Wärtsilä Corporation Annual report 2014

Operating environment

Wärtsilä’s power plants are used in wide variety of applications. These include traditional baseload energy generation for national grids, providing dynamic grid power balancing services in order to integrate larger shares of renewable energy, and island mode applications that operate independently.

As a global supplier of power plant solutions, we recognise that there are significant differences in the energy infrastructure models between regions and countries. We serve primarily four types of energy infrastructure:

  • Natural gas based energy infrastructure with pure gas flexible baseload power plants
  • Energy infrastructure with high levels of intermittent renewable energy requiring dynamic balancing power plants with a fast response capability
  • Liquid fuel based energy infrastructure with heavy fuel oil power plants
  • Energy infrastructure transitioning to gas through LNG with dual-fuel power plants

The commercial drivers for power plant investments vary between the different customer segments. Generating and selling power is the core business for utilities and power generation facilities are, therefore, strategic assets. IPP projects are typically financial investments in order to gain returns. Industrial customers need a power supply for their process facilities or factories. The common factor for all customer segments is that the power plant projects are often significant investments. Wärtsilä's power plants are funded in many geographical markets. Funding sources are typically a mix of international, commercial, governmental, export credit agency and multilateral financing. Wärtsilä provides support in finding funding solutions for customers, while it does not itself participate in the funding.

General market drivers in the Power Plants business

The demand for power generation is driven primarily by population growth and economic development. As electricity consumption grows, the demand for both new power generation equipment and replacement equipment for older capacity increases correspondingly. Looking ahead, growth is expected to be higher in non-OECD countries due to increasing industrialisation and improving living standards.

In emerging markets and remote areas, the demand for flexible baseload power plants, as well as for industrial self-generation, is driven by increasing electricity consumption and by developments in the commodity prices. The demand for gas and dual-fuel driven plants increases along with the introduction of gas networks to the emerging markets.

While economic development is a less important driver in the OECD countries, the ageing installed capacity will drive demand for new investments. Other important drivers include stricter environmental regulations and targets to achieve low carbon power systems, which are spurring investments in renewable energy. The significant growth in wind and power installations has led to unforeseen grid stability challenges, which require flexible balancing power. Wärtsilä’s Smart Power Generation power plants not only back up renewable generation, but enable much more of it, thereby increasing the sustainability, reliability and affordability of the entire power system.

The demand for gas is expected to grow, as it enables system balancing with minimal emissions compared to other fossil fuels. This is further supported by the increasing availability of gas resulting from growing investments in the LNG infrastructure, as well as from the economic viability of unconventional sources, such as shale gas. The share of gas in the global energy mix is expected to grow by 2.4% per year, and most of this growth will occur in non-OECD countries. Wärtsilä is well positioned in these markets. In regions where the gas infrastructure is being built, a key feature of our power plants is their capability to utilise available liquid fuels until the availability of gas is fully reliable.

Power Plants’ competition

In larger gas-fired projects, Wärtsilä's internal combustion engine technology often competes against gas turbine manufacturers, such as GE and Siemens. In smaller gas based projects and in the heavy fuel oil based power plant market, Wärtsilä's competitors are mainly other engine suppliers such as MAN Diesel, Caterpillar (MAK), and Rolls-Royce. Our advanced gas and dual-fuel engine technology has given us a leading position in gas-fired engine power plants where we hold a 70% market share, while in the entire market for engine power plants where all fuels are used, we have a 50% market share. Our competitive strengths include the ability to provide anywhere in the world, complete turnkey power plants with fuel flexibility and lifetime support through operation & maintenance agreements. Our main advantages over gas turbine technology are higher efficiency in varying loads, the capability to go from start-up to full load in less than 5 minutes, the ability for unlimited starts and stops without impact on maintenance needs, and the ability to offer dual-fuel solutions for markets transitioning to natural gas.

Main drivers for Wärtsilä's Power Plants business

  • Increased need for flexibility in power systems around the world
  • Economic development and growth in electricity consumption
  • Growth in the use of gas as fuel in power plants
  • Need for fuel flexibility due to uncertainty in fuel availability and price
  • Environmental concerns and renewable energy investments
  • Ageing generation capacity

Note

Make a note?

Note

Make a note?

Close

For the best experience of our Annual Report, please update your browser to a newer version.