[BETA] Fortnightly

Why it happened? Who lost in the bust? Who will survive to build another turbine?

The period from late 2001 to April 2002 witnessed a classic industry shakeout as a result of a merchant power development sector that became too ambitious in its power plant development plans.

A year ago, the merchant sector was moving full steam ahead on a timeline that would have added a whopping 380,000 MW of electric generating capacity to a 750,000 MW base. ¹

Certainly, these plans could only be deemed optimistic in an industry that has exhibited growth rates in the 2 to 3 percent range.

In fact, the 2000-2001 California energy crisis artificially extended the turbine boom because the state for almost a decade had discouraged new plant development.

But within a period of six months, starting with the Securities and Exchange Commission's (SEC's) Oct. 29, 2001 announcement that it was investigating Enron, plans for almost one-quarter of this planned new turbine capacity had been aborted, and the shakeout continues.

Many have tried to pinpoint the source of turbinemania that seemed to hit almost every energy company throughout the nation.

Spread of new gas turbine development could in retrospect be compared to the spread of tulip bulbs in Europe during the Tulipmania of the early 17th century. In the context of the merchant industry, however, GE was Holland, and we all expected a turbine in our neighborhood.

To those who aren't familiar with one of history's greatest speculative bubbles, during the seventeenth century the Dutch economy was severely disrupted by speculation in tulip bulbs. At its height, single bulbs of rare varieties were sold for as much as $25,000 in today's money. Then, in 1637, speculators took their profits and sold out, which made others nervous, so they sold too, triggering a panic and prices plummeted.

Of course, some have placed the blame for turbinemania and the following cycle of boom, bubble, and collapse of the merchant industry on electric deregulation itself and even on Enron, its biggest promoter. But with only a dozen or so states having moved to full deregulation and the fact that many turbines were located in regulated states, it's difficult to conclude that electric competition was turbinemania's smoking gun.

No, the principal cause of the turbinemania was the newly available "F Class" gas turbine technology advanced by GE (Frame 7FA), Westinghouse (501F), Siemens, and ABB. This new technology dramatically lowered the barriers to entry into the electric generating business.

The technology had an initial cost of one-third that of a fully loaded coal plant and was 100 times more siteable because it occupied a city block-size site, not a thousand or more acres.

In addition, the new turbines cut the Btus/kWh consumed from 11,000 of older displaced coal units to 7,200 and had a fraction of the emissions of a coal plant.

One Virginia developer, seizing the moment, claimed it was simple: "I got out a pipeline and power line map and where they crossed I sited my plant." Financing was expected because consultants "assumed" electricity was going to be