In 1996, a number of industry experts predicted how the power sector would change over a 20-year period. That period has now passed, and David Flin looks back to see how well these experts were able to foresee future developments
According to the novelist LP Hartley, the past is a foreign country. Back in 1996, the Kyoto conference hadn't taken place, total global wind power capacity was 6.1 GW, Facebook didn't exist, the internet was accessible on just 10 million computers worldwide, mobile (cell) phones cost around $1000 each, and some bright computer experts were predicting that the Millennium Bug might bring civilization to a standstill.
In 1996, 16 experts from 15 different organizations from different parts of the industry predicted what the world would look like in 20 years. Those 20 years have now passed, and the predictions are now due. So what did the panel of experts get right, what did they get wrong, and what did they miss entirely?
A big issue then was privatization, and eight experts predicted that privatization and deregulation would not merely continue, but would accelerate globally. It was felt that privatization would increase competition, and would ensure that the customer got the best possible deal.
Some experts said that it would solve nearly all the issues of financing infrastructure development. It was generally assumed that, around the world, transmission would remain in state hands, while generation and distribution would be run almost entirely by private companies, and there would be little role for governments. IPPs would be the dominant source of generation capacity, and buying and selling capacity would be commonplace.
According to the World Bank, a little over half the countries in the world have reformed their electricity sectors, mostly - but not universally - with big gains in performance. Whether the consumer is getting a better deal is less clear. Isolated communities not connected to the national grid have not always benefitted from privatization, and these areas have become much more dependent on distributed generation.
Three experts predicted the growth of distributed generation and CHP. One predicted that the high energy efficiency levels that can be achieved by CHP would make it attractive as an environmentally-friendly method of power generation; one said that distributed generation would grow as a result of the cost of extending grid networks into remote regions; and one said that the economics of distributed generation made it attractive, and that there would be a boom in facilities wanting reliable power supply independent of the grid.
Another prediction that time has proved to have been accurate was that of consolidation among the major manufacturers. There wasn't complete agreement on how many manufacturers would remain by 2016; most suggested around five turbine manufacturers, with one expert suggesting that two to four large gas turbine manufacturers would be all that remained. But those who commented said uniformly that there would be mergers among the big players.
The experts agreed that gas would continue to be an increasingly dominant fuel. Nuclear power was seen as a solution only where there was the political will to press ahead with a nuclear programme, and that the growth in privatization combined with the very long-term investments required for nuclear power would combine to make it generally unattractive. Coal was seen as maintaining its position, but it would grow increasingly concentrated near major coal reserves.
A subject on which the experts differed was how important renewables would be by 2016. Views included:
"The excess cost and intermittent nature of supply from renewables means that it will still be a niche supplier."
"Renewables are unlikely to provide sufficient power to replace fossil fuels."
"Renewables and fast-ramping gas turbines will work together to provide a powerful synergy."
"The demand for low emissions will come, and renewables will play a vital role in meeting that demand."
More than one of the experts said that the problems of CO2 emission levels would provide a boost to the fortunes of the nuclear industry, and that renewable energy would remain niche because it would not be cost competitive.
Were they right? In 1996, global wind power capacity was 6.1 GW. By 2014, capacity had reached nearly 400 GW, and was increasing by around 16 per cent annually. In 2014, wind and PV provided 73.4 per cent of new power generation capacity in the EU.
There was no real agreement as to where the dominant markets would be. China and India were generally - but not universally - predicted to continue to be big markets. Other big markets predicted by some of the experts included:
- Eastern Europe. One expert predicted that the end of the Soviet Union would lead to deregulation and privatization of the former Soviet Union countries, leading to a massive boom in demand;
- Russia. Two experts said that the growth of demand for gas in Western Europe, combined with political instability in the Middle East, would lead to Russia becoming a major gas supplier, and using that to increase its influence;
- China and India. One expert predicted that both China and India would need to undergo privatization to free capital to enable infrastructure investment;
- South America. Three experts said that South America would see a dramatic growth in demand for power. One suggested that there would be a major shift in investment from Asia to South America.
In technological development, one expert predicted that single crystal blades for gas turbines would become much more significant, and would be commonplace in first and second row blading by 2016. Less impressively, there was near unanimity that the continuing drive to increase combined-cycle efficiency would continue, with the peak efficiency attainable being pushed ever upwards, with the 70 per cent barrier being broken by 2016. Back in 1996, gas turbine manufacturers were pushing at the 60 per cent barrier for combined-cycle plants. In 2016, the barrier has been shifted to around 62 per cent.
What they didn't say
Equally interesting is looking at which burning issues of today did not warrant a mention 20 years ago. With one honourable exception, no one mentioned the development of communication and information technology. We now have a world in which real-time control of data and operations is commonplace, and consumers can download apps for a mobile phone to operate devices from miles away. Back in 1996, mobile phones cost over $1000, and didn't have apps. It is now commonplace, but it wasn't even considered by the experts.
The experts generally failed to foresee the emphasis on operational flexibility that would arise. It was an assumption that development activity would be focused on pushing the technical boundary and the headline figures. Higher efficiencies and higher output were seen as being the main drivers. It was assumed that plants would be operating at full capacity and it would be crucial to minimize lifecycle costs by increasing output and efficiency.
As it has turned out, reducing time lost to maintenance by shortening time in maintenance, and increasing the time between maintenance periods, have been just as important, as has been the emphasis placed on being able to operate flexibly.
The issue of CO2 emissions was largely ignored. Three experts mentioned environmental concerns, and one specifically mentioned CO2 emissions. One expert said that, by 2016, global warming would be accepted as a scientific reality, and that governments would be starting to take the issue seriously.
He went on to say that there would be a period in which dealing with the environment would consist largely of "words and lip service", but that eventually, serious action on emission levels would come about. However, other than that, the environment was simply not considered as being an important factor by 2016.
The possibility of a global economic crisis also received no comment. This was also missed by many economic pundits, but the slowdown in the global economy, and the funding crisis had a marked effect. The Enron scandal and the crash of 2008 damaged confidence in the financial probity of companies in general.
Does it matter?
Is it important to be able to predict what the needs of the market will be in 20 years?
One could argue that most changes are gradual, and it is comparatively easy to adjust accordingly. However, power plants have operational lives in excess of 20 years, and upgrading of existing turbines is a very active market. Turbine designs are typically evolutionary; for example, the LM6000 gas turbine from GE and the SGT6-5000F gas turbine from Siemens were both introduced in the early 1990s, and although both have undergone numerous upgrades and improvements over the years - increasing output, increasing efficiency, simplifying maintenance, and improving operational flexibility - the basic turbine design remains much the same. The longevity of these turbines has become a major selling point, with both vendors pointing to the huge number of operational hours gathered by their turbine fleets. It is crucial to be able to upgrade turbines already operating.
It can easily take 10 to 20 years for an idea to be transformed into a commercial reality, making it important to be able to determine whether a development will be of value in 20 years' time.
We have avoided being specific about which experts made which predictions 20 years ago, simply because of the difficulties involved in making such predictions, and because some of the experts are no longer involved in the industry - and, in some cases, the organizations they were with no longer exist.
However, I will mention the predictions made by Amory Lovins, Chairman and Chief Scientist from the Rocky Mountain Institute in Colorado, US. He made four predictions, and was proved correct on each one:
l Coal-fired power generation would start to decline when environmental concerns take greater prominence and more benign methods of generation become cost competitive. We are now seeing a conscious decision to phase out old coal-fired plants in many countries around the world;
l Baseload power would increasingly be provided by a combination of renewable energy and fast-tracking combined-cycle gas-fired power plants. That model is exactly what is happening in many places;
l Distributed generation would become much more significant. We would see new houses built with solar panels as standard, and electricity consumers would increasingly want greater control over their supply;
l There would be a boom in information and communication technology, and the growth in real-time access to data will lead to a transformation of the way business is carried out. Transactions being carried out on-line will just be the tip of the iceberg.
And the next 20 years?
Given that his predictions from 20 years ago turned out to be so accurate, we turned to Amory Lovins to predict what the industry would be like in the year 2036. He looked at three areas: fuel mixture; the next transformational developments; and the next big issues for the industry.
Regardless of the fuel, there is generally no economic or operational rationale for new central thermal power plants if their alternatives are properly chosen, designed, built and run. By 2036, massive central power plants will feel like steamships do today. The winners in the new competitive landscape will be negawatts (efficient end-use), flexiwatts (demand response), and a diverse portfolio of distributed renewables, dominated by PV and wind, and cheaply applicable virtually everywhere.
Electrifying the 1.2 billion people who currently live in darkness will further accelerate the distributed-renewables-and-efficiency revolution worldwide. Since medium-quality renewables near load centres have about the same economics as best-quality renewables far away, but with lower risk and inconvenience, the focus will become local and regional rather than tending towards a global grid.
Coal is in long-term decline with no durable and sustained growth market to rescue it, failing on economic fundamentals and shrinking demand. China continues to fuel GDP growth with less coal, is the world's renewable leader, is improving efficiency by 3-5 per cent annually, and is moving to deauthorizing planned coal plants as generating capacity has tipped into surplus. India is aggressively shifting to renewables, and is starting to discover the benefits of high efficiency. It has quietly cancelled many of its announced coal plants, and capital markets have little appetite for more.
New nuclear build has no business case, being two to three times more costly than modern renewables. Sales of reactors are driven by geopolitics, dual-use capability and national pride. The UK's offer to pay three times the current market electricity price for 35 years for Hinkley Point C has attracted no private investor. Total operating nuclear capacity will begin its permanent decline by about 2020, and be a mere remnant by 2050.
Gas will enjoy a healthy medium-term market, but it is already uncompetitive with modern renewables in many places, and will suffer as renewables get relentlessly cheaper. Fast-ramp gas-fired generators will compete for balancing power in an increasingly renewable, diverse, decentralized constellation of generators. Even in 2015, distributed power made one-fourth of global electricity and accounted for over half of added capacity. Gas cannot count on a long-term need for backup of variable renewables: demand- and supply-side flexibility offer cheaper options than backup or storage.
The explosion in IT, and developments in the energy-IT mashup, have only begun to transform everything. Customers are beginning to realize that they can use electrons more productively, produce their own, and even trade the electrons they generate with other consumers. Dutch customers can already buy electricity from other customers on the Vandebron website, bypassing the involvement of utilities.
Back in the 1880s, Thomas Edison didn't sell electricity. He sold lighting services, charging to run a lamp for an hour. In 1892, the New York Edison Company overruled him, selling the electricity rather than the service. Consequently, an increase in customer efficiency cuts providers' revenues, not their costs. No industry can survive over the long term if its interests are so opposite to those of its customers. Decoupling and shared savings - rewarding utilities for cutting customers' bills rather than for selling them more energy - is an essential start.
Moreover, many utilities that feel exposed to competition from efficiency and renewables such as rooftop solar are trying to combat these threats to their legacy assets by imposing oppressive rules, practices, taxes, fees and tariffs. This will not have the intended effect, but will instead tend to result in increasing solar adoption.
Utilities, however, are not fated to become obsolete. They can apply their skills in many ways: branding and selling new offerings, co-operating with new players, financing, and integrating all technically qualified offerings.
The next big issues
In 1996, the big issues affecting the industry were privatization, fuel supply and fuel costs. In 2016, the dominant issue is greenhouse gas emissions. What will be the big issues in 2036?
There will be five main issues over the next 20 years: resilience; capital productivity; recapitalization; democratizing energy decisions, and implementing the full melding of electricity and information grids.
Resilience will be necessary to ensure a reliable service in an increasingly restive world with a changing climate. This needs efficient use, distributed generators, and a new grid architecture of networked microgrids that can disconnect fractally, serve isolated critical loads without interruption, then resynch and reconnect when appropriate.
Utilities will need to ensure efficient capital productivity by shifting emphasis from generation planning to distribution planning, and shifting resources from giant to small, remote to local, and supply-side to mainly demand-side.
Recapitalization of the industry will be necessary as sales and revenue dwindle while traditional multi-billion dollar, decade lead-time projects become too risky and too costly to finance.
Choice and accountability will shift from central technical and political authorities to local stakeholders, leading to democratization of energy decisions. This will require close engagement with stakeholders, and the tactics adopted by some utilities could create customer resentment.
Utilities will need to develop strategies to digest and implement the "InterGrid", the full melding of electricity and information, as intelligent information becomes ubiquitous, free and utterly transparent, probably at the expense of privacy.
Resilience could become acute tomorrow, and it is already an issue in many countries. The other issues will grow increasingly important over the next decade or two. We will see some very interesting times, and this could be the industry's most exciting era since Edison.
In 20 years, we will be able to judge how accurate or otherwise these predictions have been. In these days of instant gratification and instant global communication, it feels strangely inappropriate to be able to say that the next update on this story will be in 20 years.
Some predictions have been made in the past that have turned out to be less than perfect. Here are five that make one long for the days of astrology and the reading of entrails:
1. "I think there is a world market for maybe five computers." - Thomas Watson, President of IBM,1943
2. "Television won't be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night." - Darryl Zanuck, Executive at 20th Century Fox, 1946
3. "There is no reason anyone would want a computer in their home." - Ken Olsen, founder of Digital Equipment Corporation, 1977
4. "I predict the Internet will soon go spectacularly supernova and, in 1996, catastrophically collapse." - Robert Metcalfe, founder of 3Com, 1995
5. "Two years from now, spam will be solved." - Bill Gates, founder of Microsoft, 2004
THE ORIGINAL PARTICIPANTS IN THE 1996 ARTICLE
Job titles are those held in 1996.
Mark Axford, Vice President, Stewart & Stevenson International
Henry Bartolli, Senior Vice President, Foster Wheeler
Tom Bray, Director Industrial Power, Allied Signal
Dr Derrick Fielden, Senior Executive of Business Development, Commonwealth Development Corporation
Malcolm Kennedy, Chairman of Merz and McLellan
Dr Julia King, Director of Advanced Engineering, Rolls-Royce Industrial Power Group
Amory Lovins, Director of Research at the Rocky Mountain Institute
Peter Moore, International Marketing Director, Smallworld
Chris Packard, President of Kvaerner Energy
Professor Klaus Riedle, Head of Fossil Fuel Power Generation, Siemens
Dick Ruegg, General Manager for Marketing, GE Marine and Industrial Engines
Dr Bill Stockdale, Managing Director of HSB Engineering Insurance
Bill Thompson, Director of Global Marketing, Black & Veatch
Bob Thurlby, Head of Consultancy Services for Utilities, ICL
Bill Voegtle, Executive Director of HSB Engineering Insurance
Kurt Yeager, President and CEO, EPRI