The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
The Big Build
Utility infrastructure projects face high costs, labor shortages and global competition for resources.
Global demand for raw materials and physical infrastructure in general is having a negative effect on utility construction projects in North America. Companies that build such infrastructure now are competing with production needs all over the world.
Major uncertainties exist regarding the future of fossil fuels—coal in particular. Global warming fears have resulted in recent cancellations of many proposed coal-fired power plants. At the same time, however, contractors report significant backlogs of unfilled orders. Demand for their services is being driven by increased interest in renewable technologies, a resurgence of nuclear power and natural gas-fired power plants, plus more retrofitting of plants to meet stringent environmental requirements. Other trends include project risk-sharing due to the high costs of construction and persistent and increasing labor shortages.
Such shortages and high costs appear to have an upside, however—most notably, increased physical efficiencies and innovations leading to lower lifetime plant costs. And creative methods of educating and retaining skilled employees, such as ABB’s building of a training facility at a university campus in Mexico, are another direct benefit of the need to get these projects done on time and on budget.
To learn where utility infrastructure construction stands in the United States today, Public Utilities Fortnightly interviewed executives at several major turnkey contractors, including ABB, Black & Veatch, Shaw Group, Siemens and WorleyParsons.
ABB: Next Generation Power
Fortnightly: What market trends do you see evolving in construction of utility infrastructure?
Barnoski: We’re seeing growing acceptance of software intelligence in the grid, making products more interactive with utility personnel and leading to significantly lower maintenance costs over the products’ lifetime.
Fortnightly: The costs of building utility infrastructure projects are increasing. As a contractor, what’s ABB’s role in keeping those costs under control?
Barnoski: To the extent the products we supply are highly reliable and incur lower maintenance costs, ABB contributes to keeping costs down over the lifetime of the installation. For example, we developed a circuit breaker design that uses a magnetic actuator instead of a spring. There is only one moving part—versus dozens in traditional spring designs—and it is capable of performing 10,000 operations without a maintenance interval, compared to around 500 for traditional breakers.
Fortnightly: Increases in costs for skilled and craft labor are a problem and some expect a lack of skilled workers going forward. How is ABB dealing with these issues?
Barnoski: ABB is taking a number of proactive measures to ensure our own demand for skilled workers and engineering professionals is met. We’re looking to add 40,000 to 45,000 new positions over the next four years, half via acquisitions and half as new hires, so this is critical to our continued growth and success.
We have partnerships with over 70 universities worldwide. One example is the campus of the Tecnológico de Monterrey located in San Luis Potosi, Mexico. We’re building a new 300,000 square foot facility in SLP and we’re working closely with