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Global Gas Turbine Markets and Trends – WhatDoes the Future Hold?

The Future of Gas Turbine Technology – 3rd International ConferenceChâtelain All Suite Hotel, Brussels, 11-12 October 2006

Harald Thaler

Frost & Sullivan

• The gas turbine equipment market – drivers, demand analysis, forecastsand trends

• The gas turbine services market – service providers and focus, marketforecasts, key trends and challenges

• Focus of gas turbine improvements – areas of operator interest

Agenda

The Market for Gas Turbines in the EMEA Region

Drivers

Restrain

ts

Drivers

Restrain

ts

Growing Demandfor Electricity

Natural GasReserves

Volatility ofGas Prices

Renewables

Electricity MarketDeregulation

Long Term impact

Short Term impact

Efficiency and Flexibility

Clean coaltechnologySecurity of

Supply

Gas Turbine Market : Market Dynamics in EMEA

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

5-60 MW 60-180 MW >180 MW

GT Market Size & Growth: Breakdown by Output Range,(EMEA), 2000-2010

Gas Turbine Market : Forecasts

• Following decline in the very earlypart of the decade post-US boom,healthy growth has returned

• Installed 18.7 GW in 2005 -forecast to remain broadly stablethrough 2010

• Stronger growth momentum in thenext few years in the mid-rangeturbines (very popular inexpanding Middle Easternmarkets)

• More limited demand for largeturbines from EMEA iscompensated by buoyant Asiandemand

MW

• Booming Middle East market will see greateroverall additions than all of Europe over the nextfew years.

• Italy and Spain still strong and renewed interestin UK

• The medium-range output class is the largestwith nearly 43 GW expected cumulativeinstallations between 2006 and 2010.

• Largest output range to grow more in the nextdecade as new H class machines gain ground

Europe41%

Middle East50%

North Africa9%

48 GW39 GW

8 GW

5-60MW14%

60-180MW45%

Above 180MW41% 39 GW

43 GW

13 GW

Gas Turbine Market : Forecasts

Cumulative GT Additions by Output Range (EMEA),2006-2010

Cumulative GT Additions by Region (EMEA), 2006-2010

• Operator interest in new‘mega-turbines’ with outputsover 300MW has beenmuted so far.

• Asia-Pacific will be keymarket for these turbinesdespite some interest fromoperators in Europe.

• Huge capacity additions willbe undertaken in Asia in thedecades ahead.

• Greater interest in newtechnology in general

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

WesternEurope

EasternEurope

NorthAmerica

Latin America Middle East &Africa

Asia Pacific

High Interest Moderate Interest No interest

Development of Very Large Gas Turbines

Operator Interest in Very Large Gas Turbines

• GE and Siemens are the major twoplayers - typically account foraround three quarters of the totalEMEA market for gas turbines

• Their dominance is less pronouncedif taking only the larger installationsinto account.

• Alstom’s share now reduced as nolonger competes in 5MW-50MWrange

• Mitsubishi more focused on Asiaand North America – selectivetargeting in Europe

Cumulative Gas Turbine AdditionsEMEA, 5MW and Above

41%

24%

10%

15%

6%4%

*2000-2004

Gas Turbine Market : Competitive Position

The Gas Turbine Services Market

Turbomachinery Service Providers

OEM Third Party

Multinational

Regional

Multinational

Regional/Domestic

Utility/IPP AffiliatesJoint Ventures

Services Market : Industry Structure

Main Service Providers in Europe

Original Equipment Manufacturers

GE EnergyAlstom Power

Siemens Power GenerationMitsubishi Heavy Industries

Ansaldo EnergiaRolls Royce

Pratt & WhitneyKawasaki

HitachiMAN Turbo

Solar TurbinesTurbomeca/Safran Group

Third Party Service Providers

Wood GroupTranscanada Turbines

Sulzer ElbarThomassen Turbine Systems

ChromalloyBabcock Borsig Service

Fortum ServiceTurbo Services Network

european maintenance companyMTU Maintenance

Mitsui BabcockFluor Daniel

RWE Power InternationalEON (Anlagenservice / Power Technology)

Soluziona O&M (Union Fenosa)

Service Focus in Gas Turbine Area

Supply of spare parts for own models and servicing allmakes of gas turbines

OEMSiemens

While GE tries to maximize the aftermarket share ofits own make of gas turbines, it is also trying tocapture a share of repair and parts supply market forAlstom, Siemens and Mitsubishi gas turbine makes

OEMGeneral Electric

Supply of spare parts and service for own models onlyOEMRolls Royce

Pratt & Whitney

ALSTOM Power

Organization

Maintenance, overhaul, repair and spare parts bothfor its own make and other brands (GE and Siemens)

OEM

Focuses predominantly on own make turbines. Smallindustrial turbine business sold to Siemens and hencedo not focus on servicing those

OEM

Gas Turbine Service FocusType

Component supply and servicing for GE Frame 5and 6

Non-OEM

European MaintenanceCompany (EMC)

Servicing of aero derivatives LM2500, LM5000 andLM6000

Non-OEM

MTU Maintenance

Supply of spare parts and services for GE Frame6B and 9E

Non-OEM

Thomassen TurbineSystems (Ansaldo)

Replacement parts and repair of heavy duty andsmall gas turbines of Alstom, GE, Westinghouseand Siemens models

Non-OEM

Sulzer Elbar

Maintenance, repair and reengineered parts forGE, Alstom and Siemens gas turbines

Non-OEM

Wood Group

Only servicing of turbines. Procures componentsfrom OEMs/non-OEMs as per end user preference

Non-OEM

Fortum

Component supply and services for GE Frame3,5,6 and 7(B to EA)

Non-OEM

Turbine Services Ltd

(JV Siemens/Chromalloy)

Organization Gas Turbine Service FocusType

Service Focus in Gas Turbine Area

UK28%

Germany17%France

4%Spain7%

Italy16%

Belelux13%

Scandinavia9%

Other6%

European Gas TurbineServices Market –

Breakdown of Revenues

• Fastest growth in Spain and Italy,followed by UK

• Solid growth in Germany andBenelux

• Slower growth in France andScandinavia

European Gas Turbine Services Market –Revenue Forecasts 2000-2010

CAGR (2005-10)= 5.8%

Source: Frost & Sullivan

$1.7bn

$1.3bn

Services Market Revenues and Forecast

UK• Largest gas turbines services market in Europe• Driven by deregulation and presence of IPPs• Renewed expansion of generation capacity• Big presence of independent service providers forced OEM price reductionsGermany• Some investment in gas turbine turbines due to retiring of lignite capacity and

growth in wind power• Recent entry of services arms of big utilities• Limited work for independents due to strong allegiance to OEMsFrance• Limited potential due to large nuclear base and promotion of renewables• Delays in full privatisation of EDF and full deregulation

Services Market Trends in Key Countries

Spain• Explosive growth in combined cycle power plants• Continued expansion of natural gas grid• Limited presence of independent service providers but strong interest from

operatorsItaly• Extensive repowering programme converting from oil-fired to CCGT plants• High electricity prices drive IPP investments• Utility interest in outsourcingBenelux• Relatively mature with limited expansion opportunities• Established presence of independent service providersScandinavia• Mature market with limited gas grid – focus on renewables and nuclear

Trends in the Different Markets

Share of Power Plants with Full Maintenance Contracts forGas Turbines

0% 10% 20% 30% 40% 50% 60%

Germany

Italy

Netherlands

Spain

UK

Share of Responses

Share of plants with full maintenance contracts / LTSAs in 35-50% range

Spain is highest due to newer fleet

Outsourcing Trends

Proliferation of LTSAs – benefits• LTSAs reduce cashflow uncertainties• Allows operators to benefit from latest technology innovations• Provides assurance that a rapidly changing technology will continue to be

supported by the service providers and that spare parts will be available• Raises the re-sale value of the plant

Future trends• Fleet management structure due to internationalisation of utilities• Focus on “value packages” where value to operator is clearly measured• Greater partnership approach between service provider and operator• Towards full O&M contracts (mainly industrial plants)

Outsourcing Trends

Growing competition among service providers• Greater strategic focus of the OEMs• Service arms of major utilities

Pressure on prices• Has affected prices for gas turbine spare parts in particular

Volatile gas and electricity prices• Reduces long-term planning for power plant fleet• Lower electricity prices reduce investment in industrial plants

Key Challenges for Gas Turbine Service Providers

Deregulation of European electricity markets• Has introduced greater uncertainty• Delays investments in new power plants

More cycling and 2-shifting• Greater wear and tear• Affects maintenance intervals• Greater uncertainly of how to price long-term service contracts

Adding value for the client• Bundling of services• Guarantees on availability, heat rate, output etc.• Moves towards complete power plant asset management

Key Challenges for Gas Turbine Service Providers

Focus of Gas Turbine Improvements

Turbine Performance

Emissions Reductions

Fuel Flexibility

Response Speed

Key Areas of Future Improvements

Importance for Gas Turbine Operators

Importance

Key Areas: Turbine Performance

Key Improvements

• Efficiency: Most important area for improvement – Of particular interest inAsia/Latin America/Middle East as running on baseload. Trade-off betweenhigher efficiency and possibly increased O&M expenditure and lowerreliability.

• Reliability: another key area – particularly important for European operatorswho prefer it over efficiency gains, preference for tried and tested machines.Also critical for industrial/oil and gas users.

• Availability: Through Shorter overhauls – Assumes greater importance in very competitive markets. Of

little importance to the oil & gas industry.

Longer outage intervals – users want to see changes in yearly increments dueto preference for certain times of year

Key Areas: Emissions

Key Drivers• Legislation: In compliance with government policies in various countries,

emission limits in most countries are expected to be less than 15 ppm by 2010and possibly below 10ppm by 2020.

• Preference among internationally-based IPPs and large industrial operators(eg oil majors) to purchase and install the most advanced machinery acrosstheir fleet. Local utilities even in developing countries normally follow as well.

Greatest interest in lower emissions turbines fromNorth American operators. European limitsexpected to be reduced to 9-12ppm in longer term

Key Areas: Fuel Flexibility

Key Drivers• Price: High natural gas prices act as a driver for fuel flexibility. Currently on

the way down.• Existence of interruptible contracts: Some operators pay a premium for

uninterruptible supply and are hence keen on greater fuel flexibility. Particularinterest from UK, Italy and Netherlands.

• Deregulation: Movement away from long-term gas supply arrangements willopen up greater potential for alternative fuels.

Greatest interest will be from developingcountries where gas quality is more varied

Drivers

Restraints

Deregulation

High hydropower capacity

Impact

Sufficientresponse

speeds in highlyintegrated power

markets

Growth of windpower

Greaterinterconnection

of grids withCEE/FSU

Increase needfor flexibleoperation

Key Areas: Greater Response Speeds

Overall of relatively limited importance – currentlevels seen as sufficient in most cases

Summary

• Gas turbine market has recovered from its slump

• Strong growth in mid-range turbine demand in medium term and largeturbines in longer term

• Booming Middle Eastern market will outpace Europe over the next fewyears

• Greatest demand for very large gas turbines to come from Asia

• Services market is very attractive to both OEMs and independents

• Long-term maintenance agreements continue to expand

• Desired improvements from operators’ perspective: Reliability is key forEuropean users – lower emissions and greater fuel flexibility also important

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