EPC Firms Happy to See 2009 End, Wary About Coal in 2010, Busily Burnishing "Green" Capabilities

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Representatives of engineering, procurement, and construction (EPC) companies exhibiting at the Power-Gen convention last month were not sorry to see 2009 end, but most weren't exactly breaking out the champagne when discussing their power business prospects for 2010.

Representatives from EPC firms Black & Veatch Corporation (Kansas City, Missouri), Burns and Roe Enterprises Incorporated (Oradell, New Jersey), and Doosan Heavy Industries and Construction Company (DHI) (SEO:034020) (Gyeongsahngnam-Do, South Korea) expressed varying degrees of pessimism about the U.S. coal-fired electric power generation market in 2010. "It will be a challenging year, to say the least," said Joe Plubell, a Black & Veatch senior vice president and director of global sales. There will be "significantly less opportunities for us in coal in 2010," Gregory Zoll, P.E., a deputy director for consulting at Burns and Roe, told Industrial Info. Gareth Boyd, a marketing specialist at Doosan Babcock Energy, a unit of DHI, projected that many U.S. coal-fired power projects "would be on hold for three to five years, until carbon capture and sequestration technologies are proven at commercial scale, and then deployed."

The downbeat outlook for coal is easy to understand. Focused and energetic local public relations campaigns against coal, led by the Sierra Club and other environmental groups, led to delays or outright cancellations of dozens of proposed coal-fired power plants in 2009. The Power-Gen convention took place at the same time as the United Nations Copenhagen summit on climate change, where "coal" was treated as a four-letter expletive. Progress on an omnibus energy bill has stalled on Capitol Hill. And as Power-Gen was getting under way, the U.S. Environmental Protection Agency announced it would begin regulating carbon-dioxide emissions.

EPC firms interviewed at Power-Gen told Industrial Info that they were trying to morph with the changes in the U.S. market by ramping up their renewable power credentials, readying carbon capture and sequestration (CCS) initiatives, or redeploying talent internally to chase transmission and distribution business, including "smart meter" projects. Gas-fired power projects were expected to continue as a staple in 2010 as state and federal officials worked through various political, regulatory, and financial issues surrounding nuclear and coal.

The EPC representatives expressed a consensus that 2010 would be another turbulent year--perhaps not as bad as 2009, but still a far cry from the go-go days of the late 1990s. "We see 2010 in the U.S. as a difficult year: Electric demand is down, there's a recession, there's political and regulatory uncertainty, and more than a few utilities are having less-than-stellar performance financially," said John Hammeran, a project manager for Fluor Corporation (NYSE:FLR) (Irving, Texas).

Fluor is the EPC firm for the South Texas Project units 3 and 4, which will add 2,400 megawatts of nuclear generating capacity at an estimated cost of between $10 billion and $13 billion. Preliminary site work is under way, and a combined construction and operating license is expected from the Nuclear Regulatory Commission in 2012. Sargent & Lundy LLC (Chicago, Illinois) is performing some engineering work for the project, which will use Toshiba's advanced boiling water reactors (ABWR).

"We expect to issue hundreds of bids over the next 18 months," Ed Wynne, P.E., a Fluor Nuclear Power procurement engineer manager, told Industrial Info. "We'll need more than a million yards of concrete and 850,000 linear feet of all kind of pipe--stainless steel, carbon steel, and chromium. We'll be spending between $1 billion and $2 billion on equipment like switchgear, pumps, valves, motors and heat exchangers."

Fluor and Sargent & Lundy also are working together on a $150 million, NRC-mandated project at Duke Energy's (NYSE:DUK) (Charlotte, North Carolina) Oconee Station, which should finish this year.

"For new-build nuclear generation, skilled craft labor will be a major issue," said Fluor's Wynne. "There's not enough skilled labor in the market to build more than a few reactors at the same time. When we have four active projects under way at the same time, things will be interesting. I expect that labor costs will go up, perhaps sharply, around 2014."

Another Fluor official said that the company's diverse mix of geography and business lines had helped the firm weather the economic downturn in the U.S. But he acknowledged that Fluor's backlog in all industry segments had been halved in recent years to an estimated $15 billion from $30 billion, as existing projects were completed and new business was slow to materialize.

Among the EPC firms interviewed at Power-Gen, Black & Veatch, Doosan Babcock Energy, and Burns and Roe stood out for their efforts to accentuate their renewable energy offerings.

"Natural gas-fired generation, transmission projects, and renewable energy projects will be our main focus for the U.S. power business in 2010," said Black & Veatch's Plubell. "In renewables, we think we can play in wind, biomass, and solar." As uncertainty continues to grip the U.S. power industry, B&V has been doing more power-industry consulting work in the following areas:

• cost-benefit analyses for renewable energy
• technology assessments
• integrated resource planning
• facility siting
• permitting
• policy/regulatory studies

B&V also is teaming with an original equipment manufacturer (OEM) to get into the CCS business, but Plubell said a non-disclosure agreement prevented him from naming the OEM or discussing the process that will be used in that CCS venture.

Burns and Roe also finds itself doing consulting on CCS and transmission projects. "People talk a lot about the Smart Grid, but we also see a need to reinforce and strengthen the grid, not just make it 'smarter,'" Burns and Roe's Zoll said in an interview. "There are so many new renewable power projects coming online that the existing grid won't be able to handle the load."

The New Jersey-based firm has redeployed some electrical and civil engineers from baseload power projects to transmission and distribution projects, specifically substation and switchyard work, reflecting changes in the power market, he told Industrial Info.

Burns and Roe expects to become more involved in more photovoltaic and concentrating solar power projects this year. Currently, the company is performing engineering to significantly expand a waste-to-energy (WTE) project in Hawaii, called H-Power. That project recently broke ground on a third unit at H-Power. When that third phase is completed in late 2011 or early 2012, the three-unit WTE facility will be able to burn up to about 3,000 tons of non-hazardous municipal solid waste per day and generate up to 87 megawatts of electricity. Burns and Roe is working with Covanta Holding Corporation (NYSE:CVA) (Fairfield, New Jersey) on the H-Power project, and expects to work with the firm on other WTE projects.

Doosan also is ramping up its renewable energy offerings. It is currently testing a 3-megawatt offshore wind turbine, the WinDS3000™ in South Korea, with plans to market it in Europe in early 2010 and the U.S. in late 2010, according to Doosan's Gareth Boyd. DHI acquired Czech power equipment manufacturer Skoda Power in late 2009, which will strengthen Doosan's capabilities in boilers, turbines, and generators. DHI expects synergies from the acquisition will generate $4.26 billion in incremental annual revenue by 2020 as the Doosan/Skoda team expands into Europe, the U.S., and other developed markets, the company said in a press release announcing the transaction.

Doosan has more than one CCS project under way in the United Kingdom, and it expects to land at least one CCS project in the U.S. in 2010, according to Matthew Hunt, a business development manager for Doosan's post-combustion carbon capture unit. "The U.S. market is still developing," he told Industrial Info, and he is concerned that the low price for carbon could retard testing and commercialization of those technologies. "In Europe, carbon fetches about $25 per ton. We need it to be in the $50- to $75-per-ton range to make CCS projects more economically viable. We've all been a bit surprised by the low carbon prices in Europe."

View Plant Profile - 1000057 1000337 1033267
View Project Report - 1010959

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.