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Some analysts argue that the limited supply of combustion turbines poses the greatest impediment to new construction of power plants. They point out that a customer placing an order for a gas-fired turbine today will have to wait until 2004 to take delivery. Because of this shortage of turbines, so the argument goes, capacity additions will not keep up with demand: A supply crisis is imminent.
All evidence RDI could garner contradicts the assertion that turbine availability will lead to power supply shortages. First, areas such as New England and Texas already have more new power plants than the market needs. In other areas, it appears that once a developer has obtained regulatory or environmental permits, it can partner with companies that have ample turbine supply to develop the project.
Even the big three turbine manufacturers, ABB, General Electric, and Siemens-Westinghouse, do not believe a turbine shortage exists for purposes of meeting electric demand growth. RDI research indicates that these manufacturers believe developers have over-committed themselves, and that the demand for their projects is not likely to materialize. Even though contract termination charges are high, some manufacturers still fear getting stuck with excess inventory.
It also is true that combustion turbines are hard to come by, mainly because leading independent power producers have secured turbines far into the future, thus shutting out latecomers. Those latecomers have no alternative except to stand in line, shop for used turbines, or wait until developers with turbines knock on their doors, offering to take over their projects.
A good example is one of the nation's leading independent power producers, Calpine Corp. According to our research, Calpine has purchased 96 Siemens-Westinghouse combustion turbines since it entered the competitive generation market. The delivery of the last set of these turbines is due in 2004. In combined-cycle configuration, these turbines amount to 26,000 megawatts of capacity.
For its base case, RDI's "Outlook for Power" predicts a U.S. peak demand growth of about 13,000 MW annually through 2004. That means Calpine alone could meet demand growth for two consecutive years! Given that Calpine's orders through 2004 only account for 25 percent of Siemens-Westinghouse's shop capacity and a mere 5 percent to 10 percent of the production capability of the Big Three combined, there is little reason for concern that lights will have to be dimmed due to a lack of turbines.
Market structures that do not reward new power plant construction, uncertainty about the future or rules and regulation, and local opposition by communities appear to be the only real reasons certain areas of the country might not see enough capacity additions. A shortage of turbines is not to blame.
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