Part Two: Fossil Fuel Plants—Boom or Doom?

Editors’ Note: After our first story outlining the changing European power generation market with key players in the industry, Diesel & Gas Turbine Worldwide asked the same questions of two more representatives of important OEMs: Vinod Philip, CEO of Siemens Power & Gas Services, and Helge Schulz, head of public relations at Mitsubishi Hitachi Power Systems Europe GmbH.

BY ROBERTA PRANDI

Diesel & Gas Turbine Worldwide: What are in your opinion the biggest challenges for power plant operators nowadays in Europe, and how has the market changed In comparison with the not-too-distant past?

Vinod Philip: The transformation in the European energy market that began several years ago is still ongoing today. As the volume of electric power fed into the grid from renewable energy sources continues to grow, demand for fossil-fired power generation is decreasing in many European countries. Between 2010 and 2015, the number of operating hours run by fossil fuel power plants dropped by almost 50%, making it steadily more difficult for such power plants to ensure they can operate profitably. The low prices in today’s electricity market are exacerbating the situation even further.

Moreover, with the national economies in many European countries still struggling, many utilities are either unable to implement urgently needed maintenance and modernization measures in their existing power plant fleets, or if they do, then merely on a modest scale.

And if that were not enough, political upheaval in some countries is causing uncertainty among power providers. Unstable political landscapes are making it increasingly difficult to plan long-term, which impacts the entire value chain, including companies like Siemens.

Helge Schulz: The ongoing transition of the European energy system causes significant challenges to the thermal power generation sector. The operation of the existing thermal power fleet in a “high RES environment” (RES: renewables) is considered as one of the biggest challenges, which power plant operators currently face.

Thermal power plants, due to their dispatchable character, are A) on the one hand considered as the backbone of the European electricity system and shall be able to provide back-up for the whole system if needed and B) are on the other hand forced to operate in a more flexible mode, in order to cover the fluctuating residual load due to the intermittent character of electricity production from RES. This new type of operation, which thermal power plants are forced to follow, leads to multiple implications on technical and economic terms.

On technical terms, existing thermal power plants, which have been usually designed as base load plants are forced to follow a cycling operating mode. The impact of this operation on plants’ operating and maintenance costs through increased wear and on potential production losses by unscheduled outages cannot be fully estimated and evaluated yet. Hence the new type of operation is associated with additional risks, which currently cannot be properly assessed. On economic terms the increase in RES capacity in the European electricity system has led to a respective decrease of the electricity generation price. The so called “missing money problem” leads to reduced revenues for all companies operating thermal power plants in most of the markets in Europe.

Additionally, the boundary conditions remain unclear and no clear market mechanisms for the remuneration of flexibility of dispatchable power generation are currently present in many European countries. Under these conditions, further business development in the thermal power sector is hindered and the planning of new investments or retrofit projects is delayed.

D&GTW: How has your company reacted to these changes?

Philip: Our customers have to come to grips with this changing market, and we are supporting them in this process by developing and providing new solutions that fit this new paradigm.

For us, this means collaborating even more closely with our customers in order to offer them the best possible support, particularly in our service business. This has moved us, for example, to modify our service offerings to provide solutions tailored for individual customer needs. For example, we offer comprehensive service solutions not just for individual components, but for entire power plants, including instrumentation and control systems.

In today’s strained economic environment, the financing solutions we offer in collaboration with Siemens Financial Services have met with considerable interest among a number of customers. We’re certainly keenly aware of the growing cost pressures, and we’re responding by offering scalable services based on the requirements of our customers.

Our maxim is this: standardize wherever possible to reduce development risks and production costs, and customize wherever necessary to meet the specific needs and wishes of our customers.

And of course we’re continuously expanding our service portfolio to include new products and solutions geared to make Europe’s power plants fit for the future, particularly in terms of digitalization and flexibility.

Schulz: Mitsubishi Hitachi Power Systems, and its European affiliated company, MHPS Europe (MHPSE), has been continuously monitoring the developments in the European market and closely following the developments in European policy level through its participation in the most important European associations and the work of its Brussels office. Therefore it has started from an early stage to work in the development of new products and solutions tailored to the new market requirements. Customers stay in the center of this new market approach.

New business opportunities and future projects are expected to come through more complex and cross-sectorial approaches than the “electricity only” production or the combined heat and power production. Technologies like Power to Heat, Power to Fuels and Chemicals, and energy storage will play then an important role in this new business environment. In this frame MHPSE enlarges its product portfolio by including all above concepts under the group of Green Technologies and is usually keen to invest increased time and efforts with its customers, until the most suitable solution from technical and economic point of view is developed, which can fit to the customer’s profile and business approach.

In parallel, MHPSE puts great effort and invests on short term and long term research and innovation work through its active participation in a large number of national and European funded projects.

D&GTW: What new products or services are you offering that were not common in your company’s portfolio before?

Philip: We’ve developed a broad range of new products and service offerings aimed especially at supporting European power plants that are particularly impacted by the changes unleashed as a result of the new energy agenda.

One example is our Flex-Power Services offering, which is designed to enable power plants to meet today’s altered operating requirements that entail frequent start-ups and shutdowns to match the fluctuating output of various renewable energy sources.  Within the Flex-Power Services portfolio are a number of optimization measures tailored for Power on Demand, Grid Services, Minimum Part Load and Maintenance Flexibility.

Flexibility is also the keyword in describing our new generation of long-term maintenance agreements: These contractual frameworks enable us to work jointly with our customers to plan and conduct maintenance inspections independently of actual operating parameters.

After a number of successful tests with 3D printing of spare parts, we plan to utilize this additive manufacturing technology on a broad scale moving forward. This alternative to conventional production methods enables us to quickly fabricate and deliver needed parts on-demand, with significantly reduced lead times and with better performance in specific instances.

Schulz: Further to the traditional portfolio, which includes state-of-the-art solutions for the large scale power sector and ranges from turn-key coal, oil or gas power plants to burners and air quality control systems, MHPSE enlarges its product portfolio by including new “green technologies” tailored to the new market requirements. Opposite to the company’s experience of previous years of gigawatt scale power plants the focus of the new products is on more flexible decentralized applications with usually lower capacities, which can be integrated in an optimum way in the new electricity market structures.

Solid oxide fuel cells (SOFCs) for high efficiency production of electricity (efficiency above 60%) combined with heat or refrigeration on decentralized scale (250 kWe) is one of the new products currently under demonstration in Japan. Furthermore, the use of high temperature heat pumps (Power to Heat) for steam production by using low temperature waste heat sources (<100 ºC) is another possibility to improve the overall utilization rate and the economic competitiveness of existing plants.

Additionally, Liquid Air Energy Storage (LAES) is a developed large scale electricity storage technology, which unlike Compressed Air Energy Storage (CAES) does not require special geological provisions and can be very efficiently integrated in existing industrial plants.

Last but not least, the technology on production of synthetic fuels, like methanol, with a low carbon footprint, by using renewable electricity and/or CO₂ from biogenic or partly biogenic sources (biogas combustion, waste incineration) is an additional technology which follows the cross-sectorial approach (Power to Fuel). MHPSE demonstrates this technology in pilot scale in the framework of a European funded project (see, www.mefco2.eu) and investigates together with interested clients the technical and economic feasibility for its application in different process industries.

D&GTW: What is the role of digitalization—or big data—in the new approach to successfully manage power plants?

Philip: Digitalization is currently fundamentally transforming the energy sector all around the world. Modern diagnostics, data analytics and forecasting tools are enabling us to operate power plants more effectively, reliably and flexibly.  We are able to assist our customers in identifying sources of faults and potential failures before they result in unplanned outages. And we are able to better predict and prepare for necessary maintenance inspections and repairs, based on the actual condition of the plant versus a time-based interval.

Building on the treasure trove of technical experience and operating fleet data available at our existing Power Diagnostics Centers around the world, we have and are continuing to develop an extensive portfolio of digital services for the energy sector. Efforts are focused on advanced data analyses and forecasting tools that enable our customers to, for example, calculate aging processes that impact power plant components and implement targeted changes to modes of operation that counteract aging. We also use MindSphere, the universal cloud solution from Siemens that gives us the ability to correlate energy market- and fleet-specific data with other data inventories.

It’s also possible today to process vast quantities of data and thereby enable applications such as augmented reality, virtual reality and 3D simulation. This makes us capable today of anticipating product developments and modifications based on “digital twins,” supporting training courses and project meetings with computer-generated models, and to virtually support power plant services in remote regions or ones difficult to access. All of this capability provides powerful insights that aid customers in the decision-making process about what’s needed to optimize their assets.

Schulz: Digitalization or Big Data or Industrial Internet of Things or Industry 4.0 are all terms indicating that the process of recording and analyzing operating data of the existing machines or overall plants is becoming of increasing importance.

It is argued that increasing the information and knowledge about current state and operation mode of the power generation assets increases the value of them. More specifically, a better knowledge of the current state of the plant can be achieved through the data collection and analysis process. This may help to modify the extension of the plant operation to new operating regimes, which are far from its initially designed operation. In parallel the plant operation can be continuously monitored and evaluated through key performance indicators. In this way, a more flexible plant operation can be achieved and the new risks deriving from this new operating mode can be in parallel assessed. On the maintenance side, digitalization may help to decrease operating and maintenance (O&M) costs by following condition monitoring strategies for maintenance and avoiding unnecessary maintenance cycles. In this way, the economic competitiveness of the facility may principally increase without increasing the risk for unplanned outages. Nevertheless, due to the complexity of modern plants, the interaction of different systems and the complexity of damage mechanisms there is still a way to go, in the development of this kind of systems. So, the experience and know-how of the plant operator and of the trained personnel on side is still very valuable in all large scale thermal power plants.

Last but not least, digitalization may help in the development of new market opportunities, through going one step beyond the typical structure of manufacturing and selling plants and machines and extending the portfolio to new solutions and new services which are closely related with the operation of the equipment. Tailor-made solutions based on clients’ special demands become of growing importance and will be made possible by the increasing amount of digitalization in the power generation sector.

D&GTW: Do you see more competition for your company? New players in the market?

Philip: The competitive situation in the power plant components and services sector has remained relatively stable over the past two years. However, we anticipate more change in the near future as more small providers and new digital players enter into the energy landscape.

In order to continue to compete effectively, we are putting our innovation DNA to work. The important thing here is to fully understand our customers’ needs and use our proven holistic approach—covering everything from development, manufacturing, components, conventional power plant services, and advanced data analytics—to bring unique and tailored offerings that deliver proven value.

Schulz: As mentioned previously, the increase of the RES share has a considerable impact in the European electricity market. Since the RES share will continuously rise and no considerable increase of electricity demand is foreseen in the European market, low electricity prices are expected in the years to come.

In this sense, future business models, which can differentiate and provide additional services apart from electricity will be more competitive and take a large part of the market. These new products and services may derive from the combination between the conventional electricity and/or heat production and IT. They can be smart solutions that will be developed according to specific customer’s demands.

This shift is already partly observed in some European markets, where the traditional utility companies have been restructured, in order to be able to provide a portfolio of products and services according to customers’ demands. On the other side, new companies, which have not been traditional players in the power generation business start identifying opportunities in this new energy market, currently under development. Examples of Energy Services Companies (ESCOs) with different backgrounds than the traditional electricity sector, which are increasing their current share in the market, are already present. Hence competition is expected to increase as well from the utility side as also from the technology provider’s side in the years to come.

 D&GTW: How do you expect the market of power generation in Europe to change further? Where do you see your company positioning in it in the medium term?

Philip: The demands placed on power providers and technology suppliers will most certainly become even more complex. Companies need to rethink existing business models, respond more quickly to changes in the market environment, and better utilize the opportunities that digitalization offers.

Siemens is well-equipped for these changes. We’ve already come a long way in our transformation from a traditional industrial company to a modern provider of high-tech solutions and services, and we will continue to further strengthen this position in future. One example of these efforts is “next47,” the new unit we established in the summer of 2016 to target and tap into start-ups, innovations and new business areas, including ones in the energy market.

In the spirit of our founder, Werner von Siemens, whose 200^th birthday was only recently celebrated, we as a company must constantly reinvent ourselves!

Schulz: The European energy market undergoes a transition period. The conventional business models of the past, where large utility companies investing in large scale centralized thermal power plants could have a secure return of investment, are not viable anymore. Future market players are expected to operate their plants in a “high RES” environment. Flexibility will therefore play a key role in the thermal power fleet, which will continue to provide balancing services and back-up capacity, when needed.

Under these conditions, and due to the lack of new investments on large scale capacities, retrofit and service are expected to be the main activities in the traditional power plant business for OEMs. Furthermore, the high RES share leads to excess in electricity production for a continuously increasing amount of hours during the year. In order to utilize the low priced excess electricity, new market concepts following the energy storage and/or energy transformation based on the cross-sectorial approach are currently under development.

The cross sectorial approach may include concepts and solutions for Power to Heat, Power to Gas, Power to Fuels and Chemicals. Some utility companies already see the added value of such a cross-sectorial approach and plan to investigate its feasibility by developing initial demonstration projects.

Manufacturers, on their side have to use the opportunity and develop and demonstrate new technologies, which can fit in these new market conditions. These new technologies can be preferably developed under the “solution business” approach, in order to facilitate a better understanding of the market conditions and the interaction of the new technologies in them. In this way a more flexible operation and a better matching of these new technologies to the varying market conditions can be achieved.

MHPSE is positioning its self as key technology provider capable of developing these complete solutions through a close collaboration with the interested clients, following the “solution business” approach. These solutions are always tailored to the customer’s demands and MHPSE’s involvement and scope can vary from an initial feasibility study up to the full supply of turn-key plants including project financing scheme. In this sense we are confident that even in the today’s drastically changing market conditions we will be able to listen to our clients, understand their demands and always provide the best solution for them, which can secure their further growth.