Qubec is
the quality of communication and relation-
ships we have established with First Na-
tions aboriginal groups throughout our op-
erations. We involve them in our projects
from the beginning. They have established
businesses in procurement, air transpor-
tation, construction, and even catering.
In the $5-billion Eastmain Rupert project,
we have awarded close to $500 million
in contracts to First Nations businesses.
At the same time as we are developing
these relationships, we are very proud of
our environmental record and the way that
we are able to install these major hydro de-
velopments so as to allow the ecosystems
to remain vibrant and productive after the
projects are completed.
In April 2013, the New York Public Ser-
vice Commission approved a plan to
build a 1,000 MW transmission line be-
tween Qubec and New York City. What
impact will this project have on export
potential for Hydro-Qubec?
of 4,000 MW overall. Hydro-Qubec has
run large RFPs to meet these mandates.
We are purchasing the wind power on
behalf of ratepayers in Qubec, and we
also handle the integration on the grid.
To ensure that the wind power would
not be a drag on the transmission grid,
we pushed our equipment suppliers
to put the best that they had into these
generators in terms of technical aspects,
like low voltage ride through and the
ability to supply reactive power. The grid
is as robust today as it was before these
wind farms were attached to the system.
Also, for the frst time, Hydro-Qubec it-
self is going to be developing wind in the
coming years.
What expectations do you have for
Hydro-Qubecs growth over the next
three years?
Because our business cycle is long, the
generation projects we are looking at right
now will be commissioned in the next dec-
ade. In the coming year or two we are hop-
ing to have one, if not two signifcant new
transmission interconnections under con-
struction to New York and New England.
This will give us the ability to bring more
on-peak power to market, during those
periods of higher consumption, and put
our storage capacity to better use in the
greater Northeast, which will lend greater
effciency to the market.
We anticipate a low commodity price
environment for at least the next three to
fve years because of shale gas, which is
a tremendous resource. The absolute level
of prices is not going to be at 2008 levels
in the foreseeable future, but we have
the ability to create strong shareholder
value through on-peak sales and the
unique storage component of our assets,
which is quite large.
Currently, we have 6,000 MW
of export capacity to move power to mar-
kets in New England, New York, Ontario
and New Brunswick. Hydro-Qubecs sys-
tem of large-scale hydro reservoirs is the
equivalent of a very large wholesale bat-
tery for the greater Northeast region. In
addition to the renewable hydropower we
produce, we store power that we have
purchased off-peak with the intention of re-
selling it on-peak when power demand is
greatest. We can store more power in our
reservoirs than a state like New York can
consume in a full year. Now we are work-
ing on transmission projects to bring
more of that power to our export markets.
This new project will be a $2 billion-plus,
1,000-MW mainly-underwater direct cur-
rent line down the Hudson River through
New York state into Queens, New York.
Our US partner, TDI, with the backing of
the Blackstone Group, has acquired the
necessary permits from New York and we
are expecting the Presidential permit later
this year. We will also need a permit from
the US Army Corps of Engineers because
we will be laying wire.
Our other key transmission project
will also be a high capacity direct current
line starting from the Eastern Townships
area of Qubec, near Sherbrooke, and
serving New Hampshire, Connecticut,
and Massachusetts. The end point will
be Franklin, New Hampshire. This 1,200-
MW project is not as advanced as the
New York project in terms of the actual
permitting process, but it is a key focus
for us, working with our US partner,
Northeast Utilities.
What role is Hydro-Qubec playing to
help meet the governments goal of
integrating more wind energy into the
provinces power supply?
The integration of wind energy on our grid
is really a function of how much policy
support there is from the government.
The Qubec government has established
wind power supply mandates to the level
Interview with
Thierry Vandal
PRESIDENT AND CEO, HYDRO-QUBEC
giant Andritz Hydro acquired several of GE
Hydros global assets: now, the province
hosts Andritz Hydros global center of com-
petence for Francis turbines. GE Hydros
complementary technology and global foot-
print made the company very attractive for
Andritz Hydro. We acquired low-head envi-
ronment technology and at the same time,
we were able to beneft from Montreals
core of engineering expertise: virtually eve-
ryone that worked for GE was transferred
to Andritz, said Daniel Carrier, vice-pres-
ident of operations at Andritz Hydro. Five
years after the GE acquisition, Andritz Hy-
dro has consolidated its Canadian business
with large projects in British Columbia (BC
Hydros Mica plant) and Labrador (Nalcor
Energys Muskrat Falls project). Looking
forward, the company is targeting the reha-
bilitation market in Qubec, as well as ex-
panding into new product areas: We still
have a lot to offer to this provinces hydro
power industry: our strong local presence
and tradition in this environment recom-
mend us for future projects. Qubec will
turn more and more to the refurbishment
of existing facilities and since a large part
of the existing base was installed by us,
that means we have the detailed knowl-
edge needed to properly optimize it. We
are also interested in seeing the evolution
of some of our newer products, such as
our hydraulic gates, noted Keith Pomeroy,
vice-president of sales and marketing at
Andritz Hydro.
Indeed, with an aging hydro infra-
structure, rehabilitation is high on Hydro-
Qubecs agenda, and the utility is currently
undergoing works at nine of its large hydro
structures, among which Beauharnois, La
Tuque and Manic 1 and 2.
While the construction and rehabilita-
tion of large hydro projects is underway,
Qubecs small hydro sector has not
been receiving much attention in recent
times. IPPs active in this market segment
were affected in February 2013, when the
government cancelled six such projects,
citing economic reasons and the provinces
existing energy surplus as its main reasons
for it doing so.
Hydro power will undoubtedly remain
the backbone of Qubecs energy supply
for decades to come. However, with the
advent of wind energy and the probable
halt of new construction projects after La
Romaine, the next step will require the
optimization of this increasingly complex
system. Frdric Schenk, director of in-
dustrial services at Swiss certifcation and
testing giant SGS, discussed the sectors
perspectives: Given the USs shale gas
boom and Qubecs existing energy sur-
plus, return maximization will be essential
moving forward. Hard-asset knowledge is
already very well established in Qubec,
largely due to Hydro-Qubec the chal-
lenge will be to go beyond that; to transi-
tion from the industrys build phase, to the
maintenance and improvement stage of
the cycle. This will require building complex
predictive models that will optimize the
management of dams and basin fow rates,
based on such factors as global warming
and weather variability. Furthermore, green
energy sources will also have to be proper-
ly managed and integrated within the sys-
tem. Lastly, by incorporating a good market
www.gbreports.com
POWER QUBEC
5
January 2014
5
ent Power Producers), Hydro-Qubec was
to achieve a wind power generation target
of 4,000 MW by 2015, an equivalent of
10% of the provinces energy supply. Be-
yond the goal of diversifying the provinces
power portfolio with another green alterna-
tive, the decision also had strong social and
political considerations.
With a population of roughly 94,000,
the Gaspsieles-de-la-Madeleine is an
administrative region located in Qubecs
extreme east: traditionally reliant on indus-
tries such as fshing, pulp and paper, and
mining, the region entered a state of eco-
nomic depression in the early 2000s when
several key businesses shut down. None-
theless, when everything was down, wind
picked up. The governments call for wind
power was destined to revive the Gasp-
sie, by exploiting its eolic potential. Seven
years later, in September 2013, 1,866 MW
of wind-power were already operational,
with another 1,596 MW under construc-
tion. Qubec now has 5,000 wind-indus-
try related employees and nearly 1,200
of them work in the Gaspsie. There is a
wealth of consulting expertise and there
are also a number of research institutes,
including the TechnoCentre olien, a
unique organization specializing in north-
ern wind conditions and icing, said Alex
Couture, director of project development at
EDF EN Canada, an EDF Energies
Nouvelles subsidiary with a vast wind
energy portfolio in Qubec.
The frst major development occurred in
2003, when Hydro-Qubec Distribution is-
sued the frst 1,000 MW RFP, which was
shortly followed by a second 2,000 MW
RFP in 2005. In 2009, a third, 500 MW RFP,
was put forth: 250 MW were destined for
municipalities, while the other 250 MW
were aimed at Aboriginal communities. By
the late 2000s, the minimum 30% Gasp-
sie local content requirements had led to
the establishment of a healthy supply chain
in the peninsula, with companies such as
Fabrication Delta (wind-towers), Compos-
ites VCI (nacelles), Marmen (wind-towers)
and LM WindPower (wind-blades) setting
up dedicated shops across the region. Fi-
nally, in May 2013, Qubecs current pre-
mier, Pauline Marois, completed her pre-
decessors 4,000 MW promise and even
went the extra mile with 100 MW by an-
nouncing a fnal 800 MW RFP, that would
bring investments of C$2 billion. This latest
batch would be assigned in four blocks: 150
www.gbreports.com
POWER QUBEC
6
Gaspsies Wind Sector
The Outset Diversifying Qubecs
energy portfolio while reviving an
economically depressed region
In 2006, Jean Charest, Qubecs liberal
party premier at the time, unveiled his
2006-2015 Energy Strategy, one which
would dramatically change the provinces
power landscape: through IPPs (Independ-
Hydraulic turbine test lab- Lachine QC. Photo courtesy of Andritz Hydro
understanding within this complex picture,
strong decision support systems can be
created these will allow for highly accu-
rate recommendations to be offered to the
decision makers in charge of managing the
hydro-electricity assets, integrating some-
times conficting goals such as maximizing
income, food protection and environmen-
tal protection. SGS will continue to grow
its expertise with the provinces strong hy-
dro cluster and we will leverage Qubecs
value and knowledge base for the beneft
of our global organization.
January 2014
MW for the Assembly of Migmaq commu-
nities of Qubec, 300 MW for competi-
tive bidding in the Gaspsie, 150 MW for
other parts of Qubec and, for the frst
time, 200 MW of projects to be developed
by Hydro-Qubec itself.
Founded in 1991 in Ontario, First Cana-
dian Title, part of FAF International, pro-
vides title insurances and other real-estate
related services to a wide market, and the
company has taken advantage of the wind
sector developments in Qubec to extend
its reach. We can insure any type of real
estate in the energy sector, including those
of high value. We have recently been focus-
ing on windmill farm projects; historically,
we have insured hydroelectricity projects in
the province. Contiguity of land is essen-
tial for an energy/power project; a leading
facet we insure. Qubec has an excellent
land registry system with little risk and ti-
tle insurance is affordable to the investors;
nonetheless, title problems may still occur.
Insurance should be a fundamental part of
a transaction, stated Laurent Nadeau, CEO
for Qubec at First Canadian Title.
From Development to Operation
Qubecs Wind Power IPPs and
their 300 feet tall machines
Cartier Wind Energy, a 2004-founded
joint-venture between TransCanada Pipe-
line and Innergex, is one of Gaspsies
major developers. Cartier won 600
MW during the frst RFP and now oper-
ates fve wind parks: Baie-des-Sables
(109.5 MW), Anse--Valleau (100.5
MW), Carleton (109.5 MW), Gros-Morne
(211.5 MW) and Montagne Sche (58.5
MW). Cartier was the frst company to
accelerate the wind sector value chain
in Qubec. We have been a pioneer in
many ways, especially in management
and social acceptability. The ministry has
used our documentation and experience
as a framework for wind energy for the
next 2000 MW bids, making Cartier
a model for other developers. Our focus
will now be on the operational side of wind
parks, coping with the extreme elements
of the north like ice-rain, heavy snow, and
low temperature. We have over 300 kilo-
meters of road, 310 kilometers of power
transmission lines, and fve power substa-
tions within our wind parks to keep them
operational, explained Robert Guillemette,
CEO of Cartier Wind Energy.
Northland Power, a Canadian IPP estab-
lished in 1987, was the other big winner of
the frst RFP, with its Jardin Dole (127.5
MW) and Mont Louis (100.5 MW) wind pro-
jects, which were brought online in 2009
and 2011 respectively. Now, the company,
which has a portfolio of 1,300 MW of op-
erational assets, is turning its attention
to community and municipality projects:
In Qubec we are working with a par-
ticular entity (Regie), which is an organiza-
tion formed by multiple RCMs (Regional
County Municipalities), in our case, fve, to
solve the fnancing issues that often occur
with municipality projects, which are usu-
ally smaller in scope, said Robert Demers,
business development director for Qubec
at Northland Power.
EDF EN Canada is one of the ma-
jor winners of the second and third
RFPs; since 2009, the company man-
aged to secure over 1,000 MW of
www.gbreports.com
POWER QUBEC
7
7
Alex Couture,
Project Deveopment Director,
EDF EN Canada
Robert Guillemette, CEO,
Cartier Wind Energy
January 2014
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8
wind power projects in Qubec, which will all be completed by
2015. Massif du Sud (150 MW), Lac Alfred I (150 MW), Lac Al-
fred II (150 MW), and Saint-Robert-Bellarmin (80 MW) are EDF
ENs main operating assets at the moment. RFPs in Qubec
are far better structured and more straightforward than other
provinces. However, it is important to understand the dominance of
French in the Qubec energy sector; every contract with Hydro
Qubec is in French, noted Couture.
The standards in Qubec are very high. It is probably the tough-
est grid to connect to from a regulations standpoint, but it is worth
it because it is a strong, reliable grid. In 2011, EDF EN Canada had
nothing built in Qubec. Two years later, we have a tremendous
amount of knowledge on how to build wind farms in Qubec and
how to see things. One of the innovative strategies we employed
was to erect turbines very early on this showed great foresight,
as it allowed getting the teething process out of the way early,
added David Gallagher, program manager at EDF EN.
The exclusive turbine provider for EDF ENs Qubec wind farms
is REpower Systems Inc. Canada, a subsidiary of the global Ger-
man-based group. Over the last years, the group Canadians pres-
ence grew impressively, from three employees in 2010, to over
100 today. Qubec was our point of entry into the Canadian mar-
ket. 2012 was a record year for us, in which we installed 200 ma-
chines, for a total of more than 400 MW and in 2013 we reached
the 550 MW mark. REpowers Canadian subsidiary comprises
10-15% of REpowers global turnover, a high fgure considering
that we have subsidiaries in ten countries. Today, because of the
confdence earned from our Montreal offces track record of suc-
cess, all of REpowers North American operations are managed
out of Montreal. Our approach has been to use even more local
resources than were required. We utilize blades manufactured in
Gasp by LM Wind Power, which also happens to be our global
supplier, and towers produced in Matane by Marmen. We already
use Marmen for projects in the United States, which demonstrates
that Qubecs plan to create local champions in the wind sector is
really working. Overall, between 46% and 49% of the value of
REpowers turbines is created in Qubec, said Helmut Herold,
Northland Powers Mont Louis Wind Farm, photographed by Joan Sullivan.
January 2014
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9
CEO of REpower Systems Inc. Canada.
One of Cartiers parent companies, In-
nergex Renewable Energies, is a Canadian
IPP with a diversifed renewables portfolio
that contains hydro, wind and solar pro-
jects, for a total capacity of 617 MW. In May
2013, Innergex was awarded the 150 MW
wind project for the assembly of Migmaq
communities of Qubec. Innergex has
been very proactive with respect to First
Nation partnerships; we are very proud of
this achievement and over the years, we
have built a corporate culture of openness
in understanding how First Nations operate
in the market in Canada, explained Michel
Letellier, President and CEO of Innergex.
Nonetheless, we would like to see a
standardization of regulations across the
energetic markets when it comes to envi-
ronmental supervision. Renewable energy
IPPs have many environmental criteria that
they need to uphold and we are perfectly
happy to do that but, at the same time, we
are in direct competition with other energy
sector players that are not subjected to the
same rules, added Letellier.
Pauline Marois new 800 MW RFP gave
the sector some reasons to celebrate, al-
beit not enough for a market with so many
active players, hungry for business. Vestas
traditionally occupied the frst position in
the global market shares for wind turbines,
but recent years have seen it struggle to
maintain that title, with GE and Chinas
Sinovel challenging its authority. Present
at the very beginning of Qubecs wind
energy development, the Danish compa-
ny did not get involved in any of the frst
major RFPs. In Canada, we are still have
the largest market share (around 35% of
the total capacity), with an installed base
of over 2,500 MW. Now, Vestas is back in
Qubec and we are going to be compet-
ing hard; sales is like hockey sometimes
you get checked but then you need to get
back up, to show people that you can take a
hit and keep ticking. So look out for Vestas
to reestablish its dominance in Canada,
said Chris Brown, president of Vestas, US
and Canada.
Coping with Remote Location
Challenges
The remote placement of wind farms has
also triggered the development of comple-
mentary infrastructure across Qubecs
extreme east. Consequently, assuring lo-
gistical and power support in these regions
during construction and operations has
been a key issue to tackle for developers.
But where some sees challenges, others
see opportunities.
A traditional player in providing temporary
power and temperature control solutions to
remote locations is Aggreko, which in 2013
celebrated 50 years of existence. The com-
pany has been steadily increasing its pres-
ence in Canada in recent times notably,
in Western Canada. Now, we are shifting
our attention to Eastern Canada, where we
see tremendous potential for our solutions,
given the natural resource investments
presently going on, said Peter Brouwer,
vice president Eastern Canada Aggreko.
Aggreko has technicians throughout East-
ern Canada and our preventative mainte-
nance programs are very strong. Real-time
monitoring by a dedicated team from our
Remote Operations Center quickly trouble-
shoots issues to maximize uptime, a criti-
cal element for remote communities. We
are expanding and opening service centers
across Qubec and we beneft from one of
the newest feets in the province. Aggreko
provides off-grid commissioning for IPPs
that develop wind farms: in Qubec we
collaborated with Northland Power on one
such project. We managed to deliver the
project on time and on budget, and most
importantly, in a safe manner. We see good
future potential for this in Qubec, given
the governments openness to renewable
energy sources, added Brouwer.
SDV Canada, part of the Bollor Group,
Michel Letellier, President
and CEO, Innergex
January 2014
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10
Global Business Reports // POWER QUBEC October 2013
www.gbreports.com
POWER QUBEC
11
October 2013
11
www.gbreports.com
POWER QUBEC
12
ments of the wind energy sector in Qubec
can act as an opportunity for us because of
the often remote locations of wind farms;
furthermore, these projects also lead to the
construction of adjacent roads, a process
which we can also support, noted Erik
Thorsrud, president of Atlas Copco Con-
struction Equipment Canada.
Future Success Different Paths
for Different Players
Looking forward, it is diffcult to foresee
how Qubec alone will be able to sustain
all of Gaspsies dynamic wind players.
With a new Energy Strategy expected for
2014, optimists hope to see an increase
of the 10% share wind energy has in the
provinces power mix. However, Qubecs
energy surplus and the US shale gas fren-
zy do not currently prompt the need for
more MW generation. While the provinces
wind repowering cycle starts in 2024, cur-
rent works will keep players busy only until
2017. According to one of our studies, Gas-
psies players need a minimum market of
300 to 350 MW per year to survive; even
so, they would be working only at a 40%
capacity rate, said Frdric Ct, general
manager of TehnoCentre olien, which
played an essential role in developing Gas-
psies wind cluster.
Until 2024, new business for IPPs such
as Boralex, a big second RFP winner, with
projects such as the 272 MW Seigneurie
de Beaupr wind farm, will depend
exclusively on calls for tenders. On the oth-
er hand, local maintenance service provid-
ers such as Techol, East Coast Wind and
Suspendem Rope Access will be fnding
plenty of work in Qubec, as wind farms
are gradually coming out of their warran-
ties. However, the most challenging and
exciting path ahead will be the one for
Gaspsies home-grown manufacturers,
such as Composites VCI and Fabrication
Delta, which will survive by competing
on the global markets. Already, Compos-
ites VCI has shifted its manufacturing fa-
cilities to Brazil, where it is accompanying
its traditional Gaspsie partner, GE.
Meanwhile, Fabrication Delta will be look-
ing to leverage its strategically-placed
New Richmond plant to engage the north-
eastern American markets.
Having outgrown Qubec, these compa-
nies will take the fght abroad, where sur-
vival of the fttest will determine success.
is a Qubecois logistics company whose
history dates back to 1967 and which has
seen its energy business become more
important in recent years, notably through
wind sector developments. Roger Ger-
vais, president of SDV Canada, discussed
the companys focus: We have a spe-
cialty in power plant and windmill projects,
but at the same time, one of our main
and longstanding clients is Alstom Hydro.
Although our interest in the wind sector
is recent, we have already done three
big projects. We delivered them success-
fully, and in this small industry clients
talk amongst themselves. During 2013,
SDV was already preparing for the
work it was awarded for 2014 for the big-
gest wind farm in Canada, the Parc des
Laurentides. Foresight is especially impor-
tant in the wind sector, where we have
to deliver one complete tower every day
if ever we fail, construction has to be
postponed and there will be 400 inactive
workers, at great expense.
Meanwhile, Atlas Copco, which
celebrated 140 years of existence in 2013,
has made a name for itself in Canada
and the world through its comprehensive
mining sector services. Now, a new divi-
sion, dedicated to construction projects
across the country, is trying to leverage the
companys cross-sectorial ties to make an
impact in Qubec: Canadas East Coast
development will be driven by projects
in which Qubec will have a big role to
play, such as the Energy East Pipeline. This
potential prompts us to look at ways of
expanding our footprint here. In Qubec,
we are targeting power projects, which,
during the phase of their construction, will
require portable energy sources this is
where we can shine with our pokers and
diesel-fueled generator sets. The develop-
Erik Thorsrud, general manager,
Atlas Copco Construction
January 2014
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POWER QUBEC
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13
Qubecs Solar Energy
In the shadow of hydro
and wind
With its recent pro-wind policies and its
abundance of lakes and rivers, Qubec has
not left much room to grow for its solar
power segment. Even so, some support
initiatives have surfaced in recent years:
in March 2012, Qubecs Ministry of Natu-
ral Resources announced the creation of
the PAIESO program, a C$7 million fund
aimed at supporting the installation of solar
thermal and photovoltaic systems. Overall
however, the implementation of large-scale
solar projects is still far from becoming real-
ity in the province, as Jean-Francois Sam-
ray, president of AQPER, Qubecs Renew-
able Energy Association, explained: It will
be tough for solar to connect to the grid,
as Qubec is already active in other renew-
able technologies. A paper by the Edison
Research Centre demonstrated that given
its relatively cheap cost, the more popular
solar power becomes, the more it will jeop-
ardize the way electricity is charged to the
consumer. More individual solar electricity
production means less grid-kWh consump-
tion; still, the networks maintenance costs
will be there, which would lead to more
expensive kWh rates. Subsequently, even
more people would move to solar but
the grid has to exist. On the other hand,
Qubec still has many remote areas where
people can use solar technologies, so there
will always be a market for it.
Momentarily however, Qubecs solar
opportunities lie mainly in off-grid and mini-
grid installations. Founded in 2009, Rackam
is a Qubecois company that benefted
from Qubecs IRAP (Industrial Research
Assistance Program) fnancial support dur-
ing its incipient development phases now,
the company specializes in providing solar
thermal power to industrial players. Having
spent two years developing its concentrat-
ed solar power technology and showcasing
its potential, the company is now launching
its two frst large projects. Moreover, look-
ing beyond Qubec, Rackam is targeting
international expansion. Mathieu Chagnon,
president of Rackam, discussed his com-
panys future markets of interest: We are
a Qubec-based company because a lot
of good engineering is here, and there are
good opportunities for research and to fnd
investors. A large part of our supply chain is
also Qubecois, but our market is mostly
international. We pursue two paths of re-
search in partnership with the University of
Sherbrooke and during our early research
we were able to receive federal govern-
ment subsidies. In two years, we will cer-
tainly have business activities in the US and
Europe. Rackam is evaluating many foreign
projects, and will continue to look at many
more in the future.
Looking in the long-term, the key for scal-
ing up solar power in Qubec will be to at-
tract political support, as Brian Wilkinson,
president of Matrix Energy, a Qubecois
solar photovoltaic company with 28 years
of experience in the feld, concluded: Very
few solar programs in the world have made
economic sense thus far, but every utility
January 2014
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POWER QUBEC
14
in the world exists because of government
subsidies. The idea that solar technology is
incompatible with the grid is false. Today,
you can put in a photovoltaic system for
not much more than C$1.50/watt and it will
last more than 25 years. Qubec can food
more territory, use wind, or engage in frack-
ing all these options have their issues. On
the other hand, we have a reserve sitting
there in the sky that in one hour produces
the worlds energy needs for a year.
Qubecs Ample
Power Transmission
and Distribution
Hydro-Qubecs transmission and distribu-
tion arms, Hydro-Qubec Transnergie and
Hydro-Qubec Distribution, operate the
most extensive network in North America,
covering 33,639 km of lines and 516 sub-
stations. To capitalize on the provinces en-
ergy surplus, strong ties have been made
with other Canadian provinces, as well
as with the US: 17 interconnections exist
between Qubec and systems in Ontario,
New Brunswick and the NE of the US, with
a total export capacity of 7,994 MW.
The networks sheer size, alongside
Qubecs need to effciently integrate
its new wind energy supply, has brought
smart grid technologies to the forefront
of discussions in recent times: a big role
in the development of the necessary pro-
cesses is played by Hydro-Qubecs IREQ
research center, an organization renowned
worldwide for its technological prowess.
With over 35 years of experience in re-
mote management and network automa-
tion, Vizimax is a Qubecois company that
resulted from the merger of SNEMO, an
electrical product manufacturer and STR, a
utilities engineering consulting frm. Jean-
Guy Lacombe, CEO of Vizimax, discussed
the companys collaboration with Hydro-
Qubec and the integration of renewables
to the grid: Our objective in the power in-
dustry is to move from master/slave archi-
tecture to client/server architecture where
smart-grid power will be distributed in the
feld. Smart Grid automation is a special-
ized market there is no room for experi-
mentation. When Hydro-Qubec requires
new technology or assistance, they look to
Vizimax to work with IREQ to fnd a solu-
tion. One of our recent projects helps fve
small wind parks connect to the grid with-
out causing noise disturbance, electricity
tipping, or consequent power outages on
the network. Qubec will however see a
lull in building new hydro generation pro-
jects. This is why Hydro-Qubec is seeking
to sell its expertise globally and secure new
project streams. Vizimax will follow that
trend and look outward as well.
Qubec A naturally
ft data-center hosting
environment
In June 2013, Swedish networking pow-
erhouse Ericsson AB announced plans to
build a new information technology cent-
er in Montreal, a project that will attract
more than C$1 billion in investments into
Qubec. Ericssons data center is just one
of the many facilities of its kind scheduled
for commissioning in the province: with an
excess of cheap, clean energy, Qubec is
quickly stepping up to become a jurisdic-
tion of preference for this energy-intensive
industry, which is projected to spend $126
billion annually by 2015. Jeff Edward, vice
president operation at Cogeco Data Ser-
vices, explained the markets demand dy-
namics: In this tough economic environ-
ment, companies started to analyze their
overheads more closely and realized that
the construction and maintenance of IT in-
frastructure is one of their major cost driv-
ers; however, since this is only an auxiliary
component of their activity, they are now
increasingly outsourcing it to companies
like ours so they can take a step back and
focus on their core business. Cogeco Data
Services gained an important footprint in
Qubec through the acquisition of MTO
Jean-Guy Lacombe,
CEO, Vizimax,
January 2014
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POWER QUBEC
15
15
Telecom in 2011 and now, the company is
working on developing its new fagship pro-
ject in Montreal.
Qubec is an ideal place for the place-
ment of data centers. Firstly, cold climates
offset the tremendous heating loads that
the computers themselves have. Secondly,
since data transfer is a key issue, Qubecs
excellent IT infrastructure places it ahead
of other jurisdictions. Finally, since data
centers deal with highly sensitive informa-
tion, they must be located in geo-politically
suitable environments, and Qubec is just
that, said Benot Parent, general manager
for power generation, Cummins Eastern
Canada. The company provides generator-
sets for standby, prime power, and continu-
ous applications, and has identifed the data
center business as being one of its prime
targets in Qubec. Cummins Eastern
Canada has been involved with data center
systems for some time and we beneft
from having dedicated sales and service
teams in Qubec and an emergency rapid
response team in Mississauga. We sup-
ply the generator sets, the switchgear and
the various schemes that allow Tier III and
Tier IV reliability standards for data centers.
Since generators are often placed together
in enclosed spaces, Cummins Eastern Can-
ada offers fre proof modularization for its
products. Consequently, we offset the risk
of the entire system going offine due to
an accident occurring with just one of the
components, described Parent.
Data centers are more energy-intensive
today than ever and thus, power availability
and costs are essential for their economic
feasibility. Data centers are notorious for
consuming large amounts of energy so any
low-cost environment automatically be-
comes very attractive for the industry. With
its extremely competitive power prices and
its energy surplus, Qubec is the perfect
market. We now see tremendous opportu-
nities in this province, which is going to be
our key target over the next years, noted
Vello Ehvert, president of Ehvert Mission
Critical, a company that specializes in the
engineering, procurement, construction,
integration and support of data centers.
The sector has also benefted from a
recent shift in the provincial governments
policy towards it. As opposed to Scandi-
navian and US authorities, Qubecs pre-
vious liberal government did not offer the
tax breaks and the preferential electric-
ity prices needed to attract the industrys
heavyweights. The sector was deemed not
suffciently attractive from a job-creation
perspective, a sensitive issue in Qubec,
which saw its employment rate grow only
0.8% in 2012. Now, Pauline Maroiss ad-
January 2014
Benot Parent, general manager
for power generation,
Cummins Eastern Canada
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POWER QUBEC
16
as NYC and Torontos costs were more
than double that fgure, at 11.55 c/kWh and
10.60 c/kWh, respectively. Stimulating eff-
ciencies in this context was always going
to be an uphill battle for Qubecs energy
effciency players, even with a helping hand
from their government.
The 1990s was a tough period for the
energy effciency market as power was
relatively cheap. However, in 2000, the
price of gas escalated, creating a new
market for energy effciency. During this
period, Qubecs Liberal government intro-
duced new legislation that institutions should reduce their energy
consumption by 15% and attached to this legislation were grants
and rebates, explained Andr Rochette, founder of Ecosystem,
a company specialized in HVAC (heating, ventilation and air-
conditioning/cooling) management. Since its creation in 1993,
Ecosystem expanded its reach abroad (Toronto/NYC), while also
securing local landmark projects, such as Montral Biodmes
energy optimization.
Heat recovery systems are also Sofame Technologies speciali-
zation. Set up in 1984, the business has since developed innova-
tive proprietary technologies, such as the Percotherm, Percof-
rac, or Percomax industrial-scale water heaters; to date, the
company has over 330 projects in its portfolio. John Gocek, CEO
of Sofame Technologies, discussed the markets receptiveness:
Qubec has been a productive market for us; it is a high heating
zone because of its cold temperatures. It is not diffcult to explain
to our customers the cost saving and environmental benefts of
recovering waste heat. Since 2008, customers budgets have been
tight however that is a high hurdle, but we are still fnding lots
of opportunities at large power plants and multinational corpora-
tions with environmental objectives. The big trend today is district
integrated cogeneration plants, emitting waste heat at various high
temperatures; Sofames direct contact technology recovers almost
100% of waste heat, regardless of scale. A high-profle project for
Sofame and recipient of an ASHRAE award is Montrals Trudeau
Airport; we are achieving 97% boiler-room effciency, and the air-
port is being heated at 140F by waste heat from the boilers. The
project has become the model for future heating in the industry.
Initially founded as a systems integration frm, Distech Controls
is a Qubec-grown energy management company which saw its
international business take off in the early 2000s in markets such
as Asia and Europe. Having been one of the frst Canadian com-
panies to adopt open systems and standards for energy control
technology, Distech is now targeting the full spectrum of com-
mercial and institutional buildings: Distech Controls pushed the
implementation of open standards further, by standardizing our
technology solution on recognized open protocols not only for the
products themselves, but also by embracing open business prac-
tices. As an example, we made our programming software freely
available, to all end user clients. Combining open technologies with
an open business model, clients could optimize and improve their
processes, select best of breed products, only limited by their
needs, and this changed the way business was done at the time.
Building owners want comfort, energy effciency and to make their
buildings greener they seek freedom when it comes to technol-
6.4 MW of uninteruptable power. Photo courtesy
of Kelvin Emtech
ministration has promised Hydro Qubecs
preferential L pricing rate for large power
users and a 10 year corporate tax holiday
for companies investing more than C$300
million in data centers. Nonetheless, these
measures were not the decisive factors
for the private sector players interest in
Qubec The current incentive schemes
barrier-to-entry is too high, even for a pro-
ject of our scale, of 100,000 square feet.
However, there is a tremendous amount
of IT infrastructure expertise in Qubec,
which also has a lot of pent-up demand for
data center space: overall, we are very excited about this markets
perspectives, concluded Edward.
Energy effciencys fght in a low-cost
electricity environment
Qubecs abundant power generation has made the province a
continental leader in low-cost electricity. Recent Hydro-Qubec
studies show that the average electricity prices in Montreal for
residential customers were 6.76 c/kWh, compared to 22.57 c/kWh
in NYC, or 13.89 c/kWh in Calgary. Furthermore, for large power
customers, Montreal prices were at the 4.76 c/kWh mark, where-
January 2014
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POWER QUBEC
17
17
ogy and do not want to be tied in with one
supplier or another, said Etienne Veilleux,
president and CEO, Distech Controls.
Looking ahead, construction-market
regulations will strongly infuence re-
gional business; nonetheless, competing
in Qubecs tough environment has ena-
bled these companies to have the edge
abroad. The Qubec-gained expertise
made it easier for Ecosystem to enter ju-
risdictions with higher electricity prices
and our strongest growth potential at
the moment is in New York and Toronto.
Qubecs current low prices of electricity
and gas, as well as the governments lack of direction on energy
policies, dilute the desire to activate energy-effcient projects. We
are hoping that the expertise built in Qubec in this feld will not
be lost due to a lack of vision, noted Rochette. The biggest fac-
tors of growth for the future of our segment are construction and
government regulations; the future looks good for our line of
business, added Veilleux.
Biogas/Biofuel Opportunities and
Conclusion
In spite of Hydro-Qubecs dominance, Qubec is still a strong,
open market, said Peter Morel, president of Pyry Montreal,
one of the two offces responsible for the northeastern North-
American market for the Finnish multinational engineering com-
pany. Traditionally strong in Qubecs forestry industry, Pyry
has recently shifted its attention to opportunities in bio-fuels and
biomass. While Qubec is home to some interesting biomass-
powered cogeneration projects, the low costs and high effcien-
cy of hydroelectric power leave little room for diversifcation into
large-scale biomass energy production, noted Morel. We will
however stay focused in second generation biofuels like etha-
nol there is good interest there, because it produces energy
while reducing carbon footprints, added Zennie Lamarre, vice
president of projects at Pyry Montreal.
Indeed, biofuel and biogas opportunities are out there for
the taking in Qubec. Traditionally profcient in organic waste
dewatering and drying, Groupe Berlie-Falco has recently
focused on also providing biogas energetic output to its munici-
pal and industrial clients, through the process of anaerobic diges-
tion. Having already obtained visibility in foreign markets such
as the Middle East, Groupe Berlie-Falco is now targeting its
domestic market: Canada offers good support for the industry,
given the C$650 million subsidy program for composting and
biogas plants. Qubecs goal of eliminating organic waste go-
ing to landflls by 2020 is very ambitious and the fact that the
province is part of the Western Climate Initiative are both signs
of its commitment to reducing greenhouse gas emissions.
However, the province needs to also provide the fnancial in-
centives necessary to attract the private sector on board this
would make business self-sustainable for the future. Nonethe-
less, we believe 2014 will be a very active year in our segment,
noted Bertrand Blanchette, co-president of
Groupe Berlie-Falco.
Considering its innovation-prone biofuel/
biogas players, such as Enerkem, Qubec
might want to reconsider its future en-
ergy mix plans: The trend towards even
more environmentally-friendly and innova-
tive ways of producing power has brought
with it a lot of debate on diversifcation into
other energy sources in Qubec. The gov-
ernment is certainly aware of these con-
cerns, but it may be a while before we see
signifcant shifts in the market structure,
concluded Morel.
In the meantime, the year 2014 will bring forth Qubecs new Ener-
gy Strategy: one of the most daring ideas on its agenda will be the im-
plementation of electric transportation in Qubec, an initiative which
would decrease fossil fuel dependence, lower emissions, and
make good use of the provinces extra megawatts. While inno-
vative initiatives, such as the Electric Circuit and the lithium iron
phosphate batteries have been developed by Hydro-Qubec
in recent years to facilitate electric transport, the complete
implementation of this ambitious plan is still on the horizon.
More immediately, rather than looking inwards, Qubecs energy
industry players will have to direct their efforts to more attrac-
tive foreign jurisdictions, while leveraging their provinces strong
engineering and technological base.
Enerkem produces biofuels and chemicals from
non recyclable household garbage. Photo
courtesy of Enerkem
January 2014
|
January 2014 62
PRBCUG AWARDS
TransAltas Centralia Plant Earns
PRBCUG Award
Completing the difficult transition to 100% Powder River Basin coal earned TransAl-
tas Centralia plant in southwest Washington some well-deserved recognition.
Dr. Robert Peltier, PE
T
he Powder River Basin Coal Users
Group (PRBCUG) recognized Tran-
sAltas two-unit, 1,340-MW Cen-
tralia Complex with its 2013 Plant of the
Year (Large Plant category) award at its
2013 Annual Meeting, collocated with the
ELECTRIC POWER Conference & Exhi-
bition last May (Figure 1). The plant was
recognized for its excellent safety and dust
control program, its completion of exten-
sive boiler upgrades and modifications,
and its expansion in rail operations to han-
dle PRB coal.
TransAlta owns a fleet of 75 plants con-
centrated in Canada with 22% of its net ca-
pacity located in the Northwest. TransAltas
U.S. headquarters is in Olympia, Wash. The
largest of TransAltas U.S. assets is its Cen-
tralia Complex, in southwest Washington.
Unit 1 entered commercial operation in Sep-
tember 1971 and Unit 2 followed 12 months
later (Figure 2).
Plant staff have described the fuel conver-
sion project as a journey, much like others
who have successfully converted their facili-
ties to burn PRB coal. The PRB Coal Users
Group exists to encourage and provide tech-
nical support for those making the same jour-
ney (www.prbcoals.com).
Centralia completed early PRB test burns
from 1989 to 1991 and began burning 30%
PRB coal in 1992. The conversion to 100%
PRB coal was completed in late 2008 with
the closure of the local coal mine that had
supplied the plant with fuel since the units
were commissioned.
The plant safety modifications completed
at Centralia that were necessary to burn PRB
coal included installation of a pulverizer
inerting system, conveyor transfer fogging
systems, silo dust collection system, and CO
detection and other fire detection and sup-
pression systems. Installation of the pulveriz-
er inerting systems eliminated the pulverizer
duct explosions or puffs that began with
burning PRB coal.
Boiler upgrades to burn 100% PRB coal
were also required. The high-calcium coal
caused significant unit derates from exces-
sive back end temperatures, bottom ash slag-
ging, and convection pass fouling. In 2007,
Fuel Techs TIFI system was installed in both
units, and in 2008 Unit 2s reheater and econ-
omizer were modified and 22 new sootblow-
ers were added, among many other boiler
modifications completed on both units.
Coal delivery and unloading facilities
were also upgraded with the construction
of two new rail sidings capable of handling
three-unit trains simultaneously and a new
unloading rail loop to facilitate the increased
use of PRB coal. Unfortunately, the fly ash
now produced is not as marketable as that
produced when burning a local coal, so the
amount of waste ash produced increased as
PRB coal use increased. The lower amounts
of synthetic gypsum produced from re-
duced-sulfur PRB coal also reduced the
sales to wallboard manufacturers.
Our congratulations to Centralias plant
staff for a successful conclusion to their
PRB coal conversion journey and its well-
deserved selection as the PRBCUGs Plant
of the Year (Large Plant).
Dr. Robert Peltier, PE is POWERs
consulting editor.
1. Award-winning plant. Representatives of TransAltas Centralia Plant received the
PRBCUG Plant of the Year (Large Plant) trophy in recognition of the plants successful comple-
tion of its conversion to burn PRB coal. Source: POWER
2. Winning combination. TransAltas
1,340-MW Centralia Complex was the PRB-
CUGs 2013 Plant of the Year (Large Plant).
Courtesy: TransAlta
January 2014
|
PRBCUG AWARDS
OPPDs North Omaha Station Takes
PRBCUG Honors
The Omaha Public Power District (OPPD), one of the largest publicly owned utilities
in the U.S., generates approximately one-half of its electricity by burning coal.
OPPDs North Omaha Station began using low-sulfur coal from Wyomings
Powder River Basin in 1985. Plant upgrades that increased plant safety and
the reliability of plant operations were recently recognized by the PRBCUG with
its 2013 Plant of the Year award.
By Dr. Robert Peltier, PE
T
he Powder River Basin Coal Users
Group (PRBCUG) each year since 2000
honors one or two plants that burn PRB
coal for innovation and implementation of
best practices and continual improvements in
areas including safety, environmental perfor-
mance, coal handling, boiler combustion, and
risk management. In addition to Plant of the
Year honors, the selected plant is also inducted
into the PRBCUG Power Plant Hall of Fame.
For 2013, the Plant of the Year (Small
Plant Category) honors were garnered by
Omaha Public Power Districts (OPPD)
North Omaha Station (NOS). The trophy pre-
sentation and recognition for the outstanding
work by the plant staff took place during the
May 2013 ELECTRIC POWER Conference
& Exhibition, the venue for the annual meet-
ing of the PRBCUG (Figure 1). The Plant of
the Year (Large Plant Category) award was
presented to TransAltas Centralia Genera-
tion Plant (see p. 62). Additional information
about the PRBCUG, its 2014 annual meet-
ing, and the groups awards program is avail-
able at www.prbcoals.com.
The North Omaha Station consists of five
units with a combined capacity of 625 MW
and is part of the 3,200-MW OPPD system.
The last unit entered commercial operation
in 1968, 14 years after the first unit was con-
structed. NOS was originally designed to com-
bust Midwestern high-sulfur coal. In 1985, the
attractive environmental advantages and cost-
effectiveness of PRB coal resulted in the deci-
sion to transition the station to the low-sulfur
coal. The lower heat content and higher ash
content of the subbituminous coal meant that
the coal burn rate would have to increase in
order to deliver the same fuel energy content
compared to bituminous coal, although the
plant was not derated as has occurred at other
plants. In addition, the entire fuel system
from unloading on the coal pile through the
burner tiprequired upgrades in equipment,
plant operating processes, and additional
training of the plant staff. Safe combustion of
PRB coal is an intentional process. The 105-
person staff of NOS joined in the common
goal to become a leader in safe handling and
combustion of PRB coal (Figure 2).
A few years ago, NOS decided it was time
to upgrade the antiquated material-handling
system to improve safety and plant reliability.
NOS partnered with Martin Engineering to
perform a safety and equipment audit that rec-
ommended cost-effective equipment upgrades
to simultaneously improve plant operational
reliability and reduce coal fugitive emissions, a
key safety challenge when burning PRB coal.
After a series of discussions, OPPD de-
veloped a four-phase material-handling im-
provement program. The first equipment
upgrade phase began in October 2009, and all
four phases were completed in 2012. Specifi-
cally, the material handling upgrade program
included equipment changes and upgrades in
the Shaker House, where the coal is unloaded
from rail cars; the Crusher House, which re-
ceives and processes the coal received from
the Shaker House; the Transfer House; the
Tripper Room, which feeds the coal to the in-
dividual boiler fuel silos; and all the convey-
ors that interconnect the plant (Figure 3).
The coal dust management program en-
tailed rebuilding all the plants coal-handling
transfer points including all vulcanized splic-
es in the conveyor system, impact beds, and
belt supports. In addition, improved equip-
ment was added or replaced existing, such as
taller chute walls, new apron seals, and dual
dust curtains. All the original roller bearings
on the conveying systems were replaced with
sealed roller bearings. Winged tail pulleys
were replaced with smooth tail pulleys, and
return plows and belt trainers were added.
Also, problematic contacting flow switches
used on the conveying systems were replaced
with noncontacting sensors.
1. The first team. Representatives of OP-
PDs North Omaha Station plant staff received
the coveted PRBCUG Plant of the Year Award
(Small Plant Category) at the past annual PRB-
CUG conference, held jointly with the ELEC-
TRIC POWER Conference & Exhibition. From
left to right, David Wetrosky, Plant Manager,
OPPD; David Wilson, Yard Equipment Opera-
tor, OPPD; Randy Rahm, Executive Director,
PRBCUG; Pat Baker, Crew Leader, OPPD;
John Bridson, Chairman, PRBCUG; Kirk Es-
tee, Operations Superintendent, OPPD; Wil-
liam Konefes, Vice Chairman, PRBCUG; Brian
Langel, Manager-Production Engineering,
OPPD and Greg Krieser, Division Manager,
OPPD Source: POWER
2. Making the switch. OPPDs North
Omaha Station is composed of five units pro-
ducing a total of 625 MW. The fifth unit was
installed in 1968, the first unit 14 years ear-
lier. The plant made the switch to PRB coal in
1985 and finished a complete upgrade of the
plants fuel-handling systems in 2012. Cour-
tesy: OPPD
|
January 2014 64
PRBCUG AWARDS
The Crusher House and the Shaker House
were originally designed with last-genera-
tion dust collection systems, each of which
included a collector, blower, disposal sys-
tem, and long lengths of ducting and many
high-maintenance isolation valves. Both dust
collection systems were removed from ser-
vice as part of the project, thus eliminating
a potential explosion hazard. In their place,
Martin Engineering installed insertable dust
filter systems in 12 high-dust zones. Instead
of conveying dust-laden air to a central dust
collector, the insertable system filters the air
at the transfer point so the dust can be imme-
diately returned to the conveying system. The
dust is captured on a pleated fiber filter that
is periodically cleaned using compressed air
injected against the reverse side of the filter.
Each filter system has two filter elements so
that one filter remains in service during the
staggered cleaning cycles. Unlike standard
filter elements, the filter material is impreg-
nated with carbon fibers so that a buildup of
static electricity is not possible (Figure 4).
The plants coal chutes had also taken a
beating over the years, with several areas
where severe erosion had resulted in open-
ings that allowed coal leaks. The chutes were
relined as part of the upgrade project.
A belt and suspenders approach was
taken when designing the new dust collection
system. In addition to the new filter systems,
Martin also installed its Dust Fighter foam
system to further improve fugitive dust col-
lection. The foam system automatically mixes
and applies a thin film of dust collection foam
to the conveyed coal without increasing the
coals moisture content. Each automated foam
system consists of a single mixing station that
prepares foam for up to eight nozzles installed
on the coal conveying chutes.
There were many other upgrades and im-
provements to the NOS coal-handling system
completed as part of the project. For example:
A water wash-down system was installed in
the Tripper Room and Tripper Room tun-
nel. A water deluge system was installed in
the Transfer House, and the Shaker House
basement. Both systems were installed in
the Crusher House, Transfer House, and at
the transfer and mag belts.
To decrease housekeeping and improve
safety, all combustible construction ma-
terials were removed from the Tripper
Room walls, Transfer House walls, and the
Shaker House curbs. Walls were painted
for easy maintenance in all the material-
handling zones.
Five carbon monoxide monitors were
installed in the coal bunkers, and an ad-
ditional four monitors were added to the
Shaker House. Data collected from these
monitors is logged by the Pi data-logger
located in the control room so that trends
in CO concentrations can be closely
watched and alarmed. When the concen-
tration of CO reaches a predetermined
level, an alarm sounds in the control room
and an email is sent directly to operations
supervisors.
Firefighting equipment was also procured
and staged outside the Tripper Room, in-
cluding a piercing rod kit and an F-500
cart with eductor and hoses.
Fugitive emissions from the coal pile were
reduced by properly grooming the coal
pile into a dome shape and by reducing
steep pile slopes.
A belt slippage protection system was
incorporated to the conveying systems to
prevent large spills of coal and to prevent
catastrophic belt failures.
The plant survey also carefully reviewed
the electrical area classifications and all
the changes and upgrades required to fully
comply with Class II, Division 1, Group F
classification were completed as part of the
project.
The work of the Coal Handling group at the
plant played an important role in receiving this
award. The group stepped up and took on new
responsibilities with respect to housekeep-
ing. In the process they created a culture of
excellence, both in operations and safety. The
groups safety record over the past years has
been impressive, having recently completed
20 years without a lost-time injury.
Upgrading the skills and capabilities of the
plant staff was also an important part of the
program. For example, new evacuation plans
were formulated in conjunction with the com-
munity fire department and bunker firefighting
training was completed. Onsite fire fighting
drills with piercing rods in bunker fires and
open area fires were conducted with commu-
nity first responders to improve skills, com-
munications, and teamwork. A plant safety
video and a PRB combustible dust video were
also produced to further hone the skills of the
plant staff and contractors on the peculiarities
of safely handling PRB coal as part of an on-
going safety training program.
Dr. Robert Peltier, PE is POWERs
consulting editor.
3. Comprehensive upgrades. North Omaha Station completed a multi-year upgrade of
its coal-handling system in 2012, from the point fuel arrives at the plant through the coal bunkers
on each boiler. Courtesy: OPPD
4. Efficient dust collection. The prob-
lematic centralized dust collection systems were
retired and replaced by individual insertable dust
filter systems at the point of collection. The
self-cleaning system returns the collected dust
directly back into the enclosed conveying sys-
tems. The top photo shows the original dust col-
lection tap placed just above the conveyor. The
new insertable dust collection system is shown
on the bottom. Courtesy: OPPD
Tripper Room
Transfer House
Crusher House
Shaker House
Need an easy way to obtain more
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INTRODUCING
|
January 2014 66
NEW PRODUCTS
TO POWER YOUR BUSINESS
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have an inlet tube with a 90-degree bend, supported by a bracket,
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Portable Diagnostics Meter for
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Smartphone-Based Application
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January 2014
|
NEW PRODUCTS
Inclusion in New Products does not imply endorsement by POWER magazine.
Customized Machined Seals
SKF offers the capability to manufacture customized machined seals
requested to meet specications required by original equipment
manufacturers or maintenance-related applications. SKF can supply many
types of rotating, reciprocating, or static seals, drawing from its catalog
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Sequence of Events Recorder
Cyber Sciences, supplier of specialty products for the
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the SER-2408 enables specialized reporting to support
mandatory test compliance with standards for critical-
power facilities. The SER-2408 is available with up to 32GB
of memory for distributed storage of user drawings and
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Cordless High-Torque Impact Wrench
The Panasonic EY7552 Cordless High-Torque Impact Wrench is a fast and powerful
impact wrench delivering up to 346 ft.-lbf (470 Nm) of torque. It is the rst tool to
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January 2014 68
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January 2014 70
ADVERTISERS INDEX
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19_PWR_010114_classifieds_p68-71.indd 70 12/16/13 12:02:18 PM
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January 2014 72
COMMENTARY
Is Distributed
Generation Really
the Future?
I
f you read the environmental press, clean tech media, or even
the New York Times, you might conclude that America is on
the cusp of a distributed generation (DG) revolution. So-
lar power and other distributed renewable energy technologies
could lay waste to U.S. power utilities and burn the utility busi-
ness model to the ground, wrote leading environmental news
site Grist last April. Renewable-energy technologies like solar
and wind power, the Times wrote, are now challenging the tra-
ditional distribution system.
The utility industry too is taking the threat seriously. The Edi-
son Electric Institute (EEI) recently issued a report titled Dis-
ruptive Challenges, assessing the threat renewables pose to the
industry. Utilities and rooftop solar companies are facing off in
Arizona and other states over rate subsidies for solar. Former
Federal Energy Regulatory Commission Chairman Jon Wellinghoff
recently told reporters that, Solar is growing so fast it is going
to overtake everything.
Not So Fast
But the reported death of the centralized electrical grid and the
utilities that run it is greatly exaggerated. Solar panel prices
have come down, but rooftop solar is still much more costly than
centralized fossil generation, nuclear, or even utility scale wind
and solar. Whether in Germany or California, solar deployment
remains entirely dependent upon a raft of direct public subsidies
and indirect rate subsidies.
Despite those subsidies, solar has yet to generate significant
electricity anywhere. Germany, the world solar leader, after over
a decade and $100 billion in direct public subsidies, gets only
5% of its electricity from solar. U.S. leader California generated
less than 1% of its electricity from solar in 2012.
DG advocates have made much of the recent EEI report, but
the report actually concludes that there will be no DG revolution.
In fact, electric utility valuations and access to capital today
are as valuable as we have seen them in decades, the authors
say, reflecting the relative safety of utilities in this uncertain
economic environment.
Disruptive Policies
If you want to know what utilities actually object to about DG, it
is policies that functionally require them to purchase power from
solar homeowners at $0.30/kWh when they dont need it instead
of buying it on the wholesale market for $0.04/kWh when they do.
The result is not just less-profitable utilities but also higher rates
for the vast majority of ratepayers. A recent California Public Utili-
ties Commission study concluded that by 2020 the states net me-
tering programs would increase rates by a billion dollars annually.
Thats not to say that the growth of renewable energy is not
disruptivejust not in the way its advocates claim. Look at just
about any place that has achieved significant deployment of re-
newable electricity, and what you find is that the vast majority
comes from large, utility scale installations, not rooftop solar
or any other behind-the-meter generation source. Even Germany
gets over three-quarters of its renewable generation from large-
scale wind, hydro, and biomass.
Given the current state of renewable technology and the scale
of generation necessary to run a modern economy, these basic
dynamics appear unlikely to change anytime soon. Take a peak at
any of the dozens of scenarios produced by renewables advocates
that claim we can run the U.S., Europe, or the world largely on
renewables, and what you find is that most generation comes
from massive industrial scale wind and solar developments from
North Dakota to the North Seanot DG.
In fact, a renewables-powered future will probably require
more centralized generation, not less. Achieving significantly
higher penetrations of renewable energy will require transmitting
electricity over hundreds or thousands of miles from where large
amounts can be generated to places where it will be consumed.
Renewables champions may talk small-scale DG, but what they
intend to build is every bit as centralized as the centralized
power sources we have today.
Ultimately, what is disrupting the existing utility model is
not the distributed nature of renewables, it is their intermittent
nature, and the policies necessary to make them viable. Heavy
public subsidization of the capital costs of wind and solar, com-
bined with preferential purchase requirements for the power they
generate, ensure that the marginal cost of wind and solar will
always be lower than just about anything else when the wind
is blowing and the sun is shining. Hence, Germany simultane-
ously boasts the highest retail electricity prices in Europe and
the lowest wholesale pricesnot because the power costs less
to generate but because most of the cost has been shifted else-
where. In Germany, expensive, highly subsidized, intermittent
renewables generation has driven wholesale prices so low that
the utilities that must manage the grid and operate conventional
power plants can no longer operate profitably. This, not cheap
distributed solar, is what is disrupting the utility industry here
and abroad.
Just because an electrical system that relies heavily on to-
days wind and solar is likely to be costly and unreliable doesnt
mean we wont build one. Our energy systems are a reflection of
our culture, ideology, and politics, not just rational economic
and engineering decisions. Germans, for instance, so fear nuclear
energy that they prefer to pair expensive renewables with cheap
coal. Perhaps the U.S. will do the same with wind, solar, and
gas. If so, it will certainly be disruptive of our current electrical
system. But one thing it probably wont be is distributed.
Ted Nordhaus is chairman, Michael Shellenberger is presi-
dent, and Alex Trembath is policy analyst, Energy and Climate
Program at the Breakthrough Institute.
Ted Nordhaus Michael
Shellenberger
Alex Trembath
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