Zachry's Fossil Fuel Power Business Soars: "Gas Is Resurgent, Coal Is Not Dead"

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--When Steve Bridges hears people say that they are "cautiously optimistic" about engineering and construction work in the power business, he has to disagree. "I'm not 'cautious,' I'm downright optimistic," said Bridges, a vice president for enterprise strategic development at Zachry (San Antonio, Texas).

The optimism seems well placed: Although the privately held engineering and construction firm doesn't release revenue or profit numbers, its U.S. fossil fuel power business has increased dramatically in the current decade, measured in terms of installed capacity. "We've never been busier in bidding for work," Bridges told Industrial Info in an interview. "Six months ago, I would have said that things were pretty grim, but business has been picking up the last three months."

Click on images at right for an analysis of Zachry's engineering and construction work in the fossil fuel power business.

Zachry recently completed construction of a 650-megawatt (MW) coal-fired generator for Omaha Public Power District (Omaha, Nebraska) and is working on large coal-fired generators for clients in Texas and Arkansas. The firm's air quality control systems (AQCS) business recently finished projects for Arizona Public Service, a unit of Pinnacle West Capital Corporation (NYSE:PNW) (Phoenix, Arizona), and South Carolina Electric & Gas, a division of SCANA Corporation (NYSE:SCG ) (Columbia, South Carolina). Zachry also has two AQCS projects under way for Progress Energy Incorporated (NYSE:PGN ) (Raleigh, North Carolina), Bridges said.

"Gas is resurgent now--we're bidding on over a dozen gas-fired power projects," commented Bridges. "And coal is not dead, despite its popular perception as a 'dirty' fuel. We're bidding on several coal projects now. Coal won't be going away, because nuclear capacity is not coming online fast enough, the existing coal fleet is aging, and renewable energy will only get you so far. We need a balanced energy policy, and we don't have that right now."

Click on image at right for details of Zachry's current and recently completed fossil jobs.

The gas-fired projects on which Zachry is currently bidding are smaller than those from previous years. Also, rather than combined-cycle power plants, utilities are increasingly building simple-cycle projects. Bridges said that Zachry, like many engineering and construction firms, experienced a decrease in fossil-fuel-based business when utilities deferred or cancelled generation projects in response to the recession, declining consumer demand, and the meltdown in the credit markets last year.

Zachry is sticking to its traditional strengths as an engineering and construction firm that specializes in domestic fossil-fuel power stations and air pollution control projects. The company's power projects tend to be located in the Southeast, Southwest, and Midwest. The firm is not bidding on any wind projects. "That's a whole different market for us, with a different set of competitors," said Bridges, adding that Zachry may bid on solar or biomass projects. "There are a lot of projects out there in solar and biomass, and the bidding activity is heavy," he said.

"We're all holding our breath now on national energy policy," continued Bridges, who has been with Zachry for more than three decades. "What we as an industry have been doing for many years is making incremental improvements and expansions to the existing fleet of coal-fired power plants. It's like putting a new muffler on a 35-year-old car. At some point, the car itself needs to be replaced. You can only change the mufflers so many times."

Zachry performed engineering work on American Electric Power's (NYSE:AEP) (Columbus, Ohio) just-completed carbon capture and sequestration (CCS) project at the Mountaineer power plant, located in New Haven, West Virginia. Future CCS work could possibly be in Zachry's future, though Bridges frets about today's lack of commercial-scale technology to capture and sequester carbon-dioxide emissions from coal-fired power plants. For more on the Mountaineer CCS project, see June 8, 2009, article - Mountaineer CCS Project on Time and on Budget for October Start-Up.

About five years ago, Bridges said he bet a colleague that the industry would break ground on a nuclear plant before it broke ground on an integrated gasification combined cycle (IGCC) power project. "At that time, everyone said they were going to build an IGCC. But they are very expensive, and they have to battle the perception that coal is a 'dirty' fuel." Bridges recounted that the colleague recently said, "It looks like you're going to win that bet."

Ultimately, Zachry's fossil fuel power business depends on an upturn in the economy, and the Zachry executive said he believes the U.S. is in the early stages of economic recovery. "The banks are starting to lend again. We're seeing an increased number of projects being bid. That's our barometer of the economic future--the number of opportunities to bid on work. The pot is starting to boil. Have you noticed that there aren't too many empty seats at the Dallas Cowboys' new football stadium?" (Single-ticket prices for the new $1.5 billion football stadium, which seats about 105,000 people, average $160 each, with a range of $75 to $239.)

How can equipment vendors and service providers hitch their wagon to Zachry's rising fortunes? "It's not rocket science," Bridges told Industrial Info. "People that want to work with us have to have a history of ethical behavior. They offer fair, competitive prices, and they have a track record of delivering on their promises. We succeed by understanding what the customer wants and giving it to them."

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.