Market Analysis – 26131510 – Thermal power plants

1. Executive Summary

The global market for new thermal power plants is undergoing a significant transition, driven by competing pressures of rising energy demand and aggressive decarbonization mandates. While the market is projected to contract slightly, the demand for high-efficiency natural gas plants as a bridge fuel remains robust, particularly in Asia and North America. The current market is valued at est. $85.2 billion and is facing a challenging 3-year CAGR of est. -1.5% as coal projects decline. The single greatest threat is the increasing economic viability and policy support for renewable energy and storage, which could lead to stranded asset risk for new fossil-fuel-based projects.

2. Market Size & Growth

The global thermal power plant construction market is characterized by a shift from coal to natural gas and a focus on efficiency and emissions reduction. The Total Addressable Market (TAM) for new plant construction is projected to see a slight decline over the next five years as the phase-out of coal in developed nations accelerates, partially offset by strong demand for gas-fired generation in developing regions.

Three Largest Geographic Markets (by new capacity additions): 1. Asia-Pacific: Driven by China and India's need to support industrial growth and replace older, inefficient coal plants. 2. North America: Primarily driven by the U.S. replacing its coal fleet with high-efficiency combined-cycle gas turbine (CCGT) plants to support grid stability alongside renewables. 3. Middle East & Africa: Growing energy demand and monetization of abundant natural gas reserves are fueling new projects.

3. Key Drivers & Constraints

1. Demand for Baseload Power: Intermittency of renewable sources (solar, wind) creates a critical need for reliable, dispatchable power. High-efficiency gas plants are the primary solution for providing this grid stability.
2. Decarbonization Policies: Government regulations and international agreements (e.g., Paris Agreement) are forcing the retirement of coal-fired plants and imposing stringent emissions limits (NOx, SOx, CO2), making new coal projects unviable in most OECD countries.
3. Cost-Competitiveness of Renewables: The falling Levelized Cost of Electricity (LCOE) for utility-scale solar PV and wind, combined with battery storage, is creating intense price competition for new thermal generation projects. [Source - Lazard, Oct 2023]
4. Fuel Price Volatility: Natural gas price fluctuations directly impact the operational cost and investment case for new gas plants, representing a significant risk factor for project financing.
5. Technological Advancement: The development of advanced-class gas turbines (e.g., GE's HA-class, Siemens' HL-class) with >64% combined-cycle efficiency is a key driver, lowering emissions and fuel consumption per MWh.
6. Capital Intensity & Financing: Thermal power plants are multi-billion dollar projects with long development cycles. Rising interest rates and increasing ESG pressure on financial institutions can make securing project financing more difficult and expensive.

4. Competitive Landscape

The market for core power generation equipment (the "power island") is a highly concentrated oligopoly. Barriers to entry are immense, including decades of intellectual property in turbine technology, massive capital requirements for R&D and manufacturing, and established long-term service relationships with global utilities.

⮕ Tier 1 Leaders * GE Vernova (USA): Market leader in gas turbine technology, differentiated by its record-setting high-efficiency HA-class turbines and extensive digital and service offerings. * Siemens Energy (Germany): Strong competitor with a broad portfolio spanning gas turbines, steam turbines, and a strategic focus on energy transition technologies like hydrogen-ready turbines and grid solutions. * Mitsubishi Heavy Industries (MHI) (Japan): A dominant force in gas turbines, particularly in Asia, with leading efficiency in its J-class turbines and significant investment in carbon capture (CCUS) technology.

⮕ Emerging/Niche Players * Shanghai Electric (China): A state-owned giant with a full EPC portfolio, increasingly competing on projects outside of China, often with Chinese financing support. * Ansaldo Energia (Italy): A significant European player with a strong legacy in steam turbines and a growing presence in the gas turbine market. * Bechtel / Fluor (USA): Global EPC (Engineering, Procurement, and Construction) leaders who do not manufacture turbines but manage the overall construction and integration of massive energy projects.

5. Pricing Mechanics

The total installed cost of a thermal power plant is a complex build-up of equipment, construction, and soft costs. The "power island"—comprising the gas turbine(s), steam turbine, generators, and heat recovery steam generator (HRSG)—is the core technology package supplied by an OEM and typically accounts for 40-60% of the total project cost. The remaining "Balance of Plant" (BoP) includes cooling systems, water treatment, high-voltage switchyards, and civil works. Pricing is typically established through competitive bidding on an EPC (Engineering, Procurement, and Construction) contract, which can be fixed-price or cost-plus.

Long-Term Service Agreements (LTSAs) are a critical and highly profitable component for OEMs, covering maintenance, parts, and performance upgrades over the plant's 20-30 year lifespan. These are often negotiated in parallel with the initial equipment sale. The most volatile cost elements impacting project economics are:

1. Natural Gas (Fuel): Henry Hub spot prices have seen >40% swings over the past 24 months, directly impacting projected operational expenditures.
2. Hot-Rolled Coil Steel (Construction): A key input for structures and piping, steel prices have fluctuated by ~25% in the last two years due to supply chain and demand shifts. [Source - World Steel Association, Jan 2024]
3. Nickel (Turbine Alloys): A critical element for high-temperature turbine blades, nickel prices on the LME have experienced extreme volatility, including price spikes of >50% within a single quarter.

6. Recent Trends & Innovation

• Hydrogen-Ready Turbines (2023-2024): All major OEMs now market new gas turbines as "hydrogen-ready," capable of co-firing blends of natural gas and hydrogen (typically 30-50% H2 by volume), with a roadmap to 100% hydrogen. GE and MHI have announced successful tests at operational plants. [Source - GE Vernova, Jun 2023]
• GE Energy Transition Spin-Off (April 2024): General Electric completed the spin-off of its energy portfolio into a new, publicly traded company, GE Vernova. This move creates a focused entity dedicated to power generation and the energy transition, signaling a long-term strategic commitment to the sector.
• Advancements in Carbon Capture (CCUS): Major investments are being made to scale CCUS for gas-fired power. In the UK and US, government support is accelerating the development of large-scale projects, with MHI's technology being a prominent choice for post-combustion capture.
• Digitalization and AI for O&M: The use of digital twins and AI-powered predictive maintenance platforms has become standard. These systems optimize combustion, predict component failure, and reduce costly unplanned downtime, improving the overall profitability and reliability of the asset.

7. Supplier Landscape

Note: Market share is for new unit orders and can fluctuate significantly year-to-year based on large project awards.

8. Regional Focus: North Carolina (USA)

North Carolina presents a significant near-term demand outlook for new thermal generation. The state's primary utility, Duke Energy, is executing a state-mandated Carbon Plan that requires the retirement of its entire coal fleet by 2035. To ensure grid reliability while integrating more solar, the plan calls for the construction of up to 6.2 GW of new natural gas capacity. This creates a clear, large-scale procurement opportunity. The state hosts major manufacturing and service hubs for key suppliers, including Siemens Energy's large campus in Charlotte, providing logistical advantages and access to a skilled local labor pool. However, all projects face rigorous scrutiny and approval processes from the North Carolina Utilities Commission (NCUC), which will heavily influence project timelines and cost recovery structures.

9. Risk Outlook

10. Actionable Sourcing Recommendations

1. Mandate Future-Proofing for Carbon Risk. Require all bidders for new gas plants to include fully-costed, time-bound options for future conversion to >70% hydrogen co-firing and/or integration with a post-combustion carbon capture (CCUS) system. This de-risks the asset against future carbon taxes and regulations, addressing the High ESG Scrutiny and Medium Technology Obsolescence risks by building in a clear decarbonization pathway from the initial procurement stage.

2. Prioritize Lifecycle Performance over Upfront CAPEX. Shift evaluation criteria from lowest EPC price to best Total Cost of Ownership (TCO). Weight supplier bids heavily on guaranteed net efficiency (>63%), ramp-rate flexibility, and the inclusion of a comprehensive Long-Term Service Agreement (LTSA) with performance guarantees. This directly mitigates the impact of High Price Volatility in the natural gas market and ensures the asset remains competitive.