Capex in power industry continues to grow

Edited by the Engineeringtalk editorial team Nov 10, 2004

Worldwide capital and operational expenditures for plants in the electric power industry, which totalled more than $374 billion in 2003, will exceed $453 billion by the end of 2008.

Worldwide capital and operational expenditures for plants in the electric power industry, which totalled more than $374 billion in 2003, will exceed $453 billion by the end of 2008.

The growth projections have been revealed in a new study by the ARC Advisory Group.

"While China strains to grow a reliable power infrastructure in support of rapid industrial growth, North American spending continues to decline as the recent bulge of generation development, combined with higher natural gas prices, create both a glut of generating capacity and a squeeze on operating margins," according to ARC senior analysts Harry Forbes and Ravi Murthy, authors of ARC's 'Electric Power Industry Plant-Level Expenditures Worldwide Outlook'.

They continued: "In addition to process improvement, capital budgets are focused on improved asset management as well as better responsiveness to customers." Worldwide, the industry will see steady growth as electric power continues to be the point of expansion for infrastructure development worldwide and especially in the developing economies of Asia.

Many electric power companies will face new competitors, continued deregulation and emerging technologies such as distributed generation, renewable, and 'clean coal' primary energy sources.

The study continued to note that electric power is the lifeblood of developed economies worldwide and, therefore, draws the close attention of regulatory authorities.

Major factors that will influence power utilities Capex are the continued growth in per capita demand for electric power in developing regions and compliance with environmental, reliability, and safety regulations.

In addition, there will be reduced requirements in some regions due to recent overbuilding and the uncertainty of future rate structures and deregulation will gave an effect.

Furthermore, the potential for conflicts between regulatory agencies and stricter operating procedures relating to generation, transmission, distribution, power quality, and reliability will be important.

The report also cited that the continuing evolution of privatisation models, such as the proposal for Independent Transmission Providers (ITP) by the US Federal Energy Regulatory Commission (FERC) would be important.

Originally designed to economically deliver power from monopoly producers to captive markets, these networks are now being driven more and more by trading activities and make-buy strategies of regions and even whole nations.

This change brings economical operation and reliability into conflict, as was illustrated by the large 2003 blackouts in North America and Italy.

ARC continued to comment that regulators struggle with the need for more power trading and with the changing definition of reliable service, as digital economies are increasingly dependent on more reliable and high-quality electric power.