December 2015 - Power Air Quality Insights 237

Major Changes in the Structure of the Fossil-fired Power Plant Supply Industry

The players and the locations in power plant activity have radically changed in the last several decades. In the 1960s, Combustion Engineering (CE) was one of the premier NYSE stocks with a long record of growth and profits. The company dominated the steam turbine and coal-fired power plant supply industry worldwide. During the oil crisis of 1974 U.S., power plants panicked and ordered nearly 100 GW of new coal-fired power plants of which nearly half were tentatively awarded to CE.

Most of these power plants were never built. In fact most were canceled and were not offset by other new projects. CE was also finding more competition from rivals in Europe and Japan relative to its international business. The CE profits disappeared and the company was sold under fire sale conditions to ABB. ABB then struggled and sold the former CE to Alstom.

Alstom struggled with the power plant business and has now sold the power plant group to GE. Along the way Alstom set up a joint venture agreement with Shanghai Electric to supply boilers in Asia including China and India. CE had a large existing boiler manufacturing facility in India which also is now under the Shanghai Electric Alstom joint venture.

Shanghai Electric has also purchased 40 percent of the Ansaldo power group that gives them a good start in the gas turbine industry which the company believes will be a good opportunity in China. Shanghai Electric, Harbin and other Chinese coal-fired boiler plant operators are moving into the international market with 100,000 GW of construction in 27 countries outside of China.

Babcock & Wilcox has emerged as a strong international player following several organizational re-arrangements along the way.

The Japanese companies have been a major force in the world fossil power plant market. The recent merger of the power plant businesses of Hitachi and Mitsubishi into MHPS creates one large Japanese player.

CE was the largest supplier of rotary heat exchangers for coal-fired power plants around the world. This business has now been sold to a private equity firm Arvos. This company is identified with 15,000 existing systems or about 20 percent of the global units in operation.

The cooling tower business has changed continually over the years. Marley was acquired by SPX. In 2015 SPX split into two groups. The dry cooling business has just been sold to an Indian company, Paharpur Cooling Towers Limited.

The air pollution system sector of the supply industry has had the most structural changes. For example, GE bought a power plant scrubber business in the 1970s and then sold it in the 1980s. Now, with the Alstom acquisition, it is back in the scrubber business. Alstom, in turn, has been a major force in power plant scrubbers starting with Flakt. Under ABB the Flakt Group and the CE group were merged into one entity in Knoxville, Tennessee.

Research Cottrell, the largest air pollution company in the world in the 1960s, fell on hard times and ended up as part of Hamon who has also struggled but has now carved out a position which is less dominant and does not include the power plant scrubbers.

The carnage in Europe ended with few standing. Andritz and Doosan have picked up some of the pieces but more than 10 companies have disappeared.

Chinese suppliers now lead the world in terms of the supply of both precipitators and scrubbers. Much of the technology has been licensed but the license fees are shrinking.

China has also surged into the lead in the DeNO_x segment. Fifteen years ago all the catalyst was imported. Today, China manufactures as much or more catalyst than the rest of the world.

We are now on a new course. The big markets for coal-fired boilers are in developing countries in Asia and Africa. Chinese OEMs are leading the way in these countries. So the power industry activity of the future will be centered more in China and less in Japan, the U.S. and Western Europe.

Half of All Flow Control and Treatment (FCT) Purchasing Decisions Are Made Remotely

The choice among suppliers for an FCT product is more often made outside the local sales area. This means that coordination of local sales people is routinely necessary. Furthermore, market forecasts and sales quotas based on where the products will be used have to be adjusted to take into account the remote influence. A big portion of sales can be in large projects. Most of these involve remote influence.

Large companies are moving toward global sourcing. A few hundred large companies purchase 40 percent or more of FCT products. These large purchasers also are the ones with the large projects. Most large project purchasing decisions are made by groups and not individuals.

Local Influence vs. Purchasing Company Size for Flow Control and Treatment Equipment

100%
	Small companies with 60% of the market
↑
local decision making influence
50%
		Large companies with 40% of the market
↑


↑
	Project Size →

Smaller companies tend to make purchasing decisions in the country, province or state in which the product will be used. In larger companies, decisions are frequently made by corporate people in another locality. Another factor is project size. The larger the project, the more likely the decision will be made in part by people not at the point of use. McIlvaine has determined that anywhere from 50 to 200 large companies account for 40 percent or more of the purchases in any of the flow control and treatment product areas.

When the influence of EPC and system suppliers are included, the relative percentage of local decision making is further reduced.

Percentage of purchasing decisions made at another of the 95 countries, regions and provinces rather than at the user plant.

	Small Company (Purchases)		Large Company (Purchases)
	Local Decision	Remote Decision	Local Decision	Remote Decision
Large purchaser			20	40
Small purchaser	60	10
OEM, EPC	5	10	5	15
Consultant	5	10	5	15
Total for category	70	30	30	70
Total for market which is 60/40 small	42	18	12	28
In the total market, 54% of the decisions are locally and 46% made remotely

For a major system or component, 46 percent of the decisions are made remotely. This number is much higher when components such as pumps and valves for new plants are evaluated. Seventy percent of the decisions would be made remotely. Often a valve is assembled in a component in one location and then shipped to the end user. The component supplier will make the ultimate purchase but the end user man have substantial influence on the valve choice.

Most of the decisions will be made locally for repair parts and replacement valves, pumps, nozzles, etc. The exception would be large companies that are moving to global sourcing.

Sales management needs to take into account the remote influence and large project impacts.

The first step is to create detailed forecasting of markets by use in all the sales territories. McIlvaine has divided the world into 95 significant territories (9 regions in the U.S. and 6 regions in China). This spreadsheet then becomes the template for adjustments by remote influencers and large projects.

The sales effort at the global sourcing headquarters for Arcelor Mittal which has more than 100 steel plants and coal mines needs to be proportional to the remote influence. A large project such as the $3 billion potash mining project in Canada or $20 billion coal gas pipeline in China must also be taken into account.

· Detailed forecasting of markets is available with individual reports displayed at:

· Detailed analysis of projects is available with a number of annual subscriptions explained at:

Utility E-Alert Tracks Billions of Dollars of New Coal-fired Power Plants on a Weekly Basis

§ Summit Power signs Construction Contract for Coal Gasification Power Plant near Penwell, TX

§ EPA proposing to extend Compliance Date for BART Emission Limits for SO₂ at P.H. Glatfelter

§ Engie to sell India, Indonesia Assets as it seeks to exit Coal-based Projects

§ Jimah East Power plans ultra-supercritical 2,000 MW Coal-fired Power Station in Jimah, Malaysia

§ Two Phase 1,320 MW Coal-fired Power Station proposed for Kalapara, Bangladesh

§ Proposed 300 MW Coal-fired Power Station in Banovici, Bosnia and Herzegovina

§ MVR Waste Incinerator in Germany is a Template for Coal-fired Power Plants

The Utility E Alert is issued weekly and covers the coal-fired projects, regulations and other information important to the suppliers. It is $950/yr. but is included in the $3020 Utility Tracking System which has data on every plant and project plus networking directories and many other features.

McIlvaine webinars offer the opportunity to view the latest presentations and join discussions while sitting at your desk. Hot Topic Hours cater to the end users as well as suppliers while the Market Updates cater to the suppliers and investors. Since McIlvaine records and provides streaming media access to these webinars there is a treasure trove of value only a click away. McIlvaine webinars are free to certain McIlvaine service subscribers. There is a charge for others. Hot Topic Hours are free to owner/operators. Sponsored webinars provide insights to particular products and services. They are free.