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.
just to get the job completed, along with retention bonuses and longer schedules.
Fortnightly: How deep is Siemens’ backlog of utility infrastructure projects or contracts?
Karwoski: We have a backlog of probably 6 billion euros in infrastructure projects, roughly equivalent to $10 billion. That is happening everywhere—in the Mideast, Asia and Europe. So we have a very large backlog. Our transformer factories are fully loaded and the United States is finding out there is other demand in the world. Our industry has been so cyclical that in the last boom we almost were able to get equipment produced without interruption, and now the rest of the world has demand for the key suppliers. So it’s difficult to compete in a global market.
Fortnightly: Do you see more interest in new utility infrastructure construction or in refurbishment of older facilities?
Karwoski: In the United States there is quite a bit of interest in refurbishment of coal plants and nuclear plants. There is interest in new infrastructure, but the problem is, for example with nuclear plants, the time for permitting and the time for construction of those are years in the future. In the near term we see a balance, quite a bit of interest in refurbishing existing plants and then some small additions in new peaking plants or some very small capacity factor plants. We haven’t seen the demand in the United States pick up like it has in South America or in the rest of the rest of the world.
Fortnightly: What types of utility infrastructure projects has Siemens recently been awarded?
Karwoski: We are doing high-voltage DC cable and just finished a project putting an undersea cable in from New Jersey to Long Island to transmit about 600 MW of power. We are building a coal project as a consortium lead in West Virginia with state-of-the-art pollution-control systems, and we have gas-turbine combined-cycle projects we are constructing.
Siemens is probably unique in that we do anything from wind turbines and renewable energy all the way to nuclear power plants. We really have a full portfolio that we pursue globally. We just finished a plant in Madison, Iowa, to increase our manufacturing capacity for wind turbines. We have been active in wind, and in renewables we have a 100 percent share in solar turbines in the U.S.—concentrated solar energy.
In the U.S we are starting to see some natural gas projects. We just finished the Lakeside power project in Utah. We are working on one in Long Island for Caithness Energy, which is about a 350-MW project that is on budget and ahead of schedule. It’s looking good right now but we have some strong partners—F&S and Fresh Meadow. We are building a gas plant in Idaho as a turnkey and we have some natural gas equipment orders in the northeast and Midwest.
WorleyParsons: Managing Risks
Fortnightly: What market trends does WorleyParsons see evolving in construction of utility infrastructure?
Martin: We are seeing a more equitable allocation of project risk to parties most responsible and capable of managing the risk, that is,