January 2015 Vol. 159 No.

Vol. 159 No. 1 January 2015

2015 Industry Forecast:

The Future Is Here

Weather & Renewables: RiskMitigation Tools

3-D Virtual Reality Training
The International SMR Race
Know Your Fuel

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Established 1882 Vol. 159 No. 1

January 2015

ON THE COVER
The future is, by definition, not the present. But blink, and what was the future is here. This
annual forecast issue focuses on a number of developments that once seemed far in the
future but are now in front of us or right on the horizon. Courtesy: Gail Reitenbach

COVER STORY: 2015 INDUSTRY FORECAST

20 How U.S. Power Generators Are Preparing for 2015
Depending on where they are located, U.S. generating companies are either anticipating few changes to fleet operations in the near term or already coping with
significant ones. Renewables, regulations, energy storage, and market rules are all
moving the levers of change.

24 Fuel Economics Will Drive 2015 U.S. Power Markets

ICF International looks ahead to likely market dynamics for gas and coalthe fuels
that continue to duel for cost advantages.

20

25 The Urge to Merge, or Vice Versa?

Power industry mergers are still in the news, but a counter-trend is also evident and
is a move to create value in multiple ways.

27 Labor Crunch Complicates the Gas Turbine Arms Race

Zachry Industrial Inc. and Zachry Engineering Corp. examine new technology risks
and the challenges that a tightening labor market are creating for EPC contractors
and their clients.

28 Can Mexicos Electricity Reform Deliver on Its Promise?

Theres been much publicity concerning Mexicos energy reforms, but systemic challenges remain. Investors will need to wait until later this year, when additional rules
are finalized, for greater clarity.

29 Opportunities to Thrive in Evolving Power Market

Burns & McDonnell looks at what U.S. utilities need to be doing to stay competitive
in these uncertain times and at where U.S. engineering and technology firms can
leverage their expertise abroad.

30

SPECIAL REPORT: NUCLEAR

30 Small Modular Reactors Speaking in Foreign Tongues
Which country will be first to commercialize a small modular reactor (SMR)? Probably not the U.S. Though SMRs are on a slow path to commercialization here, other
nations are on faster tracks with a variety of designs.

FEATURES
RENEWABLE POWER

35 Reducing Weather-Related Risks in Renewable Generation

Although wind and solar generation will always be inherently variable, it is becoming possible to manage that variability.

38 Small Hydropower Advances and Challenges in China

China is well-known for its massive hydropower projects but less well-known for
its almost 50,000 small hydropower projects. These smaller, rural projects are important not only for providing access to electricity but also for achieving economic
development and sustainability goals.

January 2015 POWER

www.powermag.com

35
1

TRAINING

39 Utilizing 3-D Virtual Reality Visualization for Efficient Power Projects and
Training
By marrying volumes of diverse plant digital data with virtual reality technology,
its now possible to gain a clearer understanding than ever before of current facility configurations. This combination of capabilities also enables immersive training
thats the next best thing to touching the actual valves.

EMISSIONS CONTROL

44 Choosing the Best ESP Power Supplies for MATS PM Control

Minimizing parasitic load is always important. As many coal-fired plants are upgrading electrostatic precipitators (ESPs) to meet emissions requirements of the
Mercury and Air Toxics Standards (MATS) rule, this is the ideal time to look at the
latest options for power supplies.

39

FUNDAMENTALS

49 Primer on Fuel Quality Analysis

Fuel is typically the biggest operating cost for a combustion power plant, yet too
many plants spend too little time attending to fuel quality analysis. What you dont
know can be hurting your bottom line.

DEPARTMENTS
SPEAKING OF POWER

6 Power Industry Sees Pigs Fly

GLOBAL MONITOR

49

8
9
9
10
11
12

IEA: Renewables Will Overtake Coals Share in World Power Mix by 2040
Outlook Foresees World Wind Market Revival
Alstom Reports Major Boost for Advanced Ultrasupercritical Technology
THE BIG PICTURE: Baseload Retirements
Pilot Launched to Convert Olive Oil Waste to Power
POWER Digest
FOCUS ON O&M

14 Global Water Outlook for Power Generation

LEGAL & REGULATORY

18 Pacific Northwest Moving Ahead with Climate Change Policy?

By Rick Glick, Davis Wright Tremaine, and Merissa Moeller, Lewis & Clark Law
School

COMMENTARY

56 Dont Ignore Cyber Threats to Power Infrastructure

By Richard B. Andres, U.S. National War College and Institute for National Strategic
Studies

8
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More Exclusive Content Online at powermag.com

Each of the following articles will be listed with the features for this issue in our Archives at
powermag.com. You can also find them by entering titles in the search bar.
For analysis of what Mexico can learn from the energy reform experiences of other Latin
American countries, see Mexicos Electricity Sector Reform in Perspective.
A more detailed version of our print story on small hydropower in China is titled The Outlook for Small Hydropower in China.
Want more industry forecasting? See California Plans for Even More Renewable Power in
Its Future and State RPS Laws Threatened by Price Caps and Federal Tax Expirations.

www.powermag.com

POWER January 2015

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SPEAKING OF POWER

Power Industry Sees

Pigs Fly
When pigs fly is a figure of speech
used to express disbelief that a particular situation will ever come to
pass. For the power industry, several recent and emerging developments are the
equivalent of pigs flying. As January is our
forecast issue, this is a good time to see
where those pigs are taking flight. Given
the number of sightings and limited space
in print, each can only receive brief mention, though many have been covered in
recent POWER print and online stories.

Renewables Win on Price

The International Energy Agencys World
Energy Outlook 2014 projects that renewables (including hydro) will supply nearly
half the growth in global demand through
2040, while the U.S. Energy Information
Administrations Annual Energy Outlook
2014 foresees 25% of the overall 29% U.S.
demand growth between 2012 and 2040
being supplied by wind and solar.
When pigs fly? Consider that the southern, conservative state of Georgia is now the
fastest growing solar market, according to
a Pew Charitable Trusts report. As recently
as 2011, Lee Peterson, an Atlanta advisor
to renewable energy projects, was quoted as
saying, were dealing with $500-million solar projects that have no chance of coming
here because of systemic problems that keep
Georgia from participating in the 21st-century economy, which has renewable energy
as a major component. Then, in 2013, the
Georgia Public Service Commission (whose
five elected commissioners are all Republicans) directed Georgia Power to add 525 MW
of solar power between 2013 and 2016.
As for the larger trend, a Nov. 24 New
York Times feature noted that several utilities have signed power purchase agreements for solar or wind at prices lower
than natural gas. Even historically coalheavy American Electric Power tripled the
amount of wind power it had originally
sought for Oklahoma (which does not
have a renewables mandate) after seeing
how low the bids came in last year. Even
without subsidies, a study by investment
banking firm Lazard showed that the cost
of utility-scale solar energy is as low as
5.6 cents a kilowatt-hour, and wind is as
low as 1.4 cents. In comparison, natural
6

gas comes at 6.1 cents a kilowatt-hour on

the low end and coal at 6.6 cents. Without
subsidies, the firms analysis shows, solar
costs about 7.2 cents a kilowatt-hour at
the low end, with wind at 3.7 cents.

Storage Matures and Marries DG

For decades, solar and wind proponents have
argued that variable resources just need affordable energy storage to make them as
reliable as conventional generation. Today,
technology improvements, policies that have
developed a market for storage, and prices
roughly half of what they were five years ago
are making storage a desirable partner for
distributed generation (DG). Some industry
analysts even see storage ousting gas peakers
by 2017 or 2018. Ill admit I said the equivalent of when pigs fly when I first heard
that claim, but when I saw in November that
Southern California Edison signed contracts
for more than 260 MW of storage resources
and Oncor said it wants 5 GW of storage for
Texas (which has no storage mandate) to
lower residential rates, I reconsidered.

coal consumption. Coal accounted for 66% of

Chinas energy consumption in 2013 but is
set to total less than 62% by 2020.

Zero-Emission Fossil Plants

Take Wing
The SaskPower Boundary Dam project I
wrote about in our November issue is designed to capture 90% of carbon dioxide
and 100% of sulfur dioxide. Thats not zero
emissions, but its getting close. In the
wings is an actual zero-emissions gas-fired
plant to be built in Texas by NET Power using technology based on the Allam cycle. A
supercritical CO2 turbine is being developed
by Toshiba Corp. to use the captured gas
for power generation. NET Power says the
system will match or beat the current cost
of electricity from natural gas while significantly reducing, or eliminating, water usage compared to conventional plants.

The Middle East Goes Low Carbon

Although the Middle East has been synonymous with oil and gas resources, several
countries and emirates are pursuing zeroand low-carbon projects for both energy security and environmental reasons. Just two
examples: Saudi Arabia plans to build 16
nuclear plants in 20 years, and Masdar (Abu
Dhabis renewable energy company) has an
agreement to build the first large-scale wind
farm in the Gulf Cooperation Council, a 50MW facility in Oman, and is developing a
117-MW wind farm in Jordan. Possession of
a particular energy resource no longer necessarily determines generation choices.

Coal Users Ask for Regulatory

Intervention
Given the fossil fuel industrys antipathy
to federal regulations, you might think
that generators would never call for federal regulatory action, but they have.
In November, prompted by concern
about winter fuel supplies, the Western
Coal Traffic League, representing coal
customers and supported by major utility trade groups, wrote the Federal Energy
Regulatory Commission asking for hearings on delayed coal deliveries and low
stockpiles. Rail traffic is on the rise for
traditional freight like grain and coal but
also for crude oil. Some large coal customers even called for the federal Surface
Transportation Board to force railroads to
prioritize coal shipments over others.

China Commits to GHG Limits

Industry pundits have long said China would
never limit coal combustion because it cannot grow its economy except by using more
coal. But if youve been reading our coverage
of China, youll have noticed major developments in nuclear, wind, and solar generation
in pursuit of lower greenhouse gas (GHG) and
other fossil plant emissions. In November,
China agreed to cap carbon emissions by or
before 2030, set a goal of 20% non-fossil energy fuels by 2030, and announced a cap on

More Takeoffs Ahead

If these developments come as a surprise,
it may be because the pace of change everywhere has accelerated. These figurative flying pigs are getting off the ground
largely thanks to technology innovation,
though some also have benefited from
policy support. That doesnt mean conventional generation will disappear, but it
does suggest that we should get used to
seeing pigs fly.
Gail Reitenbach, PhD is POWERs editor.

www.powermag.com

POWER January 2015

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IEA: Renewables Will

Overtake Coals Share in
World Power Mix by 2040
Renewables share of the global power mix
is slated to overtake coal to become the
largest source of electricity by 2040, the
International Energy Agency (IEA) projects in its 2014 edition of the World Energy Outlook.
The annual report predicted that electricity will generally remain the fastestgrowing final form of energy worldwide
(meeting 23% of the worlds final energy
needs in 2040, up from 18% in 2012). That
conclusion relies on a central scenario in
which policies currently proposed (such as
the U.S. Environmental Protection Agencys Clean Power Plan, the European Commissions 2030 climate and energy policy
framework, and Chinas State Council air
pollution plans) are adopted, under which
the IEA estimated that world electricity
demand is set to soar by 2.1% per year on
average through 2040.
Factors that drive this growth include
rising electrification ratesin Africa
alone, the population with access to power
will soar from 42% to 73%and increased
demand from the residential sector. Notably, electricitys share of transport energy
demand is only expected to reach 2.4%,
compared with 1% at present.
Worldwide growth in power demand
will require cumulative capacity additions
of about 7,200 GWnearly half of which
will be needed to replace retired facilities.
Overall, almost 40% of existing capacity

most of which is renewables (885 GW),

coal-fired (610 GW), gas-fired (490 GW),
and oil-fired (311 GW)will need to be
replaced. Figures vary by region, however.
For example, about 60% of the European
Unions (EUs) capacity is slated to retire
during that period, compared to Chinas
16%. According to the report, the U.S.
may retire about 736 GW between 2014
and 2040a significant number considering that its existing power fleet had a
capacity of 1,032 GW in 2012.
But how power profiles will change
through 2040 (Figure 1) also varies tremendously across regions. New regulations
in the U.S. are expected to stimulate a
40% increase in the use of gas for power
and propel renewables growth by 165%.
In the EU, renewables share will almost
double, reaching 46% by 2040. How well
the bloc cements reliability will depend on
how it secures investments for new thermal plants, the report noted.
In China and India, meanwhile, coals
share will fall more than anywhere else,
though it will plunge further in China
than in India as efforts are beefed up to
control air pollution. Chinas coal-fired
generation share could drop from 76% in
2012 to 52% in 2040while around 45%
of new coal plants built during that period will be ultrasupercritical or integrated gasification combined cycle plants.
Indias coal share could, meanwhile, fall
from 72% to 55%, and new additions will
also increase the average efficiency of
the countrys coal fleet.

1. How the worlds power mix is changing. In its latest World Energy Outlook, the
International Energy Agency (IEA) predicted that if a number of policies proposed today are adopted, renewables could overtake coal to become the largest source of electricity. Source: IEA

Coal Natural gas Oil Nuclear Hydro Other renewable

WORLD ELECTRICITY GENERATION BY SOURCE
17%
31%
5%
16%
41%
16%

11%
5%

22%

1990
12%

11,825 TWh

24%

2012
22,720 TWh

2020

1%

27,770 TWh

2040
40,105 TWh

www.powermag.com

According to the IEA, the future of carbon capture and storage (CCS) appears
foggy because supportive government
policies needed to drive its deployment
are notably absent. The agency projected
that about 3% (around 70 GW) of coal capacity and a much smaller portion of gas
plants will be equipped with CCS by 2040;
most will be in the U.S. and China.
Nuclears future, too, looks uncertain,
the report suggests, noting that a number of factors will determine nuclears
retreat, recovery, or renaissance. The
sector is grappling with workforce constraints as well as availability of heavy
forging capacity to manufacture reactor
vessels. In addition, nearly half of the
434 reactors operating in the world at
the end of 2013 will be retired by 2040.
The rate of retirements will pick up in the
first half of the 2020s, as reactors built
during the 1970s are taken offline, and
then again in the late 2030s. This is set
to pose challenges for industry and regulators and possibly strain engineering
and project management capabilities,
the IEA predicted.
The report also included an interesting revelation about future power costs,
which are expected to climb (in 2013 dollars) from $1.6 trillion in 2012 to about
$2.9 trillion in 2040 and will be mostly recovered through regulated or competitive
wholesale power prices. The IEA projected
that the U.S. in particular will have some
of the worlds most competitive industrial
power prices: In 2040, Chinese industrial
electricity prices will be 75% higher than
those in the U.S., while EU prices will be
almost twice as high, it suggests. And
that is despite the agencys projections
that average costs of generation in the
U.S. will rise from $55/MWh today to close
to $70/MWh in 2040.
From 2014 to 2040, an average of
around $770 billion (in 2013 dollars)
will be poured into the worlds power
sector, 58% to build new capacity and
refurbish existing plants, and the remainder to expand transmission and distribution networks. The IEA suggested
that at least one-fifth of investment
in generation will go to wind, followed
by about 16% each for hydro and coal,
13% for solar, and 11% for natural gas.
Global subsidies for renewables will also
increase, it projected, from $121 billion
in 2013 (15% higher than in 2012) to
$230 billion in 2030.

POWER January 2015

Outlook Foresees World

Wind Market Revival
Through 2014, 47 GW of new wind power
capacity will be installed in China, Brazil,
South Africa, Mexico, and other emerging
markets, marking a sharp recovery for the
global wind industry after four years of
relatively flat growth, the Global Wind Energy Council (GWEC) predicted in its Global
Wind Energy Outlook 2014 (GWEO).
The sluggish growth was in large part
caused by a combination of low or negative demand growth in developed countries and policy instability in key markets,
GWEC head Steve Sawyer told reporters at
the outlooks release in October. According to the GWEO, the last significant jump
in annual market size was in 2009. Since
then, it has hovered around the 40 GW
mark, with major ups and downs in the
US, an end to the exponential growth in
the Chinese market and little or no growth
in Europe.
But thats slated to change. Under the
most aggressive of three growth scenarios,
worldwide installation of wind could reach
2,000 GW by 2030, Sawyer said, with at
least 500 GW in China. Under the moderate scenario, about 712 GW would be installed by the end of the decade and 1,479
GW around the world by 2030.
In Africa, where wind farms are currently centered in North Africabut
where wind resources are best around

the coasts and eastern highlandsinstallations are expected to soar in Egypt,

Morocco, East Africa (Figure 2), and particularly, in South Africa. In South Africa,
only 10 MW of capacity was in operation
in 2013, but by the end of 2014, 1 GW
will be online.
China, which leads the world in installed wind capacity, is seeing a market
slowdown as discussions about lowering
its feed-in-tariff for wind power continue.
However, offshore wind development is
booming, noted the report. The country
has 428.6 MW of installed offshore capacity and seven offshore projects under construction that will put about 5 GW more
online by the end of 2015.
Brazil, Latin Americas largest economy,
is also shying away from its historic reliance on hydropower and banking on wind.
By the end of 2013, its total installed capacity stood at more than 3.4 GW; by August 2014, it had broken the 5-GW mark;
and by the end of 2014, it is expected to
have installed 7 GW.
Even the U.S., which saw a slowdown
following expiration of the production tax
credit at the end of 2013, is expected to
see growth, GWEC anticipated. At the end
of 2013, more than 12 GW of new generating capacity was under construction and
60 long-term contracts were signed. The
industry has at least two good years ahead
of it, said the report.

2. A whirlwind for world wind. The Global Wind Energy Council anticipates a significant jump in the worlds wind market, driven by emerging markets in Africa, Asia, and South
America. In November, for example, Iberdrola completed construction of Kenyas first wind
farm, the 13.6-MW Ngong II project. In December construction began on the 300-MW Lake
Turkana wind farm in Kenya, an $800 million project that will become Africas largest installation
when completed in early 2017. This image shows blades arriving for a Kenyan wind farm. Courtesy: Iberdrola

January 2015 POWER

www.powermag.com

Alstom Reports Major

Boost for Advanced
Ultrasupercritical
Technology
The trial operation of a steam loop for more
than 17,000 hours at temperatures exceeding 760C (1,400F)the highest ever tested
at a pulverized coal planthave wrapped
up at Plant Barry Unit 4 in Alabama, and
all components appear to have retained
their original mechanical integrity, Alstom
reported in early December.
The achievement represents a major
development boost for advanced ultrasupercritical (AUSC) technology, which
uses steam cycles with temperatures of
700C to 760C to increase the net electrical efficiency of a pulverized coal plant.
Maximum steam temperatures are limited
by the properties of the materials used in
high-temperature components, which typically lose strength as temperature rises.
As Kyle Nicol, a process consultant for
the International Energy Agencys Clean
Coal Centre, explained to POWER, historically, steam temperatures have increased
alongside the development of steels
from subcritical steam temperatures to
supercritical, and now ultrasupercritical.
However, further development of steels
has been negligiblethe steel barrier has
been reached, he said.
That means theres a race to develop
advanced new materials that support AUSC
steam temperatures for a service lifetime
of 20 to 40 years at experimental power
plant programs in the U.S., the European
Union, Russia, Japan, China, and India. As
of December 2013, programs in the U.S.,
China, Japan, and India had largely completed small-scale laboratory tests and
had advanced to manufacturing largescale components and testing them in a
components test facility.
The European programwhich was the
first to begin developing AUSC technology
in the late 1990ssuccessfully tested largescale boiler components and valves at the
COMTES700 facility at steam temperatures
of 700C, but technical difficulties stalled
further progress, said Nicol. India, in particular, said it is on track to begin operating a
full-scale demonstration plant by 2018. Assuming successful operation of a [full-scale
demonstration plant], the commercialization
of [an AUSC pulverized coal] power plant
will rest entirely on the plant economics in
2027, which depend on variable factors such
as the future value of coal, cost of nickel
alloys, and a carbon tax.
In that context, Alstoms achievement
at Southern Co.s Plant Barry is significant. The companys boiler research team
9

THE BIG PICTURE: Baseload Retirements

More stringent air and water pollution rules and low natural gas prices are expected to transform the overall U.S. power
profile over the next few decades. While estimates vary, generally about 16% of the country's coal generating capacity has
either been retired or is planned for retirement through 2020. Here's how coal plant retirements compare with other
baseload generation sources. Sources: EIA Annual Energy Outlook 2014 Early Release, ICF International
Copy and artwork by Sonal Patel, a POWER associate editor (@POWERmagazine, @sonalcpatel)

U.S. POWER GENERATION BY FUEL

1%

3%

16%

1%

Natural gas

37%

Renewables

32%

30%

Nuclear

35%

9%

Coal

2000

2040

2012

Oil/
other liquids

(est)
52%
19%

12%
16%

16%

19%

ANTICIPATED POWER PLANT RETIREMENTS

Summer net oil

& gas steam
capacity (2012)

OIL & GAS

STEAM

99 GW

Summer net
nuclear capacity
(2012)

Nuclear retirements between

2012 and 2020

136 GW
102 GW

5 GW

Oil & gas

stream retirements between
2012 and 2020

NUCLEAR

14 GW
Coal retirements
announced for
2014 to 2016

COMBUSTION
TURBINE/DIESEL

Coal retirements
between 2012
and 2020

Retirements
between 2012
and 2020

50 GW

8 GW

20 GW

COMBINED
CYCLE
COAL

Summer net coal

capacity (2012)

301 GW

Summer net
capacity (2012)

Combined cycle
retirements
between 2012
and 2020

Summer net
combined cycle
capacity (2012)

186 GW

0.26 GW

10

www.powermag.com

POWER January 2015

3. Beyond ultrasupercritical. Advanced ultrasupercritical (AUSC) technology uses

steam cycles with temperatures of 700C to 760C and can increase net plant efficiency by about
9% when compared to ultrasupercritical steam cycles at about 600C. Alstom has been testing
a 760C steam loop at Southern Co.s Plant Barry, conducting high-temperature corrosion tests,
where candidate component materials have been installed in an operating coal-fired boiler. In
December, the company said the steam loop completed more than 17,000 hours of operation
and the components appeared to be in good condition. Courtesy: Alstom

in Windsor, Conn., designed the steam

loop. It was fabricated by Alstoms factory
in Chattanooga, Tenn., and installed at
Plant Barry in December 2011. The trial is
backed by a consortium that includes the
U.S. Department of Energys National Energy Technology Laboratory and the Ohio
Coal Development Office, which is validating superalloy materials for use at the extreme conditions of AUSC plants.
Alstom, which also participated in the
European AUSC material and boiler program, said the Plant Barry loop contained
a unique combination of 94 specimens
with eight different superalloys and three
different surface coatings that enabled it
to withstand the high AUSC temperatures
within the coal-fired boiler (Figure 3).
Upon removal, the components appeared
in good condition and retained their original mechanical integrity, it added. The
components are now undergoing an extensive corrosion, oxidation, and material
properties examination at Alstoms Material Technology Center in Chattanooga.
Because AUSC technology has myriad
benefitsincluding increasing net plant efficiency by about 9% when compared to ultrasupercritical steam temperatures of 600C,
reducing emissions and flue gas volumes
development work is still needed on materials
as well as boiler design, the company said.

January 2015 POWER

Pilot Launched to Convert

Olive Oil Waste to Power
A pilot plant in Andaluca, Spain, built by
a consortium of multinational European
partners, is converting toxic waste from
olive oil production into electricity using
an innovative three-part process.

Coordinated by Swedish fuel cell technology company PowerCell, with participants from Spain, Greece, and the UK, the
two-year European Unionfunded project,
Biogas2PEM-FC, ended in October 2014
with full deployment of the prototype. The
project originally sought a solution that
would provide a modular, reliable, costeffective, and efficient combined heat and
power system suitable for onsite generation from agricultural wastes.
The pilot plant seeks to dispose of environmentally harmful waste from olive oil
production (Figure 4). It contains pesticides and toxic organic compounds, it is
also acidic and has a high salinity. Currently the waste is turned to landfill, but
[that] is very costly and becomes a major
environmental problem, the Biogas2PEMFC project developers said.
The partners developed a three-part
subsystem to convert the waste into power. First, it uses an anaerobic digestion reaction to produce biogas from the waste;
then a reformer converts the biogas to a
hydrogen-rich gas (reformate); and finally,
a fuel cell system generates power from
the reformate gas.
It is estimated that up to 30 million
cubic meters of wastewater is produced
annually, during a three to four-month
period, on an olive oil plant, water that
can be used in biogas production. The
technology developed in this project
can also be used with other agricultural
waste, said Per Ekdunge, project coordinator and vice president of PowerCell
Sweden AB.

4. From toxic waste to power. A pilot plant newly launched in Spain converts olive
oil waste, which is environmentally harmful and costly to dispose of, into power. Courtesy:
BiogasPEM-FC

www.powermag.com

11

POWER Digest
Candu Wins Chinas Backing to Develop AFCR Projects. Candu Energy
and the China National Nuclear Corp.
on Nov. 10 signed a framework joint venture agreement to build Advanced Fuel
CANDU Reactor (AFCR) projects in China
and develop opportunities for it globally.
In late October, a panel of 22 Chinese
nuclear experts from industry and academia concluded that the AFCR, Candus
700-MW Gen-III reactor that uses both
recycled uranium and thorium-based
fuels, promotes development of closed
fuel-cycle technologies and is consistent with Chinas overall nuclear power
strategy. The panel recognized that the
AFCR complements Chinas light-water
reactor (LWR) technology. One AFCR can
be fully fueled by reusing spent fuel from
four LWRs as recycled uranium, allowing
China to reduce spent fuel volume and
reduce reliance on imported uranium. On
Nov. 10, meanwhile, Canada and China
signed a memorandum of understanding
to advance civilian nuclear energy collaboration between the two countries,
including developing advanced-fuel reactors and exports to third markets.

E.ON to Split to Focus on Renewables, Grids. Germanys generation giant E.ON on Dec. 1 announced it would
split into two companies to focus on
renewables, distribution networks, and
customer solutions. Its conventional
generation, global energy trading, and
exploration and production businesses
will become a new, publicly listed, independent company. The firms existing
broad business model could no longer
properly address challenges stemming
from altered global energy markets and
technical innovation, the company said.
The spinoff will take place after approval
by E.ON shareholders in 2016.

S. Korea Cements Deals for Four

New Nuclear Units. Korea Hydro and
Nuclear Power (KHNP) will build two
more reactors, likely APR1400s, at Shin
Hanul under an agreement signed with
Ulchin County on Nov. 21. The Shin Hanul plant already hosts six reactors that
were started up between 1988 and 2005.
In exchange for the new units (construction of which will begin in 2017), KHNP
said it will provide the county with $250
million to be used to improve local infrastructure. KHNP, a subsidiary of the
state-owned Korea Electric Power Corp.
(KEPCO), in November also signed a similar agreement with Yeongdeok County in
North Gyeongsang Province for a twounit plant. Yeongdeok has no existing
12

nuclear reactors. For hosting the new

plant, KHNP will pay the county $1.3 billion over 60 years. South Koreas prime
minister called the deals meaningful
for resolving the resource-poor countrys
energy problems. While it gears up to
launch an emissions trading scheme on
Jan. 1, the government has decided to
maintain nuclears share of the countrys
energy mix at 29%.

Unit 2 and 361-MW Soto de Ribera Unit

3. MHPS said its DeNOx systems, which
reduce emissions of nitrogen oxides by
more than 80%, will allow the units to
satisfy European regulations on thermal
power plant emissions that are slated to
be tightened in 2016. The systems for
Abono Unit 2 and Soto de Ribera Units
3 are scheduled to go into operation in
2016 and 2017, respectively.

India Mulls Bihar Coal-Fired UMPP.

Panda Power Commissions Texas

CCGT Plant. Dallas-based Panda Pow-

Indias government will soon initiate the

process to build a 4-GW coal-fired ultramega power plant (UMPP) in the powerstarved state of Bihar and allocate a
sufficient number of coal blocks for it,
Power Minister Piyush Goyal announced on
Nov. 15. The minister told reporters that
Prime Minister Narendra Modi, who was
ushered into power on pledges of electricity for all Indias citizens, was determined
to improve power in the eastern states.
Goyal also said the government may revise
bidding norms and adopt private power
producers requests to pursue build, own,
and operate models versus design, build,
finance, operate, and transfer models. In
October, blaming these unfair bidding
norms, major private producers Adani,
Jindal Power, and Sterlite withdrew from
bidding for UMPPs in Odisha, and GMR Energy withdrew from the Tamil Nadu UMPP,
leaving only state-run NTPC to bid for the
plants.

The 600-MW TasWind Project Is

Scrapped. The 600-MW TasWind project that was to be built on King Island,
in the Australian state of Tasmania,
and connect to the countrys National
Electricity Market via a high-voltage
underwater cable across Bass Strait to
Victoria, has been shelved, developer
Hydro Tasmania announced in late October. The company said the A$2 billion
project was not economically viable as
a stand-alone wind farm project or as a
staged connection to Tasmania, and that
changing economic conditions had seen
estimated capital costs for the wind
farm alone increase by around A$150
million. A company study showed that
even if Australias renewable energy target was maintained at the existing level,
TasWind, which was in the end, driven
by economics, was not viable.

MHPS to Install DeNOx Systems

at Spanish Power Plants. Mitsubishi Hitachi Power Systems (MHPS) in
early November received an order from
Spanish firm Hidroelectrica del Cantabrico for two sets of selective catalytic
reductiontype DeNOx systems for installation at the companys 560-MW Abono
www.powermag.com

er on Nov. 20 commissioned a 758-MW

natural gasfired combined cycle power
plant in Sherman, Texas. Departing from
conventional power plants, which often
combine gas generation, steam generation, and thermal equipment from different manufacturers, the Panda Sherman
plant was engineered by Siemens Energy
as a completely integrated unit, increasing plant efficiency and output, said the
company. The plant was built as a turnkey project by a consortium of Bechtel
and Siemens Energy.

RWE Completes Worlds SecondLargest Offshore Wind Farm. Construction of RWE Innogys flagship 576-MW
Gwynt y Mr Offshore Wind Farm, the
worlds second largest, was completed
on Nov. 24. Commissioning of the wind
farms 41 turbines off the North Wales
coast in the UK is expected next year.
The $3.15 billion project is the largest
after the 630-MW London Array, a 2014
POWER Top Plant that was commissioned
in April 2013. In November, meanwhile,
E.ON downsized its proposed 700-MW
Rampion offshore wind project off the
Sussex coast to 400 MW due to environmental and commercial concerns raised
during the consultation process.

Uprate at Swedish Nuclear Unit

Canceled. A planned uprate to increase
output from the 1,187-MW Forsmark-3
nuclear unit in Sweden by 14% has
been canceled, the Forsmark Group announced in late November. The group,
composed of Vattenfall, the Mellansvensk Kraftgrupp, and E.ON, said the
170-MW uprate was abandoned because
it was no longer profitable. The cost of
upgrading the grid has made the uprate
more costly than previously estimated,
said Vattenfall Nordic head and Forsmark chairman Torbjorn Wahlborg. Work
to uprate the 984-MW Unit 1 by 114 MW
will proceed, however. An uprate that
increased output of Forsmark-2 from
1,000 MW to 1,120 MW was completed
in March 2013.
Sonal Patel is a POWER associate
editor.

POWER January 2015

U.S. Water Use Is Down

Every five years, the U.S. Geological Survey
(USGS) collects data from counties all over
the U.S. for the national water use report.
The document provides water resource managers and private citizens with accurate information on how much water is being used
in specific places for a wide variety of pur14

cause lack of water availability can result

in generation curtailment or shutdown.
In November, the USGS published its
most recent report, which includes data
from 2010. The numbers showed that
water use across the country reached its
lowest recorded level in nearly 45 years.
Even as the U.S. population continues to
grow, an emphasis on conservation and
improvements in water-use technologies
and management resulted in a 13% reduction in water use from 2005.
Thermoelectric power continued to
withdraw the most water nationally, as it
has since overtaking irrigation in 1965,
accounting for 45% of all water usage
more than 160 billion gallons per daybut

1. Water withdrawals. The chart displays water usage by category. Source: U.S. Geological Survey
Public supply Rural domestic and livestock Irrigation Thermoelectric power Other
300

450

250

400
350

200

300
250

150

200
100

150
100

50

50
0

Total withdrawals (billion gallons per day)

500
Total withdrawals (right axis)

Withdrawals (billion gallons per day)

Water and energy are intimately linked.

Water is necessary for the production,
distribution, and use of energy. Energy
is needed for the withdrawal and delivery
of water. The two are inseparable. Several
recent reports contain important information for the power sector about water
availability and usage trends.
In last years Department of Energy (DOE)
report, The Water-Energy Nexus: Challenges
and Opportunities, U.S. Secretary of Energy
Dr. Ernest Moniz wrote: Water resource
scarcity, variability, and uncertainty are becoming more prominent both domestically
and internationally. Because energy and
water are interdependent, the availability
and predictability of water resources can
directly affect energy systems. We cannot
assume the future is like the past in terms
of climate, technology, and the evolving
decision landscape. These issues present
important challenges to address.
The report suggested that the urgency
to act is being driven by three trends.
First, it noted that climate change is already affecting precipitation and temperature patterns in the U.S. Next, it said
that population growth and regional migration trends indicated that arid areas,
such as the southwestern U.S., were likely
to continue growing, which would affect
management of energy and water systems.
Lastly, it suggested that new technologies
in the energy and water domains might
shift water and energy demands, while
policy developments could introduce additional complexities.
But the problem is not isolated to the
U.S. In The United Nations World Water
Development Report 2014, Ban Ki-moon,
secretary-general of the United Nations,
noted that in order to provide modern, affordable, and environmentally sound energy and drinking water services for all,
a sustainable approach is needed for the
management of both freshwater and energy resources.

poses. In the case of this report, use is

withdrawal rather than consumption.
Often, there is public confusion about
how water is used by thermoelectric power
generation facilities. Much of the water
withdrawn by power plants is returned to
its source without being consumed. The
majority of this water is used as a cooling medium to condense steam, exhausted
from steam turbines, back to a liquid, for
pumping and efficiency purposes. According to National Renewable Energy Laboratory estimates, only about 2.5% of U.S.
thermoelectric power plant withdrawals is
evaporated, that is, consumed in this process. However, withdrawal amounts matter
when water availability is a concern, be-

0
1950 1955 1960 1965

1970 1975 1980 1985 1990 1995 2000 2005

2010

2. State totals. The chart displays water usage by state. Source: U.S. Geological Survey
Public supply Other Irrigation Industrial Thermoelectric power
40,000

Total withdrawals (million gallons per day)

Global Water Outlook for

Power Generation

WEST

EAST

35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
HI AK OR WA CA NV ID AZ UT MT WY NM CO ND SD NE TX KS OK MN IO MO LA AR WI MS IL AL TN IN KY MI GA OH FL SC WV NC VA PA MD DC NY DE NJ CT VT MA RI NH ME PR VI

www.powermag.com

POWER January 2015

3. Got water? The map shows drought conditions as of Nov. 25, 2014. Source: U.S. Department of Agriculture, et al.

U.S. Drought Monitor

November 25, 2014

(Released Wednesday, Nov. 26, 2014)
Valid 7 a.m. EST

S
SL

SL

L
S

SL

SL

SL

S
S

Drought Impact Types:

Delineates dominant impacts

SL

S = Short-Term, typically less than

6 months (e.g. agriculture, grasslands)

S
S

L = Long-Term, typically greater than

6 months (e.g. hydrology, ecology)

Intensity:
Author:
Eric Luebehusen
U.S. Department of Agriculture

D0 Abnormally Dry
D1 Moderate Drought
D2 Severe Drought
D3 Extreme Drought
D4 Exceptional Drought

SL

The Drought Monitor focuses on broadscale conditions. Local conditions may

vary. See accompanying text summary for
forecast statements.

SL

http://droughtmonitor.unl.edu/

the total was 20% less than in 2005 (Figure 1). A number of factors contributed to
the reduction, including the use of more
efficient cooling technologies, reductions
in withdrawals to protect aquatic habitat
and environments, power plant closures,
and a decline in coal-fired generation.
But water risk is ultimately a local and
regional issue. California, for example, is
the largest user of water, but the majority of its freshwater goes to agriculture. It
uses 10 times more saltwater than freshwater for thermoelectric power withdrawals. Texas and Illinois, on the other hand,
feed the most freshwater to thermoelectric power generation (Figure 2).
Drought stressa big factor in water
riskis not shared equally across the
country. According to the U.S. Department of Agriculture drought monitor, most
of California and a large portion of Texas
were experiencing exceptional drought
at the end of November, while much of the
Midwestern U.S., including all of Illinois,
was drought free (Figure 3).

Brazils water reservoirs dangerously low

(see Drought Stresses Brazilian Electricity Market in the November issue).
In addition to water quantity issues,
water temperatures can also pose problems. The DOE report mentioned that the
Millstone Power Stationa nuclear facility located in Connecticutshut down in
the summer of 2012 due to high intake
water temperatures. And in August 2014,
the Turkey Point Nuclear Generating Station required the approval of an emer-

gency order allowing it to divert water

from the South Florida Water Management
Districts canal system to help moderate
unusually high temperatures and salinity
in the plants cooling water system.
According to Christopher Gasson, publisher of the magazine Global Water Intelligence (GWI), water risk for power plants
is growing. Power plants take a lot of
water out of nature, but they also put a
lot of that water back where it came from.
It means that while power plants are not
a big overall burden on water resources,
they are at risk if there is simply not
enough water around, Gasson said in an
interview with POWER.
Gasson noted that the places facing the
greatest water challenges are in the southwestern U.S., northeast China, India, and
the Middle East. He suggested that the
switch from coal to gas in the U.S. will
probably make things easier from a water
perspective, but that China and India will
remain big coal users in the future.
China has a particular problem with its
strategy to develop its [coal-to-chemicals]
market in Inner Mongolia and other parts of
the northeast where there isnt much water:
they need to think about [zero liquid discharge] and recycling, said Gasson.
In India, he said, the next generation of
power plants will probably be built on the
coast, which might require seawater desalination. The Middle East is decoupling
power and water as a result of the transition from thermal to membrane desalination technology, which does not require
steam to work.

4. Something other than the lifeguard is missing. The water level in Folsom
Lake, a reservoir located 25 miles northeast of Sacramento, Calif., was only 28% in early December. Courtesy: POWER/Aaron Larson

Concerns Worldwide
The DOE report noted that severe drought
affected more than a third of the U.S. in
2012, constraining the operation of some
power plants. Of the 12 major reservoirs
that the California Department of Water Resources Data Exchange Center offers daily condition reports for, levels at
eight of them were 28% or less on Dec. 1
(Figure 4). The U.S. is not alone. Lack of
rainfall in South America has left some of

January 2015 POWER

www.powermag.com

15

Placing a Price on Water

A new financial modeling tool, developed
by Ecolab USA Inc. and Trucost PLC, offers a
way for businesses to incorporate water risk
into business decisions. The Water Risk
Monetizer is designed to quantify waterrelated risks, so a business can understand
the full value of water to its operations.
The tool calculates a water risk premium using algorithms derived from
scientific studies on water scarcity and instream water values. Such things as local
groundwater recharge, waste assimilation,
wildlife habitat, and recreational activities are used to correlate a facilitys water
use with local scarcity conditions.
The water risk premium can be added to
the plants water bill to quantify the value
a business should place on water based
on real and future risk related to water
scarcity. Placing a monetary value on risk
helps businesses set priorities.
The tool is free to use, but it does require creating a user profile. According
to the website, all information entered
is kept confidential and is not available
to anyone other than the individual who
enters it. Visit waterriskmonetizer.com for
more information and to try the tool.

GWI is seeing some U.S. generators considering water insurance, that is, paying a
regular premium to senior water rights owners, so that if a bad drought occurs, they
can exercise an option to buy water at a preagreed-upon price. The main priority for the
power industry must be to secure access to
water, rain or shine, said Gasson.
Unique Solutions
Power and water can complement each other. Water is difficult to transport, but easy
to store. Electricity is easy to transport,
but difficult to store. Gasson believes the
two are quite fungible, especially where
power is needed to make water.
You could probably avoid the massive
build out of power plants in the Middle
East if you used water generation and
storage to manage the peaks. For example, instead of needing to build more and
more peakers to cover the air conditioning demand in summer and in the middle
of the day, you could just have a series of
baseload plants and switch production to
[desalination] production when demand is
low and supply to the grid when demand
is high, he said.
Another distinctive water solution is of-

513.641.0500

fered by POWERs first Water Award winner

(see Jeffrey Energy Centers Constructed
Wetland Treatment System in the August
issue). In that case, Westar Energy developed an innovative solution to a common
problem: the economic and environmentally responsible disposal of flue gas desulfurization (FGD) wastewater.
FGD waste is horrible, said Gasson.
The best solution for it is zero liquid discharge, but this is very expensive. There is
more opportunity for new technologies on
the wastewater side, where regulations are
getting tougher and there is more interest in recycling. New zero liquid discharge
technologies, such as membrane distillation and forward osmosis, are beginning
to provide lower cost alternatives to thermal evaporation systems.
While these solutions cannot be used
at every plant or in every region of the
world, the examples show that thinking
outside of the box can potentially solve
a variety of water challenges. GWIs complete report, Global Water Market 2015:
Meeting the worlds water and wastewater
needs until 2018, is available for purchase
at: bit.ly/11BA4zI.
Aaron Larson is a POWER associate editor.

]ku

Serving 7 of the Top 10

Power Generators
More than 5 Million
Annual Manhours
"K

]"A u

Award-winning
Safety Culture

MAINTENANCE

OUTAGES

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16

www.powermag.com

POWER January 2015

Marmaduke Surfaceblows
Salty Technical Romances
Steve Elonka began chronicling the exploits of Marmaduke
Surfaceblowa fictional six-foot-four marine engineer with a
steel brush mustache and a foghorn voicein POWER in 1948,
when he raised the wooden mast of the SS Asia Sun with the help
of two cobras and a case of Sandpaper Gin. Surfaceblows simple
solutions to seemingly intractable plant problems remain timeless. This anthology, first published in 1979, highlights many of
Marmadukes exploits that occurred during his early years (preWW I) through the 1960s.
Surfaceblows knowledge comes from hands-on experience operating steam power plants and
all manner of machinery. Later in the series
a son, Guy Newcomen Surfaceblow, was
introduced. He is a university-trained engineer who also has field experience that gives
him credibility when working with hard-boiled
characters in the boonies. The characters name
was coined from Marmaduke, a Scottish name,
and Surfaceblow, which is the action of removing impurities from a steam boiler.
In this book, available in a PDF download, you will
find all of Surfaceblows adventures
consolidated into a single volume. Many of the
stories were inspired by actual events.
Available in a PDF format, 321 pages long.

Order your copy online at

www.powermag.com/powerpress
or call 888-707-5808.

20954

Rick Glick

Merissa Moeller

Pacific Northwest
Moving Ahead with
Climate Change Policy?

regon and Washington State are examining new policies

to regulate greenhouse gas emissions. We expect to see
extension of Oregons Clean Fuels Program at the top of the
2015 legislative agenda and, potentially, a bill to enact a carbon
tax. In Washington, on Nov. 14, the governors Carbon Emissions
Reduction Task Force (CERT) released its report weighing the benefits of cap and trade versus a carbon tax, and a separate update
of a report commissioned by the governor on clean fuels was
released Oct. 29.
As members of the Pacific Coast Action Plan on Climate and
Energy (PCAP), both states have committed to adopt low-carbon
fuel standards and pursue carbon pricing mechanisms like cap and
trade or carbon taxes. Both states will look to policy models from
California and British Columbia (B.C.), fellow PCAP members.

Cap and Trade vs. Carbon Tax

In Oregon, we expect to see at least one bill to internalize economic costs of climate change.
The regulatory choice is between a carbon tax and a cap-andtrade scheme. A carbon tax puts a price on each unit of carbon
emitted, as a surcharge on fuel inputs or on industrial processes.
In a cap-and-trade scheme, regulators set a maximum limit for
emissions from regulated sources (the cap), issue or auction
individual permits implementing the cap, and manage an emissions trading market where businesses can buy and sell unused
permit capacities.
Both approaches have advantages and disadvantages. Proponents argue that a carbon tax creates cost certainty for regulated
entitiesbusinesses can plan for increased emissions costs
however, cap-and-trade advocates point out that modeling the
resulting emissions reductions is challenging. Cap and trade
theoretically produces more certain environmental benefits, but
skeptics decry cost uncertainty relative to a carbon tax.
B.C. taxes almost all fossil fuels burned inside the province. The
Sightline Institute went so far as to call B.C.s carbon tax the best
in North America and probably the world. The initial 2008 tax
was $10 per ton of carbon dioxide, and the tax settled at $30 per
ton in July 2012. The B.C. tax is revenue neutral, meaning that
reductions in corporate and personal income taxes offset revenue
from the carbon tax. B.C. carbon emissions are down since 2008,
although other factors blur the causal link. Proponents note that
the carbon tax has not harmed B.C.s economy, although the tax
may disproportionately affect low-income families.
Meanwhile, Californias cap-and-trade system is entering its
third year following enactment in 2006 of Assembly Bill 32, which
set long-term carbon reduction goals for the state. The California
market in 2014 linked with a similar program adopted by Quebec.
In 2015, it will expand to encompass fuel distributors, despite
strong opposition by oil producers to expansion of the program
to cover transportation fuels and, in addition, sources emitting
more than 25,000 metric tons of carbon dioxide equivalent annually. The program has a number of market-stabilizing features,
18

including a price floor. It is too early to determine the programs

effect on Californias economy or emissions.
The political timing is right for introduction of an Oregon carbon tax bill this coming 2015 session, but its chances for success
are less certain. In 2013, the Oregon legislature appropriated
$200,000 to evaluate a carbon tax; as of this writing, the study
report was expected to be released in December 2014. A carbon tax bills chances would depend partly on whether the tax
would be revenue-neutral like B.C.s or would add to existing tax
burdens. Some believe that such a tax should be incorporated
into always-elusive broad-reaching tax reform. We may also see a
competing cap-and-trade bill in Oregon.
The Washington governors office has not firmly backed either
cap and trade or a carbon tax. The recently released CERT study
summarized the pros and cons of both approaches but did not
recommend one over the other.

Clean Fuels Program

In Oregon, we expect to see legislation to extend or eliminate
the Dec. 31, 2015, sunset date on the Oregon Clean Fuels Program. The program, authorized in 2009, aims to lower the carbon
content of transportation fuel used in Oregon. The rules would
require fuel importers to reduce fuel carbon content by 10% from
2010 standards by 2020. The program focuses on increasing ethanol and alternative fuel content in transportation fuels. As in
California, the Oregon Clean Fuels Program has drawn opposition
from the oil industry.
Washington is considering a program with similar goals. On
Oct. 29, 2014, a revised draft of a report commissioned by the
governor was released that examined alternatives and impacts
of a low-carbon fuels standard in detail. The report was informational and did not make a recommendation. Both California
and B.C. have pursued 10% carbon reductions over 10 years. The
California Low Carbon Fuel Standard program (LCFS) uses a capand-trade approach. Petroleum importers, refiners, and wholesalers may develop low-carbon fuel products or buy LCFS credits
from alternative fuel companies. The B.C. LCFS mandates the 10%
carbon intensity reduction for transportation fuels and requires
suppliers to incorporate renewable fuels into transportation and
heating fuels.
The Obama administration has focused its carbon reduction
efforts on aggressive interpretations of the Clean Air Act (especially the Section 111(d) rule) and the federal Renewable Fuels
Program. However, the new Republican-controlled Congress can
be expected to attempt to roll them back. In the face of federal
inaction, the impetus shifts to the states. Whether West Coast
states will act in an independent or coordinated fashion remains
to be seen.
Rick Glick (rickglick@dwt.com) is a partner in Davis Wright
Tremaines energy and environmental practice group in the firms
Portland, Ore. office. Merissa Moeller (merissamoeller@dwt.
com) is a student at Lewis & Clark Law School.

www.powermag.com

POWER January 2015

Bringing energy output

to impressive new heights.

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Copyright 2015 Exxon Mobil Corporation. All rights reserved.

All trademarks used herein are trademarks or registered trademarks of Exxon Mobil Corporation or one of its subsidiaries unless otherwise noted.

2015 INDUSTRY FORECAST

How U.S. Power Generators Are

Preparing for 2015
Generating companies have different challenges topping their lists for the coming
year, depending on their service territoryfrom integrating renewables, to responding to several new federal regulations, to anticipating variable natural gas prices.
All, however, are confident their companies have the flexibility to respond to the
changes ahead.
Gail Reitenbach, PhD

n mid-November, members of the POWER

Generating Company Advisory Team responded via email to the following set of
questions. Their comments have been edited
for style.
POWER: What changes in your fleets
operations do you foresee in the next
year or so that may not have been anticipated even five years ago?
Melanie Green: Overall, I do not foresee

major shifts in how we operate our generation

fleet. We continue to see a growing demand
here in San Antonio and are well positioned
to provide service to our customers. The one
variable that could most impact our generation plan is the price of natural gas. This may
effectively change the order of dispatch on
our units. However, we continue to invest in
our assets to ensure our ability to meet the
needs of our customers.
Randal S. Livingston: With a historic
shift in the quantity of solar and wind energy
in the California Independent System Operator (CAISO) resource mix, we are already
seeing dramatic changes in operations of our
system. CAISO has been experiencing large
ramping requirements and rapid and volatile
swings in intermittent generation production.
This is expected to increase as more intermit-

Our 2015 Generating

Company Advisory Team
Melanie Green, Senior Director, Engineering & Technical Services, CPS Energy
Randal S. Livingston, Vice President of
Power Generation, Pacific Gas & Electric
Sharon Pfeuffer, Director and Chief
Engineer, Fossil Generation, DTE Energy
T. Preston Gillespie, Jr., Senior
Vice President-Nuclear Operations,
Duke Energy

20

tent generation is added to its systems.

Our more flexible resources such as hydro
and natural gas resources have shifted their
classic generation profile to back down in
mid-day, during peak solar output, and then
ramp dramatically toward our system peak
in late afternoon as the solar generation declines. The addition of more intermittent
resources in our mix means other resources
must be reliably standing by in case they
dont materialize or possibly increase or
decrease generation more on short notice.
The CAISO system experienced many more
hours of negative prices in 2014.
Finally, our pumped storage facility is
actually pumping during the day rather than
in the low-demand, off-peak hours, causing
us to reexamine transmission capabilities to
support this.
All this means that were working to rapidly build more flexibility into our system.
Modifications to reduce start times, frequency of starts and stops during the day, improving ramp rates, or reducing minimum load
are being examined. Our reciprocating engines received emission modification allowing for lower minimums. By next year, our
solar photovoltaic facilities will be capable of
being ramped down and participating in Californias day-ahead and real-time markets,
and our hydro systems, despite their already
high degree of flexibility, will be looking to
further expand their capabilities.
Sharon Pfeuffer: In the coming year, it
will be Mercury and Air Toxics Standards
(MATS) compliance. Several units will be
moving into compliance with the 2015 requirements. The remaining coal-fired units
with an extended deadline of April 2016 will
be working on installing dry sorbent injection
(DSI) and activated carbon injection (ACI)
systems. Testing we did just a few years ago
showed us that these technologies are effective in controlling mercury and acid gases. At
the same time, as we plan for the eventual rewww.powermag.com

tirement of those same units, we are accelerating our plans to build simple and combined
cycle gas-fired generation.
T. Preston Gillespie, Jr.: As we think
about 2015, its important to recognize that
the utility industry is in a stage of transformation driven by historically low natural
gas prices, rising environmental compliance
costs, anemic load growth, and technology
innovations. By 2015, Duke will have retired
nearly 6,800 MW of older coal and large oilfired capacity replaced primarily with lowcost, and lower-emitting natural gas. We have
also invested more than $2.5 billion in commercial wind and solar since 2007 and more
than $7.5 billion in environmental controls.
Technology continues to evolve, and we
anticipate a continuing trend regarding the
impacts associated with net metering and the
introduction of improved batteries and other
energy storage devices.
How much is renewable generation at
the building and community level affecting your companys demand trends?
Green: We continue to work with the com-

munity and stakeholders to further develop

opportunities for increased renewable generation in our service area. We see a strong
interest by our customers to participate in
these programs. We are working to achieve a
robust renewable portfolio as part of our plan
to offset the need for new generation. This
is a strong component of our New Energy
Economy. To date, CPS Energy has been able
to utilize the existing renewable resources in
our service area to the benefit of our customers. We also have developed a robust demand
response program that is called upon to offset
summer peaks.
Livingston: This trend is significant. Distributed generation (DG) is becoming a significant trend both in overall load forecasting,
and also in our planning for the grid of the future. Two-way power flows on our distribution
circuits, smart inverters, network upgrades,

POWER January 2015

2015 INDUSTRY FORECAST

By next year, our solar photovoltaic facilities will be capable of being ramped down
and participating in Californias day-ahead and real-time
markets, and our hydro systems, despite their already
high degree of flexibility, will be looking to
further expand their capabilities.
Randal S. Livingston, Pacific Gas & Electric
and smart grid implementation all have important implications from distributed generation.
Electrical storage, customer demand response,
and electric vehicle charging are important options to consider in either shifting demand to
the periods of high solar generation or shifting
generation to the peak periods.
Pfeuffer: We havent seen a significant
impact on our demand trends. On the policy
side of this discussion, we fully support customers right to own and operate renewable
distributed generation to serve their energy
needs, but not cross-subsidies in our rates
that allow DG-owning customers to avoid
paying their fair share of fixed costs. We
believe there are several modifications to
net metering policies that could help correct
the inherent unfairness and ensure that net
metered DG customers pay fairly for utility services and energy and are compensated
accurately for the value of the generation
they produce.
Gillespie: Renewable generation at the
residential and commercial level is still small
for Duke Energy. Its only 4% of our total
solar portfolio. We are finding greater success with large-scale solar and feel its the
most cost-effective way to integrate renewable energy onto the grid. We will soon begin construction of three of the largest solar
facilities on the East Coast. However, one of
the issues we are starting to address is how
much we pay for excess distributed generation like rooftop solar coming into our grid.
Paying full retail price does not account for
the costs associated with transmitting and
distributing the power and having backup
generation available. We are working with
our regulators to reach a stable and equitable
approach.

continue to be an important part of our fuel

diversification strategy. Nuclear has been,
and is expected to remain, a low-cost, zerocarbon baseload option.
Livingston: Our nuclear facility has been
an important part of our customers energy
supply for decades, and runs superbly. We
expect it to be an important part of our supply
in the foreseeable future. That said, we continue to evaluate all of our assets to ensure
they best meet our customers needs.
Pfeuffer: We own a single nuclear unit.
Fermi is very important to our future capacity
and generation. With all of the environmental
regulation impacting coal, and the unpredictable nature of renewables, we are investing in
that site to ensure its continued reliability as a
key part of our generating fleet.
Gillespie: Nuclear generation will remain
a key component of our energy portfolio over
the next 20-year horizon and beyond. Nuclear
power is a success story for Duke Energy
our 10,600 MW of nuclear generation have
provided reliable, economical, emissionsfree generation in our service areas for more
than four decades. With the prospect of regulations restricting greenhouse gas emissions,
the only way our country is going to meet
these lower emission goals is to maintain and
possibly expand nuclear generation.
We have two proposed new nuclear power
plants (two units each) in the licensing pipeline. All of our operating plants are running
well and have obtained renewed licenses, and
we are evaluating the possibility of operating our nuclear units through an additional
renewal period (to an 80-year life).

Your companies all own at least some

nuclear capacity. Recently, five U.S. units
have been slated for retirement or shut
down, mostly for unexpected reasons.
How important will nuclear be to your

What recent or anticipated federal

regulations do you expect will have the
greatest effect on the fleet youre responsible for in the coming year?
Green: Obviously, the Clean Power Plan

January 2015 POWER

companys portfolio in the next 5, 10, 20

years?
Green: We anticipate that nuclear will

www.powermag.com

is high on our list of regulations to monitor.

We have aggressively participated in the comment period and engaged others in developing an appropriate response to the proposed
rule. We are encouraged by the final form of
316(b) and believe that, working with our
state regulators, we will be able to develop an
effective compliance plan. The effluent regulations appear to have the most potential to
significantly increase power cost due to the
high cost of compliance.
Livingston: For us its 111(d) and National
Oceanic and Atmospheric Administration fisheries implementation of salmon and steelhead
recovery under the Endangered Species Act.
Pfeuffer: In the coming year, it will be
MATS compliancegetting our DSI and ACI
systems installed and operational. Our plants
have the extended deadline of April 2016.
Gillespie: The Nuclear Regulatory
Commissions post-Fukushima requirements will have the greatest impact on
Dukes nuclear fleet.
In addition, Duke expects to spend $5 billion to $6 billion over the next 10 years on
environmental regulations issued by the Environmental Protection Agency (EPA). Significant regulations include EPAs recently
finalized Section 316(b) rule that regulates
cooling water intake structures. This rule will
affect all of our thermal power plants, particularly those without cooling towers. Intake
modifications are expected at 15 of our 32
stations that are affected by the rule. EPAs
proposed rules regulating Coal Combustion
Residuals as well as Steam Electric Effluent
Guidelines will also be significant for Dukes
fleet. Those rules are expected to be finalized
in 2014 and 2015 respectively.
Were also actively participating in the rulemaking process for EPAs proposed regulation
for greenhouse gases from existing plants.
That rule is expected to be finalized in June of
2015 and is not included in the cost estimate
above.
If the Clean Power Plan is finalized in
2015 and contains most of the same details as the proposed plan, how do you
anticipate it will affect your assets?
Green: Implementation of the Clean

Power Plan in its current state would lead

to a reduction in coal generation and a corresponding shift to more natural gas generation. It also will lead to an increased
emphasis on maximizing the benefit of
renewables. The current asset make-up for
CPS Energy, with more than 70% of our
capacity from nuclear, gas, and renewables,
provides us with some options to begin addressing the compliance requirements.
Livingston: PG&E already operates one
of the cleanest generation portfolios of owned
and contracted resources in the country. Over
21

2015 INDUSTRY FORECAST

As our generation mix changes and our jobs change, flexibility in how we think, work,
and solve problems will continue to be a key attribute.
Sharon Pfeuffer, DTE Energy
60% of our generation mix comes from nonemitting sources.
Pfeuffer: If the final plan is similar to what
has been proposed, it will be the most significant piece of environmental regulation ever
imposed. The proposed plan has an aggressive front-loaded schedule for full compliance by 2030. We are still working through
how we would comply, while still maintaining reliable and affordable generation for
our customers. In any timetable, 111(d) will
cause the retirement of many or most of our
coal assets, and additional build of renewable
wind and gas-fired generation.
Gillespie: It is too soon to tell. Once the
rule is finalized, states will have between one
to three years to develop a compliance strategy, and the path they will take is unclear at
this time. It is early in the rulemaking process, and a lot can change.
The global power industry is becoming more concerned about water availability and quality. Is your company
addressing water constraints now or
preparing for any in the future?
Green: CPS Energy has maintained a

strong sense of conservation, particularly

around water use. The power plants use a lot
of water in the once-through cooling process.
San Antonios primary source of water is
from underground water storage aquifers. In
the 1960s, CPS Energy minimized the use of
aquifer water by using treated sewage effluent to provide make-up water for the cooling
lakes at the plants. To date, CPS Energy has
saved more than 300 billion gallons of Edwards Aquifer water by using recycled water
for plant needs.
Livingston: Absolutely. All of our owned
fossil resources already use dry cooling that
uses just 3% of the water that a conventional
cooling tower plant would use. We just experienced the third year of low snowpack and
rainfall, and last season was the third-driest
in history. So we are carefully planning reservoir elevations, and in-stream flow releases
so that we can carry sustainable stream flows
through the dry summer months. We are also
carefully conserving domestic water use at all
our facilities across the company and helping
our customers to do likewise.
22

Pfeuffer: Only one of our generating facilities is located in an area where water
resources are constrained, representing less
than 1% of our total generating capacity. The
majority of operations take place in Michigan, which has an abundance of high-quality
freshwater. Although there are factors that
can negatively affect this resource (such as
invasive species), the Great Lakes are believed to be a valuable source of freshwater
for many years to come.
Gillespie: Water is a critical resource to
Duke Energy and the communities we serve.
Rivers and reservoirs serve as the backbone
of our generation fleet by providing hydropower and cooling water for our nuclear and
fossil plants. As part of being a good environmental steward, we use models that quantify
water needs/use and quality during both normal and drought conditions, and work with
stakeholders to ensure our impact on this
shared resource is minimized. Additionally,
we continuously evaluate new technology
that will allow us to use less water in generating electricity.
In a wordfollowed by a one-sentence explanationhow do you feel
about your utilitys portfolio as you anticipate its operation in 2015?
Green: Confident. CPS Energy is fortu-

nate to have a diverse blend of generation that

will enable us to continue to provide low-cost
power to our customers.
Livingston: Challenged. But still optimistic. There are a lot of new dynamics being introduced to the grid and generation mix, but I
believe weve got the right things in place for
2015. Hydro availability will be a key factor
for us in California.

Pfeuffer: Transition. Continued focus on

reducing customer cost, addition of DSI/ACI
systems, and adding to our gas-fired plants
and renewable wind fleet are all transitions
from how weve operated in the past.
Gillespie: Economical. Our mix of energy
sources provides a good foundation of predictable, low-priced electricity.
Lets shift to the people who produce
the power. As more of the Baby Boom
generation transitions to retirement and
you add younger employees, do you find
they are less interested in thermal plants
than renewable generation? If so, what
strategies have been effective in recruiting younger workers to your traditional
generation facilities?
Green: We have long recognized the chal-

lenges of recruiting new engineers to our

conventional, fossil-fired generating plants.
We recruit locally and are fortunate to have
engineering graduates in the San Antonio
area. We sponsor a number of college students as interns each year and have been able
to retain some as full-time employees. CPS
Energy also has a program that brings high
school students interested in pursuing careers
in the energy industry into the workplace.
They receive scholarships and are afforded
the opportunity to gain relevant experience.
Livingston: Its the diverse resource mix
of our portfolio thats attractive. We have the
latest technology in our thermal plants, our
hydro has both environmental and heritage
aspects that are appealing and unique, our
solar assets have a new and unique character that attracts talent, and the quality of our
nuclear operations helps attract top talent. I
also believe our newer employees view themselves as joining the overall company, not
just the generation department, and we are
able to offer a unique and diverse career path
for early career path employees.
Pfeuffer: Based on what is published in
the mass media, we do get a lot of questions
about jobs in renewable generation. However,
fossil generation employs many more people
per megawatt than renewables, so most of our
hiring continues to be in that area. For our
engineering positions, we have a lot of coop and summer intern positions, and the stu-

The effluent regulations appear to have the most potential to significantly increase
power cost due to the high
cost of compliance.
Melanie Green, CPS Energy
www.powermag.com

POWER January 2015

2015 INDUSTRY FORECAST

Technology continues to
evolve, and we anticipate a
continuing trend regarding the
impacts associated with net
metering and the introduction
of improved batteries and other energy storage devices.
T. Preston Gillespie, Jr., Duke Energy
dents who work in those areas seem to enjoy
the work and want to come back.
Gillespie: We have no real issues recruiting technical talent. An area where we are
finding it more difficult to attract talent and
experience is in the trades. We do see that retention rates may be changing, though.
How would you describe the level of
awareness, training, and response of
your plant staffs to both cyber and physical security threats?
Green: I believe we are well prepared for

both cyber and physical security events at

our plants. We have developed comprehensive programs to ensure that our employees
are trained and aware of the possibility that
cyber and physical security incidents may occur and how to respond correctly.
Livingston: I can definitely say that all
of us here at PG&E have a much heightened
sense of physical and cyber security awareness. Training and practical/world event experience have all had a hand in awareness
and response readiness.
Pfeuffer: The physical security threat facing the utility industry, in general, is that of
an insidera highly motivated independent
actor who has knowledge about and access to
critical infrastructure. Our biggest cultural issue is change; people are reluctant to enforce a
requirement today when yesterday that person
could freely walk in. In this vein, over the last
year, we have undertaken a project to improve
background checks for employees, contractors, and vendors; reevaluated our physical security posture; and exercised resiliency plans
in the case of a successful attack.
We do have significant training requirements based on regulations at specific
plantsfor example, plants governed by
MARSEC (Maritime Security) and NERC
CIP (North American Electric Reliability
Corp. Critical Infrastructure Protection) standards have additional training and physical
security requirements.
Gillespie: Our security force maintains a
high level of awareness and routinely trains/
drills to demonstrate that awareness.

January 2015 POWER

Aside from technical knowledge, what

one attribute or character trait is most important for todays power plant workers?
Green: Passion. Merriam-Webster defines

passion as a strong feeling of enthusiasm or

excitement for, or about doing something.
As discussed earlier, fossil generation is not
often considered as a career option. We utilize
several programs to attract interest and create
opportunities. However, it is imperative that,
as owners and operators of fossil generation
assets, we recognize that today fossil generation units are the workhorse and backbone of
the electric industry. We need to encourage
excitement, ownership, and passion about the
generation industry.
Livingston: Teamwork and a questioning
attitude. We really need teams that can bring
diverse skills and perspectives together.

Pfeuffer: Flexibility. As our generation

mix changes and our jobs change, flexibility
in how we think, work, and solve problems
will continue to be a key attribute.
Gillespie: The ability to be a team player.
What keeps you excited about the
power generation industry?
Green: New challenges and new oppor-

tunities. As weve discussed in this session,

there are a number of new regulations on the
horizon that will challenge the industry, but
at the same time, they create opportunities for
us to become more creative in how we produce and deliver energy to our customers. We
also recognize that the existing fossil fleet is
aging and are working to develop the appropriate strategy for repair vs. replace. All of
this adds up to exciting times ahead!
Livingston: Constant change and challenge.
Pfeuffer: We are in a time of historic
change in our industry. Henry Ford was a
chief engineer in 1899 at the Washington
Boulevard Power Plant, working on boilers
and turbines that were smaller but fundamentally similar to the ones in the plants
we run today. All of that will change in
the next decade, as we see a rapid shift to
gas-fired and renewable generation. This
amount of change is a little scary, but also
really exciting.
Gillespie: The challenge to create additional value from our generating assets
existing and new.

Gail Reitenbach, PhD is POWERs editor.

We Know What You Like

During the month of November, you read these POWERnews
and POWER print magazine stories online more than any
others:
From POWER
Coal-Fired Power Plant Heat Rate Improvement Options,
Part 1
Steam Turbine Rotor Vibration Failures: Causes and Solutions
Ivanpah Solar Electric Generating System Earns POWER s
Highest Honor
Boiler Chemical Cleaning: Doing It Correctly
A New Day for North American Hydropower?
From POWERnews
A Power Sector Guide to the Midterm Elections
Advanced Coal-Fired Combined Heat and Power Plant
Begins Operation in U.S.
U.S. and China Agree to Increase Nationwide Carbon
Reduction Targets
Oncor Wants to Spend $5.2 Billion on Energy Storage
B&W to Spin Off Power Generation from Nuclear Business

www.powermag.com

23

2015 INDUSTRY FORECAST

Lalit Batra

Vinay Gupta

nergy market dynamics in the U.S.

continue to evolve. Regulatory developments, advancements in power plant
technology, and fuel dynamics are transforming the industry. Although the outcome of these
developments has yet to be seen, the potential
for higher power and fuel prices, volatile markets, and increased dependency on natural gas
are factors to consider in 2015.

Volatile Fuel Prices Lead to

Generation Mix Shift
After touching historic lows in 2012, Henry
Hub spot gas prices averaged $4.49/MMBtu
through October 2014, about 22% higher
than the same period in 2013. At the same
time, major benchmark Eastern coal ranged
from $2.1 to $2.7/MMBtu at mine mouth,
which allowed coal generation to rebound in
2014. The ICForecast projects average Central Appalachian mine-mouth pricing in 2015
to remain in the range of $2.41 to $2.59.
Mild summer weather and record natural
gas production and injections have contributed
to driving natural gas storage just short of the
five-year average. The ICForecast for natural
gas prices has Henry Hub projections averaging $3.62/MMBtu in 2015, which is lower
than the $4.55/MMBtu forecast average in
2014. Starting in 2016, there is a widely held
expectation for accelerated growth in gas demand due to gas builds replacing retiring coal

Fuel Economics Will

Drive 2015 U.S. Power
Markets
units, aging nuclear units, and growth in U.S.
exports to Mexico as Mexico replaces its aging fleet of oil-fired generators with gas-fired
combined cycle units (Figure 1).

Coal Retirements Lead to Higher

Energy Prices
According to ICForecast projections, in addition to nearly 6 GW of coal capacity that retired in 2013, nearly 62 GW of coal capacity
is expected to retire between 2014 and 2016,
primarily due to Mercury and Air Toxics Standards (MATS) regulation, low gas prices, and
low real-demand growth in some regions.
The majority of these retirements will be
older units (>45 years) lacking controls for
SO2 and NOx. Retirements in the MISO, PJM,
and SERC regions will account for over 75%
of total projected coal retirements. Increasing
CO2 allowance prices over time, along with
compliance costs for coal ash and water intake
rules, will contribute to additional retirements
beyond those prompted by MATS.
The effect of near-term coal retirements,
driven by MATS, on electricity prices is more
pronounced in coal-dominant regions such as
PJM COMED and MISO Indiana, where electricity prices from 2013 to 2016 are expected to
increase by over 20%. On the other hand, gasdominant regions, such as New York City, are
expected to remain more stable and show relatively smaller increases in electricity prices.

1. Actual and projected average Henry Hub natural gas prices per
MMBtu. Source: ICF International
Historical ICF projected

$10
$9
$8
$7
$6

Demand
surges &
exports
ramp up

Cold winter pops

2014 gas price

$5

Stable prices Market growth

and supply growth
in lockstep

Coal and
nuclear
retirements
push demand
higher

$4
$3
$2
$1

Perfect storm leads

to unsustainably
low gas prices in
2012

Supply
rationalization

$0
2005
24

2010

2015

2020

2025
www.powermag.com

2030

Gas Dependency
The retirement of older, less-efficient units, is
expected to drive coals share of total generation
down to slightly above 35% by 2016, according
to projections from the ICForecast. Remaining
coal units will be newer, more efficient, and will
run at relatively higher capacity factors.
In 2015, the U.S. is expected to add nearly
11 GW of natural gasfired generation to replace retiring coal generation. The majority
of combined cycle builds, mainly dedicated
to baseload supply, will be located in PJM,
FRCC, and ERCOT. In addition, combustion
turbine builds will be needed to meet peak
and reserve margin requirements. The majority of combustion turbine builds will be in
PJM, SERC, and MISO regions.
The need for natural gas from the well to
the burner tip is providing huge opportunities
for companies in the exploration and production space, pipeline infrastructure development, and other natural gasdriven functions.
A recent report from the INGAA Foundation
projects that more than 432,000 jobs will be
required to build out sufficient infrastructure
between now and 2035.
Renewables are not expected to vastly
change the generation landscape or affect the
predominance of gas in the immediate future.
Wind and solar technologies will continue to
dominate the renewable build mix, but lower
capacity factors keep their expected share of
total generation nearly constant over time.
The ICForecast projects an additional 3.8
GW of wind and 3.5 GW of solar capacity
in 2015.
Beyond the two nuclear projects currently under development, which are suffering
from cost overruns and delays, nuclear is not
expected to play a major role in the future.
Prohibitive build costs, extensive regulation,
low gas prices, and low expected CO2 prices
make nuclear generation economically infeasible in the long run.
In short, natural gas continues to be the
driver of market dynamics, both for price
and generation build. There are many business opportunities for market participants to
engage in infrastructure-related development
and support activities in 2015 and beyond.

Lalit Batra and Vinay Gupta are associates at ICF International.

POWER January 2015

2015 INDUSTRY FORECAST

The Urge to Merge, or Vice Versa?

Mergers and acquisitions have long characterized the modern power industry, going
back decades. That looks to continue. But the dynamics of the industry are producing a counter trend, which the financial gurus describe as carve-outs, or addition
by subtraction.
Kennedy Maize

he urge to merge, a key feature of the

power industry for the past 20 years or
so, showed no signs of slowing in 2014.
Major players sought to beef up their asset portfolios and diversify their generating profiles in
a year marked by slow but steady economic
growth. But a new phenomenon has emerged.
Power companies are examining a relatively
unusual business strategy: the carve-out.
James Surowiecki, economics writer for
The New Yorker magazine, looking at merger
and acquisition (M&A) activity in general,
commented recently that there is something
odd going on: the urge to merge has been accompanied by an urge to purge. He adds,
The brute fact is that most mergers dont
work. Surowiecki cites Aswath Damodaran,
a finance professor at New York University,
who claims, More value is destroyed by
acquisitions than by any other single action
taken by companies.
A recent joint report by consulting firms
Strategy& (formerly Booz & Co.) and PwC,
Carving Out Value: How Utilities Can Grow
By Shrinking, observes, Shrinking demand
and falling prices in electricity markets, and
resulting drags in stock valuation, are leading
some utility company executives to reassess
their portfolios. In some cases, separating
business lines that no longer fit together can
build shareholder value by turning a larger,
more diverse company into two strategically
focused companies with stronger growth
prospects and greater investment appeal.
The report notes that the conventional
wisdom in the past, as utility executives contemplated their business environment, was to
bulk up. Mergers and acquisitions, the study
says, were aimed at producing economies of
scale, broader operating platforms, and bigger balance sheets to fund future investment
in a growth-challenged industry.

isting geographic markets and/or with similar

business models, to drive scalable growth and
achieve operational synergies.
In its report on utility M&A activities for
the second quarter of 2014, PwC observed a
large increase in the volume of and value of
deals greater than $50 million. The quarter
saw 13 deals that met this criterion, compared
to seven each in the first quarter of 2014 and
the second quarter of 2013. The deals are also
bigger, PwC said: Total deal value increased
by almost 700% from the previous quarter
from $4.4 billion to $34.9 billion. The value
of the average deal in the quarter rose from
$626 million to $2.7 billion.
The megadeals of 2014 were Exelons buy
of Pepco for $12.2 billion and Wisconsin
Energys purchase of Integrys for $9.1 billion. Chicago-based Exelon announced April
30 that it would gobble up Pepco Holdings,
based in the District of Columbia, creating a
combined company of some 10 million customers and a $26 billion rate base. Exelon,
itself created by a series of mergers, has been
one of the most aggressive power companies
in the M&A field for many years. Both companies shareholders have approved the deal,
but it is still going through regulatory reviews
at the state and federal levels.
In June, Wisconsin Energy Corp. of Milwaukee, a combination electric and gas utility,
agreed to buy Chicago-based Integrys Energy
Group, a gas-electric combo that includes
Peoples Gas of Chicago (Figure 1). The new
company, WEC Energy Group, will have some
4.3 million customers in Wisconsin, Illinois,
Michigan, and Minnesota, with a regulated
rate base of $16.8 billion. The companies face
the usual gamut of regulatory approvals and
say they expect the deal to close in mid-2015,
although that is probably optimistic.
The PwC second-quarter report highlights
four other billion-dollar-plus deals:

Alberta. Omaha-based Berkshire Hathaway Energy owns a number of electric and

gas companies including MidAmerican
Energy, PacifiCorp, NV Energy, and Kern
River Gas Transmission.
LS Power Equity Partners, an employeeowned non-utility generation and transmission business, in April agreed to buy
six power plants in the Southeast from
Houston-based independent Calpine Corp.
for $1.6 billion. The deal for the six gasfired combined cycle plants, with about
3,500 MW of capacity, closed in July.
Also in April, The Laclede Group, a St.
Louis natural gas local distribution company, agreed to buy Alabama Gas Corp.
(Alagasco) of Montgomery, from Energen
Corp. of Birmingham, primarily an oil and
gas exploration company. The $1.6 billion
deal closed in September.
In June, NRG Yield, a unit of aggressive independent generator NRG Energy,
agreed to buy Terra-Gen Powers Alta
Wind Energy Center for $2.5 billion. The
1,300-MW wind project in Tehachapi Pass
in Kern County, Calif., is the second-largest wind farm in the world, with a 25-year
power purchase agreement with Southern
California Edison.

PwCs Fago sees heavy M&A activity continuing. Going forward, he said, we ex-

1. Snapped up. Wisconsin Energy

Corp.s acquisition of Integrys Energy Group
includes a suite of coal, gas, and hydroelectric
power plants, including the four-unit, 981-MW
Weston Power Plant near Wausau, Wis. Courtesy: Royalbroil/Wikipedia

Merge and Grow

That remains the path that most aggressive
power industry executives are taking, PwC
deals leader Jeremy Fago says. According to
Fago, Companies in the power and utilities
industry are strategically pursuing assets, including those in close proximity to their ex-

January 2015 POWER

Berkshire Hathaway Energy Co. in May

announced a deal to buy AltaLink LP,
based in Calgary, Alberta (and owned
by SNC-Lavalin) for US$5.5 billion. AltaLink is an electric transmission company
that owns about 60% of the electric grid in
www.powermag.com

25

2015 INDUSTRY FORECAST

pect to see the M&A environment continue to
pick up through a combination of regulated,
merchant and YieldCo driven transactions.
For the third quarter, PwC said M&A activity
among utility and power companies continued at a greater pace than in 2013, but was
down from the second quarter, because of
few blockbuster deals.
Big mergers have also been seen in companies serving the generation industry. The
biggest recent move was GEs $16.9-billion
acquisition of Alstoms power and grid division in June, a deal that had GE fending off
a rival bid from Siemens. That merger got
French regulatory approval in November.

Carving Out Value

The NRG deal, creating what analysts call a
yieldco, leads us to the carve-out trend.
yieldcos are a twist in the M&A tale. These
hybrid corporate structures have been building, particularly in the area of renewable
electric generation, for a year or so. Carl
Weatherley-White of LightBeam Electric, a
renewable power generating company, explains, A YieldCo is a publicly-traded company that is formed to own-operate assets that
produce cash flow. The cash is distributed to
investors as dividends. Yieldcos are a way
to approximate the financial value of master
limited partnerships, widely available ways
to encourage investors by limiting the impact
of federal corporate taxes.
The ScottMadden management consulting
firm says yieldco are attractive because they
lower the cost of capital, provide a mechanism
similar to master limited partnerships, and are
close to MLPs in tax advantages. The Internal
Revenue Service has not approved the use of the
MLP structure for generating projects. The firm
says, YieldCos have been established mostly
for renewable asset development, but other
steady earning assets could be amenable to being warehoused in a similar structure .
The PwC analysis classifies yieldcos as one
carve-out mechanism among several. Yieldcos,
said PwC, hold generating assets with longterm supply contracts, one way to separate
business lines that may not be complimentary.
Separating the discrete assets or business segments of a diversified company creates value
in two ways, says the report. It can improve
the core business by removing operations that
no longer fit the companys broader strategy
and investment rationale. At the same time,
it allows noncore businesses to find an audience among investors who may value it more
highly as a stand-alone company.
While carve-outs may appear novel,
says PwC, these transactions are a natural
step in the evolution of a business. As the risk
profiles and growth rates of various assets
and business segments evolve, so will their
26

consistency with the investment priorities of

various stockholders.
Carve-outs have been common in other industries. But in the power and utility segment,
says PwC, these structural separations have
been rare, because companies are reluctant
to part with assets except under duress. But
markets have responded enthusiastically when
utilities have carved out business units. Merchant power businesses spun off in the late
1990s and early 2000s fetched high stock market valuations at a time when growth prospects
for such companies seemed limitless.
Then the merchant power market melted
down, a distinct disincentive to divest. But,
noted PwC, some utilities have continued
successful carve-outs. Duke Energy in the
mid-2000s bundled its natural gas gathering, processing, and pipelines into a separate
company, Spectra Energy (Figure 2). Said
PwC, That closed the value deficit, and then
some. The new company had a market value
of $26 billion, and the two companies together had a market value in excess of $75 billion. Even more impressive, said the PwC
analysis, Dukes price-earnings multiple
has largely exceeded industry averages since
the split. Thats addition by subtraction: the
parts are greater than the sum of the whole.
Likewise, carve-outs have been taking
place in the generation vendor sector, such as
with Babcock & Wilcox announcing in November that it plans to split its nuclear (its
Government and Nuclear Operations business) and power generation businesses into
separate companies.

Regulatory Leverage
FirstEnergy Corp., based in Akron, Ohio, and
itself the product of a series of mergers of weak
electric companies into a presumably stronger
entity, is attempting what some observers have
suggested is a regulatory carve-out. The
company is proposing to essentially spin off
some of its largest coal-fired and nuclear generating assets in Ohio and Indiana from the
parent company to its Ohio distribution utilities. The utility subsidiaries would then sell
the output from the plants into the PJM Interconnections competitive wholesale market,
while serving the local retail customers under
conventional cost-based regulation.
FirstEnergy has been hammered in its bids
into the PJM capacity market in the last two
years, leaving its coal and nuclear generation
in a position of losing money. The companys
plan could offset losses in the competitive
market with stable rates in the regulated
market as a backstop. Cleveland newspaper
The Plain Dealer commented that the utility
is asking the Public Utilities Commission of
Ohio to approve what amounts to regulated
pricing from the power generated by some of
www.powermag.com

2. Carving deep. Spectra Energy, spun

off from Duke Energy in 2006, operates natural gas processing and transmission infrastructure across the U.S. and Canada. Courtesy:
Spectra Energy

its unregulated Ohio power plants. Looking

at the dynamics of the PJM capacity market,
UBS utility analyst Julien Dumoulin-Smith
said that we believe management will need
to continue to . . . shed assets.
American Electric Power (AEP), based in
Columbus, Ohio, is also pursuing a regulatory
carve-out strategy. CEO Nick Akins told Wall
Street analysts that AEP plans to move about
a third of its Ohio generating assets to its distribution companies, if the regulators approve.
In what Electricity Daily called an elephantto-mouse deal, AEP has moved to transfer
800 MW of the 1,600-MW Mitchell coal-fired
plant in Moundsville, W.Va., jointly owned
with FirstEnergy, to AEPs tiny Wheeling
Power subsidiary. Wheeling Power is operated
by AEP subsidiary Appalachian Power.
The deal, likely to win approval from West
Virginia regulators because it could keep
open a plant that otherwise would be closed,
means that Wheeling would have to bid the
power into the PJM market, where AEP has
also had trouble making money. According
to AEP, the deal to shift the companys halfshare of the plant to its subsidiary has been in
the works for two years, indicating the complexities of such a deal.
PwC cautions that carve-outs arent an easy
proposition. They require the same level of
analysis, planning, and attention to operational details as an acquisition, says the firm.
Utility executives need to rethink the strategic positioning, capabilities, structures, and
resource levels the legacy company will need
as a smaller, more focused organization.
Add carve-outs to the conventional business
strategies of mergers and acquisitions. All are
likely to figure in the way the power business
conducts itself in the coming months and years.
As the ScottMadden management consulting
firm recently observed, While utility consolidation continues, the sector lags other industries
because of regulatory constraints and the inherent local nature of energy infrastructure.

Kennedy Maize is a POWER

contributing editor.

POWER January 2015

2015 INDUSTRY FORECAST

Michael Kotara

Mike Morris

he rate of introduction of new gas turbine products has accelerated, and the
speed of change creates challenges for
engineering, procurement, and construction
(EPC) contractors who are also coping with a
more-demanding labor market.
Consumers are the ultimate beneficiaries
of gas turbine improvements in efficiency,
flexibility, and power density, and power plant
owners are trying to keep up with the changing technology in order to offer affordable
and reliable electricity with ever-more-stringent emission constraints. Implementation of
new advanced technology often falls on the
EPC contractor, who is pressured for price
and schedule certainty while integrating the
new technology, often for the first time. The
stakes are often high, and it is not a game for
the meek.

Continued Technology Change

Ahead
Improvements in gas turbines have historically been evolutionary, with only an occasional
revolutionary product change. Improvements
in alloys, thermal barrier coatings, and aerodynamics resulted in better efficiency and greater
output from the same frame and footprint.
More recently, the drive for larger, moreefficient, and more-flexible gas-fueled power
plants has led to more-rapid revolutionary
changes and essentially new products, regardless of manufacturer naming conventions.
Compressor changes, turbines with more
power stages, and new packaging concepts
are a few of the significant changes leading to
larger units and higher power density. Most
manufacturers have recently introduced or
announced new gas turbine designs, each one
larger, more efficient, or more flexible than
their competitors. The gas turbine arms race
is evident.

Managing the Risk of Technology

Change
Buying the next evolution of a product has
inherent risks, depending on the extent of
the improvements. Buying the first of a new
high-technology product is sometimes a leap
of faith and often comes with commercial

January 2015 POWER

Labor Crunch
Complicates the Gas
Turbine Arms Race
benefits to offset the risks. Once the technology decision is made, the owner usually turns
to the EPC contractors to share in some of
the risks of integrating the advanced technology turbines into an overall plant design,
accentuating all of the design enhancements
in starting times, faster ramp rates, and lower
minimum output while maintaining full emissions compliance.

contractors must also manage risks associated

with the current tightening labor market. Industrial labor demand is expected to increase
significantly through 2018, with labor escalation rates more than double the previous
four years. Much of the increased demand is
due to many large industrial projects already
under construction, with more planned, particularly along the U.S. Gulf Coast. The num-

Industrial labor demand is expected to increase significantly through 2018.

Power plant design and construction with
a new technology unit involves greater uncertainty that is difficult for the EPC contractor
alone to manage. It is critical to ensure that the
performance risks that are specifically related
to new technology remain with original equipment manufacturers, because only they can
manage these risks through design and manufacturing margins and commercial assurances.
The parameters of the supporting balanceof-plant systems are usually understood, but
some of the detailed metrics of the new unit
itself are not finalized until manufacturing
and shop details are quite far along. Sequencing the flow of information creates challenges
from the very beginning of EPC estimating,
scheduling, and bidding. Some owners recognize the risks and prefer to share them through
qualification-based negotiation rather than pay
for them through firm price EPC bidding.
Schedule risks associated with the implementation of new technology hinge mostly
on the manufacturers ability to predict and
meet planned equipment production and deliveries. There are often surprises during final
design and manufacturing of a new technology unit, some of which spawn changes in
dimensions or arrangements of equipment
packages on the unit base and in supporting
equipment. Changes in the factory can result
in changes in the field or delays in production
and shipment of key components.

Tightening Labor Market

On top of technology advancements, EPC
www.powermag.com

ber of trained and experienced craft workers,

as well as their productivity and quality of
workmanship, will have a dramatic impact on
the success of EPC power plant projects.
Utilizing a direct-hire open shop model
enables Zachry to safely and effectively manage large power plant projects. Although the
emphasis is on hiring locally to a project site,
Zachrys loyal following also attracts craft
workers from other regions, especially those
with previous Zachry experience. A nationwide network of recruiters and employment
offices also brings experienced craft workers
to Zachry projects.
Minimizing the number of subcontractors
provides clear guidance and direction from
a single project entity throughout construction. A single project safety program results
in better and safer performance during the
job. Changes or workarounds that occur on
new technology applications can be achieved
effectively through a single company coordinating the site labor and collaborating with
the owner and manufacturer.
The gas turbine arms race and a tight industrial labor market will continue to create
challenges for owners and EPC contractors
in the coming years, but experience and the
right processes enable contractors to provide
successful new technology power plants and
to mitigate risks on several fronts.

Michael Kotara (kotaram@zhi.com) is

vice president of Zachry Industrial Inc.,
and Mike Morris (morrism@zhi.com) is
vice president, Zachry Engineering Corp.
27

2015 INDUSTRY FORECAST

Can Mexicos Electricity

Reform Deliver on Its Promise?

Sylvia Gaylord, PhD

n 2013 the Mexican government passed

historic reforms that eliminated the states
monopoly on the energy sector in an effort to attract private investment. In the electricity sector, reform was sold on the promise
of reducing prices: Electricity tariffs for industry are 80% higher in Mexico than in the
U.S. due to high oil prices, aging plants, and
elevated losses. The Federal Electricity Commission (CFE), the sole distributor of electricity in Mexico, operates at a loss, recovering roughly 80% of its costs through tariffs.
In addition to amendments to the constitution that ended the monopoly, the government has passed sector-specific legislation,
such as the Law of the Electricity Industry.
Regulations for this law are being debated in
Congress, and the Market Rules, which will
fill in the details that matter most to private
investors, are still in the works.
The reforms so far create a wholesale market for electricity operated by an independent
entity, where independent power producers
(IPPs) can participate freely. Large customers, with a demand greater than 3 MW, are
also allowed to contract their electricity supply directly from generators. Together, these
changes aim to create a competitive market
for generation where all producers, private
and public, compete for long-term contracts
with large customers and for spot sales in
the wholesale market. (For a discussion of
what Mexico can learn from the experience
with competitive electricity markets in other
countries, see Mexicos Electricity Sector
Reform in Perspective, associated with this
issue in the archives at powermag.com.)
IPPs that have been selling their electricity
to CFE account for 75% of currently installed
combined cycle capacity, all built within the
last 10 years. They, and new IPPs, should
easily displace CFE in a competition for
large customers. The prospects for this scenario becoming reality hinge on two conditions being met.

The Players and the Field

The first requirement is creating a level playing field between existing IPPs and CFE
and between them and new generators. IPPs
28

currently sell all of their energy to CFE under 25-year contracts. The law says that the
new CFE will inherit these contracts, which
would continue at least until 2025, as IPPs
were incorporated into the electricity sector
beginning in 2000. As long as these contracts
remain in place, any new capacity would exist at the margins of a system that looks very
much like the current one. If existing contracts with IPPs are revoked, then existing

right signals to new investors, CFEs prices

would need to become more transparent. Dispatch in a competitive electricity market is
based on declared costs, which are difficult to
ascertain as long as CFE continues to operate
a vast array of generating plants as one commercial unit. Subsidies, if not clearly separated from the rest of CFEs operations, also put
CFE in a position to undercut the competition
for long-term contracts with large users.

In order for the market to send the right

signals to new investors, CFEs prices would
need to become more transparent.
and new IPPs will be able to participate in
the market and compete for large customers.
Private generators, however, will still have to
interact with CFE to reach their customers,
because CFE continues to own the transmission and distribution systems through which
all users must operate.
In order for all generators to compete on
equal footing, regulatory authorities will
need to guarantee adequate access to transmission and distribution systems. This includes a pricing mechanism that does not
discriminate against any generator or large
user, while taking into account the investment needed to address existing transmission
bottlenecks and accommodate new generation. This is particularly important for new
generators wishing to enter the market to take
advantage of the difference between their
production costs and system prices. With
two-thirds of installed capacity, including the
least efficient oil-fired units, CFE will set the
marginal cost of the system. High spot prices
should signal investment from new firms
and prompt existing IPPs to add new capacity to their plants; any barriers to new firms,
such as permitting and transmission pricing,
will create an advantage for incumbent generators, who benefit from keeping spot prices
high and competition out.
Also, in order for the market to send the
www.powermag.com

Got Gas?
The second condition for the successful entry of new IPP generation into the Mexican
electricity market is the availability of natural gas. Most recent capacity additions have
been combined cycle plants fueled by cheap
natural gas imported from the U.S. Pipelines
are currently operating at full capacity, and
electricity generation has been competing
with industry for natural gas supply, forcing
industry to resort to expensive imports of liquefied natural gas. A new pipeline from Agua
Dulce, Texas, is expected to come online by
the end of 2014, and applications for additional pipelines are aiming to more than double the previous volume of imports (about 1.8
billion cubic feet per day in 2013). The timing of these additions will determine the pace
of new generation coming online.
Whether Mexico offers attractive opportunities for private investment in electricity will be determined by the Market
Rules due to become public in 2015. These
rules should focus on adequately addressing CFEs market position such that new
generation can be built on the basis of
long-term contracts with large consumers
at competitive rates.

Sylvia Gaylord, PhD is an assistant

professor at the Colorado School of Mines
and an energy consultant.

POWER January 2015

2015 INDUSTRY FORECAST

Grant Grothen

Block Andrews

he power generation market continues

to evolve due to fundamental changes
in market forces. Ongoing opportunities exist to partner with utilities to support
this evolutionary process.

Leadership Is Key for U.S. Market

Players
A strategic leadership vision will be critical to thriving in the U.S. power generation
market over the next 10 years. Utilities can
no longer follow market trends and expect to
be successful. Long-term financial success
will only be achieved through implementing
strategies that optimize operational and capital spending to capture market opportunities
and hedge against market upsets.
Utility executives must choose a strategy
of engaging the market either as a marketmaker, owning generation resources, or as a
market-taker, exposing ratepayers to both
the benefits and whims of ever-evolving
power markets. While power markets have
proven their ability to realize efficiencies by
incorporating larger and more diverse generation resources, the risk of financial and political exposure due to reliability challenges
or an event similar to the California energy
crisis continues to pose significant risk. Planning has always been part of the regulatory
process; however, due to the Environmental
Protection Agencys (EPAs) proposed Clean
Power Plan, state regulators, regional transmission operators, and utility executives are
now being forced to engage in a more comprehensive discussion of all aspects of power
generation and delivery.
Smaller utilities must no longer rely on the
strategies of larger utilities, but must learn to
operate within power markets by hedging
existing portfolios, balancing operational
issues against environmental constraints,
and managing capital projects in an industry
landscape with questionable long-term returns. Any utility, regardless of size, lacking
a strategic leadership vision will be subjected
to market pressures that may eventually lead
to acquisition. Today, even identifying market trends is more difficult, as numerous lo-

January 2015 POWER

Opportunities to Thrive
in Evolving Power
Market
cal driverssuch as fuel mix and renewables
integrationare resulting in seemingly conflicting market strategies.

Asset Optimization Is Critical

Identifying more-efficient strategies to derive value from existing assets is necessary
for every utility, but it has never been more
challenging than it is today. As existing fossil capacity retires, power markets appear
oblivious and fail to reflect the change via
price signals to ensure continuous investment in new and existing assets. Instead,
generation plants must operate reliably even
with minimal power sales revenue. Most
generators are considering options for reducing operational costs through creative
measures such as exploring alternative fuels, using more contract staff, optimizing
plant efficiency, and benchmarking performance against top performers.
Without power market pricing signals to
support longer-term investments, many utilities are now focused on short-term methods
for delaying large capital investments in their
generation fleets. The rapid growth in transmission and distribution spending in the U.S.
market is a result of efforts to redirect investment away from generation assets while eliminating transmission constraints and realizing
the benefits of a larger, more-efficient power
market. Even with these additional benefits,
the markets remain challenged with accommodating new intermittent renewable wind
and solar generation, additional environmental constraints limiting plant operations, fuel
delivery challenges, and integrating nuclear
power as a baseload resource.
Many plants have been operated for years
primarily as a source of baseload megawatthours. Utilities now face the need to meet
stringent new emissions regulatory requirements, leading to integrating complex air
quality control, water treatment, and solid
waste treatment systems into existing facilities. The consequence of an emission
exceedance is significant and can risk the viability of an assets continued operation. The
EPA continues to march forward with many
www.powermag.com

regulatory initiatives, most of which are unlikely to be dampened by the recent change in
political direction, with the potential exception of the regulatory approach to addressing
climate change.

GDP Growth Fuels International

Markets
Many international markets continue to experience accelerated gross domestic product
(GDP) growth, leading to expansions of power generation and distribution systems. While
renewables will play an expanding role in
U.S. and European markets, the vast majority
of capacity additions in the rest of the world
will be new fossil fuel or nuclear generation.
Coal will remain the economic fuel of choice
for larger facilities, supplied through substantial growth in mining capacity, particularly in
China, India, and Indonesia.
Air quality has degraded significantly
in many international markets over the past
20 years with the rapid expansion of manufacturing and fossil generation facilities.
Consequently, the market for incorporating
lower-emissions environmental technologies
in both new and existing facilities continues
to expand. Technological successes that led
to significant improvement in U.S. air quality
are being implemented in numerous international markets. New generation will focus on
the most efficient fossil fuel generation technologies that not only reduce greenhouse gas
emissions but also reduce fuel costs. While
nuclear remains an economic choice in many
markets, its future is uncertain.
The World Energy Outlook finds that
almost 18% of the world population lacks
access to electricity. That translates into
huge market expansion potential for the
entire power industry and requires a diverse array of generation technologies to
meet the challenge.

Grant Grothen (ggrothen@burnsmcd.

com) is principal, Energy Global Practice, and Block Andrews (bandrews@
burnsmcd.com) is strategic environmental
solutions director, Energy Global Practice
at Burns & McDonnell.
29

NUCLEAR

Small Modular Reactors Speaking

in Foreign Tongues
Highly touted by the U.S. nuclear industry and heavily funded by the U.S. government, small modular reactors have largely entered the realm of mythology in this country, slipping into the mists of economic impracticality.
Not so elsewhere in the world, where some real projects are under way.
Kennedy Maize

lmost a year ago, workers began pouring concrete for the basemat of the first
small modular reactor (SMR) in the
western hemisphere. Despite the hype over
SMRs in the U.S., with hundreds of millions
of Department of Energy dollars available in
a competition among several deep-pocketed
private-sector nuclear reactor designers over
the past several years, the concrete was not
flowing in the U.S. It was in Argentina.
Argentinas National Atomic Energy
Commission (CNEA) is building a 25-MW
unitknown as CAREM or Central Argentina de Elementos Modulares. It is a small, integrated, pressurized-water reactor some 60
miles northwest of Buenos Aires at the site of
the countrys two-unit Atucha nuclear plant
(Figure 1). CNEA says the CAREM unit,
with a capital cost of $446 million, should
begin cold testing in 2016 and go critical
in 2017. Given Argentinas past experience
with atomic power, that schedule may well
be optimistic. But the country is clearly on a

path to developing an SMR far ahead of the

better-financed U.S. industry.
The Argentines are justly proud of the accomplishment so far. Norma Boero, CNEA
chairman, said at the ceremony for the concrete pour last February, Although there are
other similar reactor projects in the world,
this is the first to start construction, which is
a pride not only for the nuclear industry but
for all Argentinians.

Small Reactors, Big Hopes

What are small modular nuclear reactors?
Most analysts look at machines with nameplate capacity of 200 MW or less as the basic
characteristic of the SMR. The plants are also
designed to be capable of scaling up by adding
additional units, and to be factory-fabricated
with components shipped to the construction
site, not the historical stick-built, one-of-akind plants (see When It Comes to Nuclear
Plants, Is Small Beautiful? in the December
2013 issue).

1. Groundbreaker. Last year, Argentina became the first nation to begin construction of
a small modular reactor with its 25-MW CAREM design at the Atucha nuclear plant. Courtesy:
National Atomic Energy Commission of Argentina

30

www.powermag.com

According to the International Atomic Energy Agency (IAEA), some 40 SMRs are either under construction or have conceptual or
detailed designs around the world, with five
of those in the United States. But the U.S. has
fallen well behind in this field. In addition to
Argentina, which plans a 100-MW plant if
CAREM 25 works well, the leaders in the
SMR game are, in no particular order, Russia, China, and South Korea.
Two months after concrete began hardening in Argentina, China Nuclear Engineering
Corp. (CNEC) began pouring the basemat for
a demonstration 2-x-105-MW high-temperature gas-cooled reactor in Shandong province. Construction began a week later. World
Nuclear News reported, Another 19 of the
small modular reactors could follow. CNEC
is bullish on SMRs to supply power in vast
areas of the country that are now beyond the
reach of the Chinese electrical grid.
Russia has pursued small reactors for
a long time, and its KLT-40S is a unique
approach to the technology. Long under
development, this 2-x-35-MW light-water
reactor project is a barge-based, floating
nuclear plant. The first iteration is the Akademik Lomonosov, scheduled to be delivered to the Rosenergoatom nuclear utility
late next year. The project has been under
way for nearly a decade, accompanied by
hints of scandal, a shipyard bankruptcy,
and a cost by official Russian estimates of
$239 millionwhich some observers suspect is seriously understated.
Perhaps the most ambitious SMR program
can be found in South Korea, which calls
its 100-MW design the System-integrated
Modular Advanced Reactor, or SMART, designed by the Korea Atomic Energy Research
Institute (KAERI). According to an analysis
by the World Nuclear Organization (WNO),
KAERIs design could also be used for desalination, producing 90 MW of electricity

POWER January 2015

NUCLEAR

South Koreas SMART Approach to Small Modular

Reactors
South Korea began the conceptual design
for its System-Integrated Modular Advanced Reactor, or SMART, in 1997, with
the basic design completed in 2001 (Figure 2). The design firmed up and was developed and components tested over the
next decade, with the Korea Atomic Energy
Research Institute (KAERI) spending some
$300 million and 1,500 person-years on
the project, which won approval from the
Korea Institute of Nuclear Safety, the governments nuclear regulator, in mid-2012.
The approved design is for a 300-MWt
reactor, with up to 100 MW in electrical
output. It is also suited for thermal applications such as desalination.
According to the World Nuclear Organization, SMARTs design life is 60 years, fuel
enrichment is 4.8%, and the design features
a three-year refueling cycle. As in many
SMRs, the residual heat removal is passive.
According to KAERI, the passive heat recov-

along with 40,000 cubic meters/day of freshwater. The design has won standardized approval from Koreas nuclear regulator, which
Korea Electric Power Co. touts as a selling
point in its literature (see sidebar). WNO
commented, While the design is complete,
the absence of any order for an initial reference unit has stalled development. KAERI
has said it wants to build a demonstration
plant to operate in 2017.

Long History
Small reactors are familiar to the nuclear industry, which began with small machines that
bulked up over the years to take advantage of
economies of scale. The legendary Shippingport nuclear plant in western Pennsylvania,
the first fully commercial pressurized-water
nuclear plant, entered service in 1957 and
was rated at 60 MW. The U.S. military and
the Soviet Union spent considerable sums in
the 1950s and 1960s on designs for small,
transportable, remote reactors and for reactors to be used in ship propulsion.
Many of todays SMR plans have their
roots in naval reactor technology, as did
Shippingport. Its technology was based on
Westinghouse reactors that powered the
first U.S. nuclear submarines. Argentinas
CAREM 25 reactor design came from the
Argentine navy. The country unveiled the
design at a 1984 IAEA conference. The project then got shelved, but was revived in 2006

January 2015 POWER

2. SMART design. South Koreas

300-MWt SMR design could be up and
running by 2017. Courtesy: Korea Atomic
Energy Research Institute
Control rod drive
mechanism
In-core instrument
nozzles
Reactor closure
head
Reactor coolant
piping
Steam
nozzle
Feedwater
nozzle

Reactor vessel
support structure

ery design gives the plant a 20 days grace

period against Fukushima-type accidents.
In the design, all fuel is submerged in
water and the containment building can
withstand a crash from a Boeing 767. The
containment also includes a passive hydrogen removal system to prevent hydrogen explosions.

as Argentina moved to revitalize its nuclear

power program in the face of limited supplies
and high prices for imported natural gas. Argentina has few easily accessible indigenous
energy resources.
Russias floating nukes also rely on maritime technology, reactors developed for its
successful fleet of nuclear icebreakers, dating back well into the days of the Soviet
Union. The nations first nuclear icebreaker,
the NS Lenin, was launched in 1957, the
same year that Shippingport went into commercial service.
In the U.S., two of the major SMR industrial developers, Babcock & Wilcox and
Westinghouse, both have extensive experience with naval reactors. But that technology advantage has not provided commercial
leverage, as both companies have scaled
back their SMR programs in the face of a
lack of demand for their product (see What
Went Wrong with SMRs? in the September
2014 issue).

Short on Results
What accounts for the inability of the U.S.
(and European, for that matter) market to embrace SMR technology, when less-developed
and lessfinancially muscular countries and
utilities are moving ahead?
Giorgio Locatelli of the UKs University
of Lincoln, who published a recent paper
on the economics of SMRs, Small Moduwww.powermag.com

lar Reactors: A Comprehensive Overview

of Their Economics and Strategic Aspects,
argues that the smaller reactors make sense
in developing countries, where it can be
very tricky to get equity to make the investments. But with a small modular reactor, you build the first one, which comes
cheaper, and then when youve raised more
money you create the second, and then you
start to sell electricity with the first and the
second, and by selling electricity you can
finance the construction of the third and
then the fourth.
He contrasts that with the mammoth 16
billion ($25 billion) Hinkley Point nuclear
project in the UK. If you are building a nuclear reactor with 16 billion investment and
then you decide not to go ahead with the infrastructure and stop it, you have 16 billion
in funds that you are not able to recover. If
you have a small modular reactor, the financial risk is reduced.
So why have the U.S. and the Europeans not been successful with SMRs? Locatelli pointed to natural gas, noting the
low cost. The point is, he said in an interview with power-technology.com, that
if you build a combined cycle gas power
plant, it is very easy and cheaper to build
and if the gas is cheap it is also cheaper
to operate.
Veteran nuclear power observer Chris
Paine of the Natural Resources Defense
Council, after attending an SMR conference in Washington last year, noted another
problem with the economics of SMR projects, regardless of where they are located.
Nuclear reactors, he wrote, historically
have evolved to very large single-unit sizes
in order to distribute the very large initial
fixed capital costs of nuclear power over a
larger base of electricity sales, or put another way, to reduce the fixed capital cost requirement per megawatt-hour of electricity
produced. But a multi-unit SMR inverts this
economic logic, producing fewer kilowatt
hours from a larger physical capital investment per unit of capacity.
Outside the developed world, the economics are often different, or even irrelevant, with
state-supported projects, state-monopoly
companies, and generally streamlined regulatory regimes dominating the economic and
political environment for nuclear power. In
countries such as Argentina, China, Russia,
and South Korea, the seller of the technology
and the buyer are essentially the same, just
wearing different hats.

Murky Future
University of Lincolns Locatelli noted that
it will take a first mover to get the SMR
market off the ground, and thats likely to
31

GENERATE SOLUTIONS FOR

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NUCLEAR
come from outside the U.S. Historically,
he said, all nuclear reactors have looked
great on paper, but when they start to be
built, there could be trouble. So with some
designs there was massive cost escalation,
which is an issue for a private utility, but
if someone starts to build the reactor and
proves that it is possible to build on time and
on budget, then other utilities can be more
confident in their investment. At the moment, every utility is waiting for someone
else to be the first to build.
Where might the first mover be located?
If I was going to bet, said Locatelli, they
will build one in South Korea and the goal
there will be to prove that they can build faster and safer and then they can export. Another one will probably come up in Russia, but it
is a very peculiar market that is not open like
the United States.
Of the two-score SMR projects that
the IAEA is tracking, few are likely to
see the lights come on from their output.
Twenty-three are in either the conceptual
design or basic design categories, and
only three are actually under construction.
The remainder are classified as detailed
design. If history is a guide, many will
fail moving forward. That has long been

the pattern with nuclear technology, where

only light-water reactors (LWRs), Canadian heavy-water machines, and a handful of Soviet-period graphite-moderated
Chernobyl-style machines evolved from
the early days of design into the world of
generating commercial power.
The list of aspiring SMRs embraces a
range of technologies that includes conventional LWRs, fast-neutron reactors, heavy
watermoderated technologies, high-temperature graphite reactors, sodium-cooled fast
reactors, lead-cooled fast reactors, and leadbismuth-cooled fast reactors. It is doubtful
that any of the more exotic technologies will
get beyond engineering drawings.
Perhaps the most practical judgment comes
from the late Admiral Hyman G. Rickover
(19001986), the father of modern nuclear
power technology, who was quoted in an
analysis of SMR technologies by the WNO.
In 1953, about the time the first U.S. test reactor started up, and two years before the launch
of the U.S.S. Nautilus, the first atomic submarine, Rickover, an engineer to his core, said:
An academic reactor or reactor plant almost always has the following basic characteristics: (1) It is simple. (2) It is small.

(3) It is cheap. (4) It is light. (5) It can be

built very quickly. (6) It is very flexible in
purpose. (7) Very little development will
be required. It will use off-the-shelf components. (8) The reactor is in the study
phase. It is not being built now.
On the other hand a practical reactor
can be distinguished by the following
characteristics: (1) It is being built now.
(2) It is behind schedule. (3) It requires
an immense amount of development on
apparently trivial items. (4) It is very expensive. (5) It takes a long time to build
because of its engineering development
problems. (6) It is large. (7) It is heavy.
(8) It is complicated.
The tools of the academic designer
are a piece of paper and a pencil with an
eraser. If a mistake is made, it can always
be erased and changed. If the practicalreactor designer errs, he wears the mistake around his neck; it cannot be erased.
Everyone sees it. The academic-reactor
designer is a dilettante.
Little thats happened in the 60 years since
suggests Rickover was wrong.

Kennedy Maize is a POWER

contributing editor.

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than 4,500 U.S. and Canadian generating plants.
The directory provides:
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contact names, titles, and primary job functions.
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34

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For more detailed information and a list of all available data,

visit us online at UDIDATA.COM or contact the UDI Editorial
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www.powermag.com

POWER January 2015

RENEWABLE POWER

Reducing Weather-Related Risks

in Renewable Generation
You cant control the weather, but you can control how you handle the ways it
affects your renewable plant. From financial hedging to accurate predictions, the tools in a plant owners arsenal are more capable than ever.
Thomas W. Overton, JD

he Black Oak Wind Farm project is an

11.9-MW wind facility under development in Tompkins County, N.Y., a few
miles west of Ithaca. For the most part, Black
Oak is unremarkablethe communityowned facility will consist of seven GE 1.7MW turbines and will sell power under a 10year power purchase agreement (Figure 1).
But Black Oak is a groundbreaker in one
very important respect: It is the first wind
project to use a long-term hedge mechanism
to protect its investors against future windrelated risks to its income. Provided by asset
manager Nephila Capital, the wind hedge,
which settles off actual power production
rather than wind speed, allows Black Oak
to transfer the risk of lower-than-expected
wind volumes, thus giving the project improved revenue certainty over the duration
of the hedge.
Marguerite Wells, Black Oaks project
manager, told POWER they decided to go
with a wind hedge because her group has so
few resources behind it. We were interested
in finding the cheapest financing we can and
reducing the cost of capital. With little background in power generation, Wells was looking to play it safe.
In discussing a possible power purchase
agreement between Black Oak and nearby
Cornell University, Wells was introduced to
Boston-based firm REsurety. She explained
that in her initial dealings with potential financing companies, the costs of financing the
project threatened to end it. This was because
of the very conservative assumptions the financing groups were making about the wind
farms potential revenue.
The hedge, Wells explained, makes sure
we can always pay our debts. If revenue is
down because wind volumes are lower than
expected, the project will be protected. Even
better, she said, [the hedge] even pays for
itself in a slightly lower cost of capital. Peoples investments are more secure, so they
can take a lower rate of return.
Still, Wells confessed that it took her a few
weeks to get her head around the idea.

January 2015 POWER

Old Idea, New Applications

REsurety worked with Black Oak and Nephila to structure the hedge. Lee Taylor,
REsuretys CEO, told POWER that while
the approach has considerable promise for
renewable generatorsthe firm currently
has hedging contracts under review or in the
structuring process for more than 300 MW
of capacityits still a new idea with some
unique characteristics.
Weather-related hedging mechanisms are
routine in other forms of generation but are
so far almost unheard of in renewables, despite the obvious benefits hedging could provide. In some respects, such mechanisms are
like other types of risk management: They
transfer risk from one party seeking to increase the stability and predictability of its
investments to another party looking to aggregate and diversify exposures, collecting a
premium in exchange for their risk-taking capacity. But there are also some important differences, Taylor said. The risk-takers in this
market operate more like insurance firms

and in some cases are insurance firmsthat

have a fundamentally different outlook than
a trader.
The main distinction with renewables,
especially wind, is that the risks are tied to
much-less-easily correlated indexes than
heating- or cooling-degree days and fuel
prices. The basis risk uncertainty in wind
hedging has kept a lot of potential buyers
out of the market, explained Taylor. Because wind speed and solar insolation are so
localized, it is difficult to accurately predict
power output across an entire wind or solar
farm from a single meteorological station.
Also, wind power generation is not perfectly
correlated with instantaneous wind speed because other weather-driven factors like shear,
temperature, direction, and turbulence can all
influence power output. That means that new
and sophisticated analytics and data are necessary to structure and settle a wind hedge.
REsurety, for example, employs its analytics
in order to structure weather hedging contracts that settle off of actual power produc-

1. Hedged. The Black Oak Wind Farm project in western New York, shown in this photo
mock-up, is using a financial hedge to protect its investors against lower-than-expected output.
Courtesy: Black Oak Wind Farm

www.powermag.com

35

RENEWABLE POWER
tion, not wind speed.
Still, according to Taylor, several macro-factors have increased the attractiveness of wind hedges. As wind generation
has become a more mature industry, turbine hardware and development costs have
fallen and become more standardized. At
the same time, project outputs across the
industry have in many cases fallen well below projections, while some areas have experienced prolonged, unexpected periods
of low wind volume.
This latter factor has resulted in lenders
taking much more conservative approaches to
project loans, assuming worst-case-scenario
wind volumes. It is not unusual for wind farm
lenders to assume annual wind volumes that
are 30% (or more) below expected levels.
With assumed revenue being so much lower,
access to debt financing is restricted and the
cost of that debt can increase, perhaps to the
point of making the project uneconomic, as
Wells discovered.

Shifting Risk
Of course, a hedge is not just about reducing
one partys costs of financing. It also requires
a second party willing to take on that risk.
And its there that wind and solar hedging is
still in the early stages.
From one perspective, renewable risk hedging is attractive to large investors, because it
is not correlated with the performance of the
financial markets and is mean-reverting (in
other words, over time, wind volume will
tend to remain near historical averages). But
while the financial markets have a wide variety of parties willing take on all sorts of risks,
the opportunities for accessing wind volume
risk are limited because active risk-transfer
markets for it are limiteda party wishing to
offload the risk later may have trouble finding
a buyer. Taylor said that right now, reinsurance firms and large institutional investors, in
the form of investor-linked-securities funds,
are the main customers.
There are various ways such a hedge can
be constructed. One way in which wind
hedges differ from other hedges in the energy
sector is that longer terms are available, up to
10 years (as is the case for Black Oak). This
is because, in contrast to fuel price hedges,
in which uncertainty increases the further
out one goes, wind volume tends to become
more predictable over longer periods because
weather patterns are expected to revert to the
mean. This makes the risk for wind farm output more quantifiable.
Hedges can also be structured either as
swaps, where there is a single price point
(strike) determining which party pays
out, or as collars, where there are upper and
lower strikes, in between which neither par36

2. Cloudy record. Solar irradiance levels in the U.S. in summer 2014 were considerably
below average across much of the country, including in normally sunny areas such as Nevada
and California. Courtesy: 3TIER/Vaisala

ty pays. A study Taylor conducted in 2013

demonstrated that collars tended to produce
the biggest increase in a projects net present value, though in every case REsurety
considered, hedging wind volume risk produced an increase.
Given the apparent advantages of hedging wind volume risk, why hasnt it caught
on yet?
One barrier is that awareness of these
financial instruments appears quite low:
Many project owners may not even be aware
they exist.
Second, because the sector is so new, little
standardization exists in the market, meaning that solutions must be custom-tailored
for each project. That makes it harder to find
parties willing to take on the risk.
Third, accurate risk assessment for something as variable and localized as wind farm
output requires highly robust data. Past efforts at risk trading in wind power typically
foundered on poor data, which made the
products uneconomic for wind developers.
Its there that things may finally be
changing.

Time for Big Data

Obviously, weather-related hedging depends
heavily on predicting the weather, and predicting the future requires understanding of
past trends. But many of the factors affecting wind and solar plant performancesuch
as solar irradiance and highly localized wind
speedshavent been measured to the degree necessary to make accurate predictions
of output, until relatively recently, which
means the data quality hasnt been good
enough for this sort of risk assessment. And
www.powermag.com

its also taken advances in computing power

and data mining to make use of the information. Put another way, the number crunching
simply hasnt been up to the task until the
past couple of years.
Seattle-based 3TIER, a subsidiary of
Finnish company Vaisala, provides weather
forecasts for 130 GW of renewable capacity worldwide, amounting to more than 900
different projects. Its developed robust
datasets of wind speed and solar irradiance, but its solar dataset for the U.S., for
example, goes back only about 15 years (its
wind data is more robust, going back about
twice that far).
Still, what its seen is that even desert locations during the summer, far from being
continually sun-drenched, in fact experience
considerable variations in year-over-year irradiance. Its 2014 review of June-to-August
irradiance showed most of the U.S. falling
at least 10% below the 15-year average
(Figure 2).
Of particular note in the 3TIER study
was a focus on the Ivanpah Solar Electric
Generating Station in California (POWERs
2014 Plant of the Year), which has drawn
controversy this summer for falling below its
planned output. The 3TIER study found that
the Ivanpah site experienced direct normal
irradiance 5% to 8% below average in July
and August. Further, the site has experienced
solar irradiance either above or below expectations in 10 out of 15 summer months over
the past five years.
The impact of solar variability on the
balance sheet can and will make the difference between profitability and loss, Richard
Pyle, Vaisalas energy segment director said.

POWER January 2015

RENEWABLE POWER
It therefore has a significant influence not
only on individual project sites but also on
the international standing of solar energy as a
viable investment proposition.
What this suggests is that even optimal
sites like Ivanpah can expect to see considerable variation in output. Worse, there
is a growing consensus among experts in
the field that reliance on only a few years
of data, or even a single year, in forecasting
renewable plant output places project owners at considerable risk of over- or underperformance in the long term. As datasets
grow, its become clear that anomalous levels of wind volume and solar irradiance can
persist for up to 10 years or more, and that,
like rainfall, periodic wind droughts can
be expected.
The problem goes beyond utility-scale
generation. One of the biggest current challenges for utilities in the western and southwestern U.S. is variable output from rooftop
solar panels. Yet very little data collection
exists to understand how much rooftop solar
power is being generated moment-to-moment. But an innovative project from Boulder, Colo.based Enduring Energy named
Solar Retina aims to change that.
The Solar Retina project hopes to gather
crowd-sourced information on rooftop solar
generation directly from homeowners in order to create a real-time, region-wide picture
of how much electricity is being generated.
Though still in the early stages, the project
shows potential.

Making It All Work

All of this means generators and utilities need
to be well prepared for variations outside normal daily fluctuations. Yet that as well is new
territory for many in the power sector.
John Dirkman, senior product manager,
smart grid global, with Schneider Electric,
told POWER that while using weather forecasts to support reliability and anticipate
outages is old hat for utilities and generators
worried about bad weather or hurricanes, its
been much less of a concern for entities in
areas like the western U.S. and Hawaiiup
to now. If youve got a large percentage of
renewable generation on your grid, weather
becomes a real concern.
Dirkman explained how Schneider Electric recently worked with Burbank Water &
Power in suburban Los Angeles to help that
utility better plan for fluctuations in wind
and solar output. Using decades of load
history, combined with weather data from
the National Oceanic and Atmospheric
Administration and other sources, their advanced distribution management system is
able to accurately predict output so that the
utility can better meet demand rather than

January 2015 POWER

needing to patch last-minute shortfalls in

generation.
The system is sophisticated enough to
predict not just daily trends but also minuteto-minute output by tracking incoming cloud
cover and localized wind patterns. This gives
the utility a much greater ability to plan its
generation and reduce spot-market purchases. It also enables it to keep its system in better balance by reducing unexpected changes
in supply and demand.
The uncertainties of the weather will al-

ways be a major factor in renewable plant

operation, but its clear more tools than
ever are available to improve efficiency
and profitability. And that opens the door
to players who might be unable to participate otherwise.
To be honest, I would be nervous building this project without the hedge, Wells
said. I am just a little person who happens
to have access to a windy spot.

Thomas W. Overton, JD is a POWER

associate editor.

If you need information on

the global power
generation industry,
look to
first.

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37

RENEWABLE POWER

Small Hydropower Advances and

Challenges in China
In many countries, the days of massive hydropower projects appear to be
waning, for an array of environmental and cultural reasons. As in other
parts of the world, small hydropower is becoming increasingly important in China.
Liu Ximei and Zeng Ming

n China, small hydropower (SHP) development not only provides power, especially to rural areas, but it also plays an
important role in developing local economies
and human capacity building. Regions, rather
than the central government, are responsible
for most planning, developing, and management of these smaller but essential systems,
which are designed to provide local power
for local communities. What follows is a
condensed version of the online feature The
Outlook for Small Hydropower in China
associated with this issue in the archives at
powermag.com.

Clean, Local Power Development

SHP construction in China was initially aimed
at supplying electricity for mountainous areas in collaboration with small-scale water
conservancy projects. China has an estimated
120 GW of potential SHP resources. By the
end of 2011, more than 45,000 SHP stations
were built with a total installed capacity of
62 GW. Small hydropower installed capacity and annual power generation accounts for
about 27% of Chinas hydropower.
SHP is an essential part of Chinas efforts
to add clean power capacity and is part of
its small hydropower substituting for fuel
plan, introduced in 2012. Investment in the
sector from the central government continues to increase, although local financing is
also emphasized.

Unique Circumstances
Several aspects of SHP development in China are different than in other countries. Many
have helped support the sectors development, although challenges remain.
Decentralized, local development and
management of SHP is one distinguishing
characteristic. While the development strategy, objectives, standards, guidelines, and
policies of SHP are formulated by the central government, other planning plus design,
development, operation, management, and
38

equipment manufacturing of SHP are undertaken by local governments.

Given the size of China, electrifying rural
areas has been a challenge. Rather than rely
solely on the larger transmission system,
local generation and distribution have been
important, and SHP has been a key part of
such development.
Funding for SHP from multiple sources is
encouraged and can range from individuals
and groups of farmers to foreign investment.
Preferential, supportive policies, including
lower value-added taxes, also help to support
the sectors development.
With the focus on local development and
management, economical and practical technology choices have been central to success.

Challenges Ahead
As with most power generation development
projects, SHP development in China faces a
number of challenges.
Market Policy. Energy policy reforms
designed to reduce monopoly power, which
include the separation of generation and
transmission ownership, have made progress
but have also led to unexpected complications. For example, when competition in the
electricity market is intensified and is added
to external administrative intervention, electricity market confusion is likely to emerge
in SHP supply regions, especially because
rural electrification cooperatives are nonprofit electricity enterprises. For the future
of rural areas in China, a stable rural electricity market is needed.
Decentralizations

Disadvantages.

Given the small size of a single power station, SHP is a vulnerable industry. The development of SHP in the future depends
largely on whether its social benefits, environmental benefits, and welfare status will
be recognized by the entire society. Because
the whole society is the beneficiary of the social and environmental benefits derived from
SHP, it is reasonable to pay a certain price;
www.powermag.com

however, the problem is that society does not

take the initiative to pay such costs.
Technology Roadblocks. In general,
SHP technologies should be compatible with
the local development level, striving to enable
simplicity and low-cost development and
management. However, operators often focus
only on immediate benefits, lacking long-term
awareness, and are unwilling to spend money
to engage in technological innovation.
Institutional Issues. After 1998, China
began to carry out large-scale two reforms
and one price work, which referred to reform of the rural power management system,
the transformation of rural power grids, and
achieving the same price in urban and rural
power networks. Due to the relevant departments one-sided understanding of the State
Councils documents, they expanded their
monopolistic range, encroached on local interests, harmed the interests of the masses,
and created institutional barriers depending
on two reforms and one price, making any
measure promoting the development of SHP
policy measures difficult to enforce.
Supply (Distribution) Areas and GridAccess Issues. The well-established policy

of small hydropower should have its own

power supply areas has greatly promoted
development of SHP and rural electrification.
However, there is an inherent conflict with
this principle because all generating capacity
must access a large grid. Further, the central
power enterprises with a monopoly position
allow less grid-connected electricity for SHP
generation enterprises, so the excess is called
invalid electricity. Even if it is integrated in
the grid, there is almost no profit. Meanwhile,
the tariff for SHP is also far lower than that of
thermal power. As a result, this unreasonable
situation is a severe blow to the development
of small hydropower.

Dr. Liu Ximei (meimeiliu126@163.com)

and Prof. Zeng Ming are in the School of
Economics and Management, North China
Electric Power University, Beijing, China.

POWER January 2015

TRAINING

Utilizing 3-D Virtual Reality

Visualization for Efficient Power
Projects and Training
It may look, feel, and sound like a video game, but 3-D virtual reality visualization software offers much more than fun. Power professionals are utilizing it for immersive operator training, engineering design review, plant
operations and maintenance work, and crisis simulations.
Manuel Keldenich

he global power industry is becoming

increasingly complex. Trends toward
greater amounts of variable renewable
energy are changing the requirements for
conventional power plants. Energy market
policies are increasing cost pressure. Infrastructure is growing outdated. Regulatory
requirements are becoming stricter. Meanwhile, generators must continue efforts to
more efficiently manage knowledge and information, while their personnel must be better trained in risk awareness.
New technologies are helping to address
many of these issues. However, the industry
trend toward technology-focused solutions
requires preservation of the highest possible
data quality and the optimization of legacy
systems. Thats not always easy, because often, connectivity barriers between different
systems and applications prevent effective
communication between islands of responsibility. Upgrading interdisciplinary systems
with more components and more intelligent
technologies leads to larger amounts of, and
more complex, plant data. That makes it
important to enable integration between information technology platforms when redesigning related processes.

Expanding Data Needs

Making plant data available and manageableany time and anywherein a consolidated system is one of the industrys major
challenges. Data handover from engineering
to plant operations must improve in order to
maintain efficient operations. Another challenge is that an increasing volume of data
must be dealt with quickly, which leaves
little time to assess critical situations. An
additional consideration is the need to keep
knowledge of all that data and the operations
it represents within a company as the current
workforce ages and retires.

January 2015 POWER

Training is costly. Yet it is essential, because demands on staff continue to increase,

and inexperienced personnel must be brought
up to a certifiable level of proficiency to operate safely in potentially dangerous industrial
facilities. These days, the new workforce also
wants to access information and work more
efficiently and intuitively.
One way to achieve those goals, and a
requirement for effective plant management
generally, is optimum networking and coordination of all disciplines and departments
involved in the engineering and operation
of a plant. One solution that can be used for
the task is Siemens COMOS software. With
its unified data platform, COMOS provides
plant design engineers, plant operating personnel, company management, and solution
partners with a continuous flow of data that
meets their specific needs across all project
phases and disciplines involved. COMOS
acts as a global data hub for all aspects of

asset information management and, thus,

provides reliable plant and project documentation. The use of intelligent 3-D models enabled through COMOS Walkinside can make
plant engineering and operation safer and
more efficient.

Virtual Worlds
COMOS Walkinside is a powerful 3-D virtual
reality (VR) visualization software solution
that directly accesses all plant information to
display the current status of a plant in visually appealing and realistic 3-D graphics. It
does so by merging native files from diverse
data sources and proprietary formats. COMOS Walkinside automatically reads information on geometry, computer-aided design
(CAD) hierarchy, engineering database, and
textures during the conversion process from
the various CAD files, making initial 3-D
model creation and subsequent updates easy,
fast, and convenient (see sidebar).

COMOS Walkinside at a Glance

The COMOS Walkinside 3-D asset portal ensures a common understanding of a plants
actual state for all project stakeholders.
The system features:

Intelligent connection of geometrical

virtual reality model objects with plant
data.
Implementation of comprehensive engineering processes in 3-D through all
plant lifecycle phases.
Bidirectional linking with document
management systems, computerized
maintenance management systems, and
other plant-specific systems.

www.powermag.com

Visualization of real-time and historian

distributed control system data.
Access to all relevant plant data for operation/maintenance.
Benefits include:

Faster project execution, plant commissioning, and startup as a result of

improved collaboration.
Cost savings through consistent and
always-available asset information.
Fewer incidents and accidents.
Higher plant availability.
Safe and efficient plant operations.

39

TRAINING
COMOS Walkinside enables the use of
3-D engineering data from the basic and detail engineering phases to the as-built phase
during operations, providing completely
transparent real-time asset information
throughout the entire asset lifecycle. Highly
complex process plant 3-D CAD models can
be visualized immediately, while navigation
is easy and game-like.
Using COMOS Walkinside as a 3-D asset portal enables all project stakeholders and
decision-makers easy access to all plant information, thus ensuring a common and realtime understanding of a plants actual state.
That is why the COMOS database and COMOS Walkinside training tool are so valuable.
Whether used in conjunction or separately,
they both provide in-context accessibility to
2-D and 3-D asset data about task-specific activities required by various personnel.

1. Virtual world. 3-D models and diagrams help familiarize personnel with equipment
locations. Courtesy: Siemens COMOS Industry Solutions

A Plant Lifecycle Solution

COMOS Walkinside facilitates project development, routine plant operation, and training
throughout a plants lifecycle.
Project Development. During project
developmentwhether new builds or retrofitsengineering, procurement, and construction (EPC) contractors must share their
3-D models with clients for regular design
reviews. As COMOS Walkinside provides all
stakeholders with a common and easy-to-use
3-D view of the actual project state, design
reviews can be executed in early phases
spanning all disciplines. Process engineers,
automation engineers, and other engineering
disciplinesas well as management personnel, representatives responsible for safety at
work, and maintenance managerscan all
contribute to a higher level of project quality. Cost savings can be achieved through the
avoidance of expensive changes during later
construction and commissioning phases.
The software supports progress reviews,
such as thorough integration of avatars (virtual characters) for virtual walkthroughs,
redlining drawings, comments, and the
creation of movies. Opportunities also exist for the integration of existing 2-D data,
such as piping and instrumentation diagrams
(P&IDs) or project documentation.
Plant Operation. By accessing actual
plant data, operating personnel receive all required information in real time to make effective decisions. For example, they can quickly
see where equipment is located and how they
can best access it and retrieve related maintenance information. Based on that, maintenance activities can effectively be simulated,
planned, and executed. Real-time information out of the distributed control system also
can be visualized on demand. Real-time data
and alarms are available and are represented
40

2. An immersive training experience. Lessons can be customized and tailored to

meet individual student needs. Courtesy: Siemens COMOS Industry Solutions

in the 3-D model to ensure that actual information is available anytime and anywhere.
COMOS Walkinside also supports efficient remote plant operations. Experts do not
necessarily have to be on site, because they
can have access to data and documents from
nearly anywhere in the world through the
3-D asset portal. This feature can save a lot
of time, travel costs, and effort.
While cybersecurity for the 3-D model is
the owners responsibility, access requires
the correct software and hardware to visualize the 3-D model. The software and hardware must be obtained from Siemens and
passes many controls to avoid it falling into
unknown hands. Security is further enhanced
using secure hypertext transfer protocol and
virtual private networks. Training can be limited to local installations with no web-based
access required. Human avatars, representing
actual field operators, can be monitored in
www.powermag.com

real time, thereby providing the opportunity

to detect unapproved or suspicious activity.
Training for All Plant Stages and All
Personnel. Even before construction of a

plant, the COMOS Walkinside immersive

training simulator (ITS) enables operators
to dive into their future work environment.
The experience allows commissioning times
to be significantly reduced and ensures that
key knowledge is retained and documented
by the company.
The instructor, a subject-matter expert
from the operations department staff or a
qualified third-party service provider, can deliver standard operating procedures (SOPs)
to trainees as scripted, in-context scenarios in
the form of tutorials or step-by-step guided
work sequences to test compliance and operator performance, thereby leading to certification. Instructors can create the content of
all training lessons by interactively import-

POWER January 2015

TRAINING
ing SOPs from maintenance documentation
manuals, using an intuitive scenario editor,
while trainees can configure their own individual avatars.
Training several people in parallel using
the same 3-D model not only improves teambuilding and collaboration, but it also allows
lessons learned to be communicated more
easily between important stakeholders, such
as within a group of control room personnel
or among maintenance crew members.
This virtual training can be used for familiarization with the basic plant environment (such
as locations of valves, piping, and equipment)
and can be deepened by practice of SOPs (Figure 1). Operating behavior and composure during unscheduled events such as fire, gas leaks,
or accidents can be tested with the ITS and the
desired actions taught through specific exercises (Figure 2). Optimally trained personnel help
to substantially minimize the risks of incidents
or unplanned shutdowns.

Value Propositions for VR Training

Conventional classroom formats remain the
norm for internal and external training, but
creative and more-motivating approaches
are rapidly emerging. They include leveraging the EPCs CAD models and plant laserscanning data to present to users a 3-D VR
simulation of the work environment that can
be navigated simply and rapidly, as if in a
video game.
The rules of engagement with COMOS
Walkinside can be customized as the model
is presented so that trainees are not just exposed to generic training but, rather, to a
high-fidelity replication of their actual plant,
with its texture, color, and even 3-D stereo
sounds emitted by rotating equipment and
pumps. Such details are far more than a gimmick, particularly when simulating emergency situations, where trainees are tested and
graded on their capacity to find and follow
egress routes and report to muster locations
in preset time limits.

3. Learning retention rates. Simulation

is the clear winner among these familiar training modes when it comes to retention. Source:
NTL Institute for Applied Behavioral Science
100
90

78

Percentage

80
70
60
50
40
30

20

20

10

10

0
Simulation

Audiovisual

January 2015 POWER

Reading

Lectures

4. The workflow process. Creating and publishing 3-D virtual reality models is quick and
easy. Courtesy: Siemens COMOS Industry Solutions

Under simulated smoke and fire with computational fluid dynamics, an accurate overlay
on the 3-D model of smoke dispersion patterns under variable wind directions provides
unique experiences where sound cues from
rotating equipment can help direct operators
to safety when their visibility is impaired. The
memory of having been in a particular dj vu
situation before is a powerful experience that
cannot be realized in conventional training
environments, where it is difficult to increase
stress levels, such as by surrounding the field
operator with smoke, playing loud alarms,
showing a dangerous spill on the floor, or presenting a man-down situationwhere reflexes may stand in the way of implementing
preestablished procedures. The exercise can
potentially mean the difference between life
and death during an emergency.
Stress jolts memory and boosts retention
rate during training. Hence, it is easy to understand why a photo-realistic environment
can deliver much higher retention rates than
conventional training; some studies suggest
that students remember no more than 6%
to 10% of their training material after six
months when reading and lectures are the
training mode (Figure 3).
In addition, for each rehearsed procedure,
access to information about plant equipment
in the COMOS database can be generated
from the 3-D VR model, such as maintenance
history, equipment manufacturers specifications, and recommended maintenance or replacement procedures. The position of the
equipment in the P&ID, engineering instruction and control schematics, and process flow
diagrams helps the operator, teammates, and
supervisor share the same information about
mission-critical procedures, such as lockout/
tagout of subsystems and bypass of sensitive portions of the plant. (To view a video
of the 3-D visualization system, go to: bit.
ly/1ve7TlQ.)
The system faithfully and realistically
represents the actual plant and its associated
www.powermag.com

information, which boosts productivity and

efficiency while minimizing plant downtime.
Customers benefit from optimized project
execution, commissioning, and startup, and
improved asset availability compared to conventional approaches.
In-context training is the name of the
game (pun intended) when it comes to interactive training, as scenario-driven sequences
of all work orders can be assigned to targeted
trainees for guided tutorials, freehand rehearsals, or testing of their ability and performance.
Unscripted events can also be interjected at
will by the instructor in the students standard
procedure training to test trainees behavior
and composure under stress, similar to the
way airline pilots are evaluated before, during,
and after qualifying on a new aircraft. The process develops greater composure under stress,
improving reactivity and safety for individual
operators, their teammates, and their working
environment.

Easy Configuration and Effective

Results
Although one might think that such a sophisticated setup would require an expensive or
complex hardware environment, 3-D visualization workstations or laptops are often
sufficient to power up the simulated world.
COMOS Walkinside is easy to deploy and
use, and is immediately available for trainees
to begin immersive learning activities. Morepowerful configurations can be designed to
meet more-advanced requirements, including
instructor consoles, remote training stations,
3-D active stereo, high-resolution screens,
head-mounted devices, Kinect or other motion-sensing technologies, and more.
The 3-D VR model can be created automatically within a few hours and requires
little customer effort (Figure 4). Changes to
the 3-D CAD master data are reflected very
quickly in the 3-D VR model. In addition, the
system is capable of handling massive 3-D
CAD files.
41

TRAINING
TOTAL Exploration and Production (E&P) offers one example of
a successful installation. The company uses the COMOS Walkinside
solution to train operators for its floating production storage and offloading vessels. In one survey, 92% of the students who used the
system evaluated the training as very useful and interesting.
If you participate in ITS, you have less loss of production due to
human error; we minimize the loss of production, said Nicolas Tarisse, field operations training manager at TOTAL E&P. As a result,
the company believes it is able to increase efficiency, improve safety,
lower risk, and increase asset uptime, which enhances its return on
investment.

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More Innovations Ahead

powermag.com/power-webinars
POWER magazine produces
webinars on topics of critical
importance to the power
generation industry. Its not
too late to participate in a live
webinar or download any of
the on demand webinars at

As many of our technology users complete their first projects and

have the opportunity to evaluate the system, management endorsement for the immersive approach grows. Statistics on training performance and tangible benefits are being developed. As positive
feedback increases, acceleration of enterprisewide deployment of
the technology is being witnessed.
Innovation continues with a new wave of even more creative
implementations, including vibratory ground motion simulations,
more-dynamic rendering engines with reflective and diffracted ray
beams, smell generation, and synthetic real-time metering of simulated radiation accrual or toxic exposure. Actual work permits can be
associated with scripted workflow sequences. Execution times and
exclusion zones can be simulated, in which unauthorized personnel
trigger alarms if they stray from their assigned work responsibilities.
The possibilities are limited only by the imagination.

Manuel Keldenich (manuel.keldenich@siemens.com) is product marketing manager for COMOS Plant Engineering Software
at Siemens.

Why Follow POWER on Social Media?

Our LinkedIn groups as well as Twitter, Facebook,
and Google+ feeds all provide value to those in
and interested in the power industry:

powermag.com/power-webinars

Though our editors cant respond to general

industry questions or research requests,
crowdsourcing via our LinkedIn POWER
magazine group is a great alternative; its a
place to ask questions and request responses
from other group members. We also start
discussions on hot topics and alert you to
future webinars and events.
The LinkedIn Women in Power Generation
Group is the place for women involved
with all generation technologies to network
with others and share career advice and
achievements.
Follow us on Twitter @POWERmagazine for
links to the latest news stories.
POWER magazine on Facebook is where
youll find links to print and online content
along with cool graphics.

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42

www.powermag.com

POWER January 2015

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EMISSIONS

Choosing an ESP Power Supply for

Improved Particulate Control
A low-frequency, three-phase electrostatic precipitator (ESP) power supply was
developed to overcome the many reliability problems with the designs in
common use today. Field test results were conducted to confirm its increased reliability and efficiency.
David F. Johnston, John A. Knapik, and John Walker

he particulate matter (PM) requirements of the Mercury and Air Toxics

Standards (MATS) require filterable
PM emissions less than 0.03 lb/MMBtu,
which will demand greater particulate removal efficiency from many power plants.
MATS also requires increased reliability of
particulate removal devices, such as the electrostatic precipitator (ESP).
The most common way to improve the
performance of an ESP, wherever it is located
(Figure 1), is to boost its corona power. The
relationship between specific corona power
(watts/1,000 acfm of gas flow) and collection efficiency is well understood and is a
common upgrade. Other ESP efficiency improvements are possible, such as reconfiguring compartment geometry, increasing plate
area, or adding additional fields, although
each upgrade usually requires replacing or
upgrading existing power supplies. The best
option is to select a power supply that can
efficiently boost corona power output and
maintain high operating reliability. This article describes the development process and
testing of a low-frequency, three-phase power
supply that may allow operators to upgrade
their ESPs to meet the increased particulate
removal efficiency required by MATS.

History Lesson
Single-phase power supplies have been a
power industry norm for ESPs for more than
60 years. Analog automatic voltage control
and silicon-controlled rectifiers were the single-phase design standard for years, although
many systems now use microprocessors running proprietary control algorithms to provide
more precise control of the power applied to
the ESP. However, the single-phase power
supply still produces a voltage waveform that
contains a significant amount of ripple. Ripple
is residual variation from the desired smooth
waveform when converting from alternating
to direct current in the power supply.
44

The amount of ripple produced by the

power supply determines the amount of
power that can be supplied to the ESP. There
is a practical limit to how much voltage can
be applied to an ESP field due to sparking,
and sparking occurs at the peak of the secondary voltage waveform. The practical result is the average voltage produced by the
power supply usable by the ESP is always
lower than the peak voltage, usually by
about 20%. Reducing the undesirable ripple
allows the average voltage to be closer to
the peak voltage, which allows more power
to be applied to the ESP fields, thus increasing particulate removal. Many novel approaches to reduce ripple have been tried by
manufacturers, including placing a filter on
the output of the single-phase power supply,
but with limited success.
Other low-ripple power supply options
are available today. Each removes the ripple
from the secondary voltage waveform and
provides a low peak-to-average-voltage ratio.
One relatively new option is the high-frequency switch mode power supply (SMPS)
that was designed to provide increased power
to the ESP field with better reliability. In actual practice, however, reliability has been
less than with the standard single-phase power supply design. In addition, there have been
grounding and shielding issues coupled with
high input and output harmonic distortion.
Also, some high-frequency designs have a
turndown limitation (typically 10%), which
has been problematic for units that experience large load swings or that cycle often.

followed by laboratory testing, followed by

field testing.
B&W conducted a comprehensive study
using computer models of alternative power
supply designs to identify the best power supply upgrade options available to improve ESP
particulate removal performance and system
reliability. Without going deeply into the seven design alternatives considered, technically, the superior option was a low-frequency,
three-phase power supply design capable of
producing low-ripple voltage waveforms, a
design that is popular with European utilities.
This design also has the advantage of being
derived from the low-frequency, single-phase
design that has been in use for more than half
a century. The increasingly popular highfrequency SMPS also made the final list. The
base case used for comparison was the lowfrequency single-phase design.
Next, laboratory testing of ESP power
supply options was conducted to confirm
results of the computer models and identify
additional power supply characteristics that
would be encountered in actual operation.
For laboratory testing, a test ESP was con-

1. Performance matters. At this southeast Asia plant, a dry electrostatic precipitator (ESP) is installed on a 660-MW boiler.
Globally, the most common way to improve
ESP performance is to boost corona power.
Source: Babcock and Wilcox Power Generation Group Inc.

Best Alternative Designs

The single-phase power supply design has
limited upgrade potential to meet MATS, so
Babcock & Wilcox (B&W) began the process
of identifying better power supply options.
The selection process proceeded down a very
logical design path to determine the best ESP
upgrade technology: computer modeling,
www.powermag.com

POWER January 2015

CIRCLE 6 ON READER SERVICE CARD

EMISSIONS
2. Performance comparison. The VI curve for the single-phase base case and two lowripple power supplies are compared. The two low-ripple options produce 20% higher voltage,
thus producing higher ESP particulate removal rates. Source: Babcock and Wilcox Power Generation Group Inc.
1. Single phase 2. 3-phase 3. Switch mode
2,000

Sparking limit

1,500

Secondary current (A)

Peak-to-average-voltage ratio 1.0

1,000

Peak-to-average-voltage ratio 1.2

500

10

20

30

40

50

60

70

80

90

Secondary voltage (kV)

structed that considered the entire mechanical configuration of the ESP. For example,
different discharge electrodes were configured at various plate spacing, and ESP problems such as close clearances and tracking
insulators were studied.
One example of the results of laboratory
testing compares the benefits of a low-ripple
power supply (Figure 2). In each test, the
power supply was operated from zero power
to the point where sparking occurred in the
ESP, and then a typical average voltagecurrent (VI) curve was plotted. The selected
discharge electrode and the physical configuration of the ESP determined the shape of the
VI curve and, as expected, the three power
supplies track along the same curve.
In all three cases, ESP sparking occurred
at 71 kV, which limited the power supply
from producing higher voltage. The high
ripple on the output voltage of the singlephase power supply (shown as 1 in Figure
1) is clear. The peak voltage was 71 kV with
an average 57 kV, which produces a peak-toaverage-voltage ratio of about 1.2. For the
low ripple three-phase and high-frequency
SMPS (points 2 and 3, respectively) also
operated with a peak 71 kV voltage and an
average 71 kV, the peak-to-average-voltage
ratio is ~1.0. A reduction in the peak-toaverage-voltage ratio from 1.2 to 1.0 results
in a 20% increase in voltage. The net result
46

is up to ~35% more average current and

~50% more corona power available to the
ESP, which should result in additional ESP
particulate removal efficiency.

More Performance Issues

There are other power supply performance
issues that have significant impact on ESP
performance, such as spark and quench, harmonics, site application, cost, and reliability.
A slate of four power supply sizes (24 kW,
32 kW, 72 kW, and 120 kW) were compared.
Commercially available, roof-mounted ESP
low-frequency single-phase and high-frequency SMPS power supplies were compared
with the low-frequency, three-phase power
supply for each of the four design sizes.
Spark and Quench. When a spark occurs, it dissipates all of the energy stored
in the ESP field and then the spark is extinguished. In response to the spark, the power
supply quenches or turns off for a period of
time and then reapplies power to recharge the
ESP field.
However, the power supply does not turn
off the instant the spark occurs. There is a delay based on the type of power supply, and
during this delay, energy continues to be delivered to the spark from the power supply.
Each of the power supplies considered delivers less than 0.1% of the total spark energy.
The majority of energy (>99.9%) dissipated
www.powermag.com

by the spark comes from the energy stored in

the capacitance of the ESP field and not the
power supply.
Care should always be exercised with large
ESP fields (which increase capacitance)
and wide plate spacing (which increases
voltage), as spark energy is directly proportional to the capacitance and the square of the
voltage.
Total Harmonic Distortion. ESP power
supplies connect to the power line and draw
power at the fundamental frequency and at
harmonic frequencies, which are whole number multiples of the fundamental frequency.
This nonlinear load causes distortion of the
input waveform and can cause many problems in the electrical distribution system,
including heating of conductors, nuisance
breaker trips, and interference with other
plant equipment. Therefore, it is important to
have a measurement of how much distortion
exists for each power supply type.
One widely accepted measurement is total harmonic distortion (THD), which is a
summation of all of the harmonics present in
the system. The modeling results found that
the low-frequency design options exhibit the
lowest input THD and can therefore be expected to provide significantly fewer installation and maintenance harmonics problems.
ESP power supplies also produce harmonics at the output. The DC waveform is made
up of many frequencies, including a fundamental frequency and its harmonics. This
is particularly troubling in ESP power supplies because its ground is a current-carrying
power lead and is energized with harmonic
frequencies. Since all of the plant equipment
and the neighboring facility plant equipment
are connected through ground, the potential
exists to cause interference with other plant
equipment, including other ESP power supplies. This is particularly true as radiated radio frequency (RF) emissions increase with
frequency. Manufacturers provide detailed
bonding and grounding specifications in
high-frequency designs, which must be meticulously followed. Low-frequency designs
exhibit the lowest output THD and normally
experience fewer harmonics problems.
The physical internal electrical connections inside the ESP are also important.
Historically, the ESP was constructed for
low-frequency operation with bolted or
friction fit connections. Both connection
types may be inadequate for high-frequency operation, which may lead to voltage
drop at the connections, both in the highvoltage distribution system and the ground
system. Also, voltage drop in the internal
ground connection causes crosstalk and
interference between ESP power supplies,
which is very difficult to detect, particular-

POWER January 2015

EMISSIONS
3. Performance testing. The ESP used as the test bed consists of two boxes, each with
four fields and two power supplies per field. The low-frequency, three-phase power supply was
tested in one of the ESP fields. The field test showed the three-phase power supply produced
an average 50% higher power in the ESP compared to the single-phase precipitator power supply. This suggests that the low-frequency three-phase power supply can produce higher ESP
collection efficiencies. Source: Babcock and Wilcox Power Group Inc.
+ 1A-1 kW (Pre) 1A-1 3 kW (Post)
90

Gas flow

80
70
60
ESP chamber
layout

50

kW

ly with the connection points located inside

the ESP. In general, industry experience is
that connection point problems are more
difficult to detect and resolve for high-frequency power supplies.
Specific Site Application. High-frequency power supplies are integrated units,
unlike low-frequency designs, where the
transformer and other components are separate and must be connected together on site.
High-frequency power supply designs are
also physically smaller and lighter. This can
become very important when trying to fit
equipment on a crowded ESP roof that has a
limited allowable roof load.
However, an integrated unit often means
the sensitive electronics are located in a harsh
environment and the location makes maintenance more difficult. In addition, highfrequency units require active cooling (air
conditioning) of their components, with their
additional power demand. Replacement parts
are often proprietary.
Low-frequency power supply designs
have separate control cabinets and use standard electrical wiring to interconnect. The
separate control cabinet allows the highvoltage transformer to be located on the roof
while the control electronics can be located

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225
MW

remotely, often in an environmentally controlled room located at ground level. This

configuration has been successfully used for
many years. Also, low-frequency power supply designs are physically larger and heavier,
although the power supply can be located off

235

245

255

265

275

the main ESP structure and then connected by

high-voltage cable. Low-frequency systems
can use passive cooling for the transformer
(air cooling). Lastly, separating the controls
and transformer allows each component to be
sourced from multiple suppliers.

s premium product

showcase for the latest

products and technologies in
the power generation industry.
To subscribe to the e-letter, please Contact
Jessica Grier
jgrier@accessintel.com
23389

January 2015 POWER

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47

EMISSIONS
System Cost. Capital cost is also a significant consideration in the selection process of
ESP power supplies, and the differences are
significant. For example, if the single-phase
power supply cost is 1.0, then the relative cost
for a like-sized high-frequency SMPS ranges
from 1.49 to 2.31. A like-size low-frequency
three-phase power supplys relative cost is
only 1.12 to 1.17.
Also, because the high-frequency power
supply designs are fully integrated, there is
less field wiring, so installation costs are less
than for the low-frequency option. Balancing
those installation cost benefits for the SMPS
are the increased capital costs for active cooling, environmental protection of the equipment, and higher overall maintenance cost.
System Reliability. The predicted reliability of a power supply is difficult to
quantify. The reliability track record of the
single-phase ESP power supply is excellent,
and many installations have been in service
for over 40 years. This is a reliability benchmark that low-ripple power supply designs
must match. Anecdotal evidence finds that
high-frequency power supplies have experienced a poor reliability record; although
it has improved in recent years, it remains
lower than for single-phase designs.

Successful Field Testing

The result of laboratory testing was the finding that the low-frequency three-phase power
supply option had the greatest potential for
improving ESP performance and reliability.
The final stage of the development program
was to field test the design in order to evaluate its reliability against the familiar singlephase option.
Field-testing of the low-frequency threephase power supply was conducted on an
ESP at an active utility power plant. The unit
consists of a tangentially fired boiler burning
coal with sulfur content of 1.9 lb/MMBtu
with no selective catalytic reduction system
or flue gas desulfurization system. The test
was conducted during a consecutive sixmonth period.
The ESP consists of two boxes with rigid
discharge electrodes and 16-inch-wide gas
passage. There are four fields (each 12 feet by
50 feet), and eight transformer-rectifier (TR)
sets per box (2 x 4 matrices). Fields 1 and 2
have 70 kV, 750 mA conventional TR sets;
fields 3 and 4 have 70 kV, 1,000 mA sets. All
TR sets are controlled by B&W PGG SQ300 automatic voltage controls. On the A
box, the inlet field 1A-1 TR set was replaced
with a 480 V, 109 A, 90 kV, 900 mA, three-

phase TR set for the purpose of testing. The

field test results obtained when operating the
test low-frequency, three-phase power supply
in a compartment adjacent to a conventional
low-frequency single-phase power supply
are shown in Figure 3.
Field test results confirmed the laboratory test results that the three-phase power
supply typically produced 50% more corona
power delivered to the ESP than from a conventional power supply (average three-phase
power/average single-phase power) with low
total harmonic distortion. The installation
costs were on par with a standard singlephase power supply. There were no failures
of the three-phase power supply during the
six-month test run.

David F. Johnston (dfjohnston@

babcock.com) is operations manager,
precipitator electrical, and John A. Knapik
(jaknapik@babcock.com) is senior application engineer for Babcock & Wilcox
Power Generation Group Inc. John
Walker (John.Walker@duke-energy.com)
is electrical engineer for Duke Energy,
Wabash River Station. This article is
based on a paper presented at the 2014
Power Plant Pollutant Control MEGA
Symposium.

CIRCLE 7 ON READER SERVICE CARD

48

www.powermag.com

POWER January 2015

FUNDAMENTALS

Primer on Fuel Quality Analysis

Fuel quality is vitally important for combustion power plants, yet fuel quality
testing is still uncommon and analyses often incorrect. Improved knowledge about the primary energy input to your power plant will help maximize your potential for improved operation and reduced generation costs.
Una Nowling, PE

ack in the good old days of the power

industry, fuel was cheap, fuel supplies
were fairly constant, air emissions regulations were loose, and power plant coffee was
as dark as sin and worse for you. Since those
days the power industry has seen tremendous
change in every waysave for the coffee.
In those same good old days, fuel quality
testing wasnt given serious attention. Socalled short proximate analyses were conducted monthly, but a full analysis might not
have been done since the day the local beauty
queen broke a champagne bottle on the turbine casing. Even when analyses were done,
they were often rife with errors, ranging from
simple typographical and mathematical errors, to blatant sloppiness. When I started
my career in the power industry more than
20 years ago, I wondered how a power plant
could pay so much for an analysis containing
so many significant errors, and thus I learned
to devote considerable time to checking for,
advising upon, and fixing such errors.
One would hope that in this era of massively instrumented and logged modern power
plantsstruggling to cut costs while meeting
performance, operations and maintenance,
reliability, and emissions targetsthat our
fuel quality sampling and testing practices
would significantly improve. Unfortunately,
that does not seem to be the case, and as a
result the power engineer is frequently called
upon to review the fuel quality data assumptions and analyses that are conducted.
How serious is this problem? In my career
Ive reviewed well over 10,000 fuel quality
samples, and I would estimate that perhaps 1 in
10 has a significant error that prevents a full and
accurate analysis of the fuel without engineering judgment to correct the error. For example, I
recently received 12 coal quality analyses from
a power plant, and three of that 1225%
featured some significant error or omission.
To help you avoid such problems, this article provides tips and guidelines for ensuring
that you and your power plant staff have the
best possible knowledge about your fuels.

sample is collected will provide information

on how representative that sample is of your
average fuel quality. Unfortunately, fuel sampling is often considered just another messy
chore, where someone takes a quick scoop
of a coal pile with a bucket and pronounces
mission accomplished. Unfortunately, this
will often yield an inaccurate sample, especially as it may be possible that no one really
knows what coal or coals are mixed together
in that particular region of the pile.
A better way of sampling is to take directly from the train during the unloading
process (Figure 1). Even better is to take
small samples of coal from five or more train
cars, as they are being unloaded, and mix the
samples together to produce a composite coal
for analysis. If sampling is being conducted
during a performance test (Figure 2), the best
method is often to collect equal samples at
each of the coal feeders and combine these to
create the composite sample.
For the best sampling guidelines, refer to the
engineering standards in use in your country. For
the U.S. this would be the American Society for
Testing and Materials (ASTM) standards. Good
examples of sampling standards include ASTM
D 2234/D 2234M-07 for belt samples, D 688304 for sampling from stockpiles and delivery

vehicles, and D 4596-99 for mine samples.

Which Tests Should Be Conducted?

After a representative sample has been safely
collected, the next step is determining what
tests should be performed upon the sample.
The answer to this depends upon what your
goals are for attempting to solve fuel quality
related problems at your power plant. Heres
a look at the typical coal analyses, in order
from least to most complete, and what impacts they can help predict:

The most basic analysis, a short proximate, will typically consist of the heating
value, moisture, ash, and sulfur in the fuel.
This is a barely acceptable analysis, which
will only allow one to make general estimates about the plant performance.
A full proximate analysis will add volatile matter and fixed carbon to the results, which can be useful for determining
unburned carbon, CO production, coal
fineness requirements, excess air requirements, and the like.
An ultimate analysis will provide the carbon,
hydrogen, nitrogen, sulfur, ash, moisture,
oxygen, and (sometimes) chlorine. With this
analysis one can determine combustion air

1. Whats really on that train? Not having an accurate measure of your fuel quality is
like grocery shopping blindfolded. Courtesy: Una Nowling

It All Begins with Sampling

Understanding where, how, and when the fuel

January 2015 POWER

www.powermag.com

49

FUNDAMENTALS
2. Ignorance is not bliss. The wrong coal was delivered for a test burn, and no analysis
was done to provide operators with a warning. By Day 4, a clinker approximately 10 x 20 x 4 feet
formed on the freeboard area, falling during turndown and destroying the bottom ash hopper.
Courtesy: Una Nowling

and flue gas calculations, calculate boiler efficiency, estimate NOx production, and estimate boiler tube corrosion rates.
An ash mineral analysis will provide a
breakdown of the minerals contained in
the ash on an elemental scale. An ash mineral analysis will assist in predicting slagging and fouling in the boiler, ash erosion
and corrosion, ash resistivity for collection
in electrostatic precipitators, and more.
A Hardgrove Grindability Index (HGI)
analysis will assist in determining the expected mill capacity.

A trace element/heavy metal analysis will

help determine such effects as mercury
emissions and the potential for fouling of
your selective catalytic reduction catalyst.

Other tests are often conducted on a sitespecific basis, such as testing the free swelling
index, ash viscosity T250 temperature, sulfur forms,
and even computer-controlled scanning electron microscopy (CCSEM) to determine the
mineral forms and quantities in the fuel. With
all of these types of analysis, accurate processes
and data recording are essential (see sidebar).

The Good, the Bad, and the Ugly

At some point you may wonder whether
a poor analysis is better than no analysis at all. Heres the problem with that
line of thinking: A poor analysis can give
you a false sense of accuracy, whereas
with no analysis, you have to admit you
dont know a blessed thing about the
fuel quality.
The analysis in Figure 3 was taken
from an actual ship bill of lading from
late 2013, and it contains so many major errors that any scientific analysis was
impossible. This begs the questions: Why
was this provided to the power plant
without anyone checking it? Can any
analysis from this supplier be trusted in
the future?

50

3 At least they got the country

correct. There are eight major errors and
one minor error in this shipping analysis,
which was received by a power plant. How
many do you recognize? (Answers at the
end of this article.) Courtesy: Una Nowling

www.powermag.com

Reviewing the Results

After establishing that the sampling process
was done correctly, your fuel data should be
reviewed via several different processes to
ensure you have the best data for performing
your calculations.
Internal Consistency. Checking for internal consistency involves checking for
mathematical and typographical errors. The
first thing I do is convert the proximate and
ultimate analyses to an as received basis.
Next, I ensure all of the components of the
proximate analysis sum to 100%, and repeat
this effort for the components in the ultimate
analysis. My rule of thumb is that both the
proximate and the ultimate analysis should
each sum to 100% +/0.5%.
In addition, the moisture and ash values
should be the same between the proximate and
ultimate analysis. If the proximate analysis
sum is within acceptable ranges but not 100%,
I adjust the moisture content (and repeat the
adjustment for the ultimate analysis). Then if
the ultimate analysis components still do not
sum to 100%, I adjust the oxygen content.
Note that although it is not part of the ASTM
ultimate analysis, chlorine is often reported
along with it. If that is the case, include chlorine
in your summation of the components.
Due to the nature of the testing that is conducted, the ash mineral analysis can have looser boundaries. I typically accept an analysis
that sums to 97% to 101%. I adjust the analysis to 100% by adding or subtracting from
the unknown/other category. If this will not
work, then I tend to normalize the entire analysis such that the components sum to 100%.
There are three sources of internal error
possible with the heating value of the fuel.
First, you should confirm that the value is entered and properly labeled on either a higher
(gross) or lower (net) basis. Next, you should
check that the heating value is on an as received basis. Finally, you should verify that
the proper measurement units have been listed (Btu/lb, kcal/kg, kJ/kg, etc.).
Next, the ash fusion temperatures and ash
T250 viscosity temperature should be checked
to ensure they are measured in the correct units
(degrees F or C). The ash fusion temperatures
should steadily increase in value, from the initial deformation temperature through to the fluid
temperature. The HGI should be checked to ensure it is not suspiciously high or low; sometimes
considerable error occurs during testing. Unless
you have experience with the type of fuel being
analyzed, any HGI lower than 35 or higher than
65 should be confirmed. Also note that the HGI
test is of much less value for non-coal fuels, and
it is often useless for biomass fuels.
External Consistency. Checking for external consistency means comparing the fuel
in question with other fuels of that same type

POWER January 2015

FUNDAMENTALS
to understand how typical the fuel is compared to its peers.
For example, a Powder River Basin (PRB)
coal with a moisture content of 10% and
higher heating value of 12,500 Btu/lb should
immediately raise a red flag. As you collect
analyses of fuels in your career, you should
build a knowledge base using a spreadsheet
or database that can allow for a quick external consistency comparison.

Common Problem Areas

Several issues are common problems when reviewing fuel analyses. Ask, and carefully consider the answers to, the following questions.
Is the heating value consistent with
the ultimate analysis? Performing a quick

heating value estimate via an equation such

as the Dulong formula can greatly increase
your confidence in the accuracy and internal
consistency of both the heating value and the
ultimate analysis. The Dulong formula is a
simple formula that, in my experience, yields
surprising accuracy for most U.S. coals:
Higher Heating Value, Btu/lb = 14,600 x C
+ 62,000 x (H O/8) + 4,050 x S,
where C, H, O, and S refer to the as-received mass fractions of carbon, hydrogen,
oxygen, and sulfur, respectively.
Typically, if the Dulong-calculated heating
value differs from the given heating value by
more than +/300 Btu/lb, I take a harder look
at the heating value and the ultimate analysis
to ensure they are accurate.
What is the moisture basis? It is very
common to see an as-received or wet analysis reported as dry, or vice-versa. You can
confirm the moisture base by simple math: If a
proximate analysis is wet, then the moisture,
ash, volatile matter, and fixed carbon must sum
to 100%. If they sum to 100% plus the moisture, then the analysis is on a dry basis.
Converting to a different moisture basis is
a simple arithmetic function. To convert a dry
analysis value to as-received:
Valuewet = Valuedry x ((100 moisture, %)
/ 100)

Is the heating value on a higher (gross)

or lower (net) heating value basis? Errors

abound here when purchasing world-market

coals. Note that the lower heating value by
definition will always be less than or equal to
the higher heating value.
Has the ultimate analysis divided the
moisture into hydrogen and oxygen? Al-

though this is becoming less common, one

still finds this error in some analyses. For the
sake of simpler calculations, it is preferable
to keep the moisture separate from the hydrogen and oxygen analyses.
Is the equilibrium or inherent or airdried moisture greater than the total
moisture? In some cases this occurs due to

performing analyses on two different samples. However, given the importance of moisture on your engineering calculations, its a
problem you should work to resolve.
Is the ash content suspiciously low?

Sometimes the person taking the samples

will excessively hand screen rock, pyrites,
clay, and other inorganic materials from the
sample. This can be especially problematic
with biomass fuels, where the power plant
should expect the possibility of significant
inorganic material sometimes coming along
for a ride with the fuel. The solution is to adhere to official sampling guidelines.

How Many Errors Did You Find?

Are the oxidizing ash fusion temperatures higher than the reducing ones? This

Here are all of the problems with the coal

analysis presented in the sidebar:

should be the case for nearly all coals and biomass fuels. However, petroleum coke and some
biomass fuels can see these trends reversed.
Is chlorine in ppm, or %? If chlorine is only
listed in the trace element or another analysis, it
can sometimes be omitted from consideration.
This is a critical mistake when analyzing highchloride fuels. Note that if chlorine is included
with the trace element analysis, it is typically on
a whole-coal dry basis.
Is the ash mineral analysis on an SO3free basis? Some laboratories list the ash

mineral constituents exclusive of SO3. If this

is not taken into account, it can lead to significant errors when attempting to estimate
the slagging, fouling, erosion, and corrosion
potential of a coal ash.

Analysis Matters
To convert an as-received analysis value
to dry:
Valuedry = Valuewet x (100 / (100 moisture, %))
Does it use air-dried basis? Air-dried base
results are sometimes impossible to convert to a
wet or dry basis, because one requires the
as-received moisture content in addition to the
air-dried moisture for completeness. Often one
of these is omitted from the analysis.

January 2015 POWER

cerns and fuel quality variability experienced

at the plant. For example, a plant that receives
coal from the same PRB coal source every
week and that has no significant fuel-related
problems should probably only test one train a
month (or less). However, a plant that receives
a variety of different coals or that suffers from
frequent slagging problems might want to
sample coal from the feeders weekly, or even
daily in some cases. If the plant is experiencing highly unusual behavior, then many tests
per day at the feeders may be required.
The process of checking the analyses of the
fuels youve tested is made simplest by developing a spreadsheet of all fuel analyses that
are received, and then developing macros to
perform the checks discussed in this article.
This sort of exercise can be a good project
for engineering interns, and can help instill
an awareness of the importance of fuel quality early in their careers. For more advanced
efforts, one could employ an Access database,
or even a web- or cloud-based intranet database to create an intelligent fuels library that is
accessible fleetwide. In the long run, the cost
of increasing your awareness of the diet of
your power plant is relatively small but has the
potential to yield significant benefits.

To a large extent, the errors in your fuel analysis will set the minimum level of error in any
plant calculations that depend upon the fuel
quality. A 5% error in your higher heating value will result in a minimum 5% error in your
fuel burn rate calculations, said error cascading through to your airflow, flue gas flow, mill
throughput, emissions, and other calculations.
Sometimes fuel analyses are not conducted
due to a lack of time to carry out and conduct
the analysis. Determining the frequency of
sampling will depend on the fuel-related conwww.powermag.com

The proximate analysis only sums to 98%.

The ultimate analysis appears to be on a
dry basis instead of as-received, because
summing everything save the moisture
and chlorine equals 100%.
The net calorific value in kcal/kg is greater
than the gross calorific value.
The conversion between kcal/kg and Btu/
lb is incorrect.
A Dulong analysis of the as-given ultimate
analysis yields 13,150 Btu/lbnearly
1,000 Btu/lb greater than given.
The sulfur content of 3.3% is externally inconsistent for a Colombian coal; it should
be less than 2%.
A typographical error invalidates the ash
initial deformation temperature.
The ash hemispherical temperature is
greater than the ash fluid temperature.
Minor error: The oxygen value does not
have measurement units.

Una Nowling, PE (nowlinguc@bv.com)

is the technology lead for fuels at Black &
Veatch. She has worked on fuels-related
issues and analyses at more than 550 different units over 21 years, specializing in coal,
natural gas, and biofuels. She is also an
adjunct professor of mechanical engineering at University of Missouri-Kansas City.
51

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Guidebook: Focus on Gas

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25056

COMMENTARY

Dont Ignore Cyber Threats to

Power Infrastructure
ver the last few years, it has become increasingly clear
that a massive cyber-attack on the North American electric grid represents a serious threat to U.S. national security. Over time, a string of senior U.S. officials have labeled this
threat one of the most serious faced by the nation and warned
that not enough is being done to deal with it.

A Hidden Threat
The basic problem is that the type of threat that is emerging
is new; there is little existing organizational or administrative
structure in government or private industry to deal with it.
It is compounded by the secrecy surrounding cyber weapons
strategies, which, unlike conventional and nuclear weapons,
depend almost entirely on secrecy. Nations develop and employ them but virtually never talk about them; companies find
them on their infrastructure but are reluctant to admit having
been attacked.
The notion that cyber weapons could be used to take down
power grids is not new, but it first received widespread public
attention in June of 2010, when reports began to surface that
a virus called Stuxnet had attacked the supervisory control and
data acquisition (SCADA) system controlling Iranian nuclear centrifuges and eventually destroyed their hardware. Two particular
aspects of the attack drew the attention of the electricity industry. The first was that, as the virus was destroying hardware, it
remained undetected on the system for years. The second was
that the Siemens SCADA infrastructure that it took over was
similar to the systems that control much of the worlds electrical
infrastructure. In the wake of Stuxnet, the electricity industry
began to look inward and discovered that Stuxnet and other malware were resident on a large proportion of their own industrial
control systems.
Potentially Catastrophic Consequences
From the perspective of national security, the discovery that
North American electricity infrastructure is infested with malware designed to destroy hardware was momentous. The U.S.
grid is built around a small number of ultra-high-voltage transformers and other difficult-to-replace physical choke points. It
would be extremely tough, but far from impossible, to turn off
sensors on equipment or use other methods that would lead
to the simultaneous destruction of large portions of the grids
generation and transmission capability. In some scenarios,
such an attack would leave most of the country without power
for months or years.
The effects of this type of outage would be catastrophic. In
the first few minutes of a national outage, virtually all commerce would cease as electronic systems went down. Gasoline
pumps would stop. Telephones, including those used by government and emergency responders, would quickly cease functioning. Cities that use electricity to pump water would lose
56

water pressure, and sewage systems would back up into fresh

water. Fuel pipelines would cease to function. Most households
have three days of food available and no stored potable water.
Hospitals would continue to function for a few days. National
Guard and law enforcement agencies have stated on the record
that they believe their employees would stop coming to work
after less than a week. Disease and starvation would set in
within days.
The amount of damage a scenario like this would cause to
property and life would depend on the size and duration of
the outage. So long as the blackout was small enough to allow affected persons to exit the region and repair teams and
emergency responders from unaffected regions to enter, the
loss of life could be minimized. However, recent experience
with the power outage following Hurricane Sandy in 2012 suggests that the affected area would not have to be particularly
large to delay repair and emergency response teams. A worst
case scenario months-long-continent-wide outage would claim
millions of lives. Even smaller and shorter outages, however,
could be devastating.
Taking down the grid would most likely require the resources
of a major power. Such states are usually deterrable. Unfortunately, cyber weapons technology is evolving faster than cyber
defenses, and what is only possible for great powers today will
be possible for smaller states tomorrow. The U.S. has gone to war
roughly six times since the end of the Cold War, always against
enemies that lacked the ability to retaliate. The vulnerability of
the North American electric grid to cyber-attacks represents a
cheap way to project power and an irresistible temptation to a
wide swath of Americas potential opponents.

Its Not Too Late

All is not lost. Taking down the grid would be difficult, and
much can be done to make it harder yet. Industrial control systems and SCADA infrastructure can be better protected. Industry can share more information on cyber-attacks and empower
the Federal Energy Regulatory Commission and North American
Electric Reliability Corp. to develop stricter mandatory standards. Local power generation can increase its islanding and
black-start capability.
At the moment, most companies are at least peripherally
aware of the problem. However, industry leaders appear to be
waiting for a massive event to spur them to action. This strategy
is risky. If such an event were to occur, it would, at the least,
raise questions about why industry did not protect the lives of its
customers and would most likely lead Congress to rethink private
ownership of electrical infrastructure. This would be in no ones
interests. The time to act is now.
Richard B. Andres is professor of national security strategy at
the U.S. National War College and senior fellow at the Institute for
National Strategic Studies.

www.powermag.com

POWER January 2015

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