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North American Power Generation Equipment and Services Markets - Investment Analysis
Frost & Sullivan, Aug 2007, Pages: 45
This Frost & Sullivan research titled North American Power Generation Equipment and Services Market: Investment Analysis provides a financial benchmarking analysis of this market including a growth monitor that ranks companies based on prospective revenue growth, an industry growth outlook, and a company investment opportunity scorecard. In this research service, Frost & Sullivan's expert analysts thoroughly examine the following markets: boilers, turbines, transformers, generators, and services.
Market Sectors
Expert Frost & Sullivan analysts thoroughly examine the following market sectors in this research:
-Boilers
-Turbines
-Transformers
-Generators
-Services
Market Overview
Rising Power Needs and Strict Environmental Regulations to Drive Investment in Power Generation Equipment
Power infrastructure is a major concern in North America, which is grappling with serious issues such as aging power plants that cause pollution and bottlenecks in transmission due to increasing power demand, resulting in a series of blackouts in the recent past. There is a widening gap between the production and consumption of electricity due to limited power generation capacity and the inadequacies of the current infrastructure make it difficult to route electricity over long distances. Investment in power plant development, transmission, and distribution is definitely required to enable the existing infrastructure to support growing power needs. New types of electricity generating equipment are already being developed and introduced in the market to improve the efficiency of power plants.
Investing in new environmental technology is also becoming essential, especially for older power plants, due to stringent regulations introduced by the Environmental Protection Agency (EPA) to reduce emissions. Power plant owners will also have to constantly upgrade their power generation units to comply with higher environmental standards. Electric utility companies have already started increasing investment in environmental emission equipment to this end, with some companies spending more than 10.0 percent of their capital expenditure. This creates significant opportunities for the investing community as well as strong revenue opportunities for power generation equipment companies. Other related standards set by the Government such as the renewable energy target to reduce excessive dependence on oil imports and use fossil fuels instead is likely to drive investment in turbines.
Incentives Offered by Energy Policy Act, 2005 to Accelerate Investments in Transmission Infrastructure
The Government’s role in developing power infrastructure is all-important because power infrastructure projects, to a large extent, depend on favorable regulations, incentives, and initiatives. This involves a greater focus on overall policy and legal and regulatory frameworks as well as identifying ways to lower the barriers to investment. The return on investment transmission facilities is often low, which discourages potential investors. However, the U.S. Government has introduced significant tax incentives in the Energy Policy Act enacted in 2005, to encourage the construction of transmission facilities. These incentives state that transmission facilities will be treated as a 15-year property and provide an eight-year period for recognition of gains following the disposal of transmission property. 'The Energy Policy Act is expected to accelerate capital investments in transmission infrastructure as it provides various tax benefits and incentives,' says the analyst. 'Many large companies are entering the growing transmission and generators segments to leverage the increasing cash flows.'
Investment will start flowing in only when investors can clearly see a substantial return as compared to expected costs, even if the payback period is long. However, technological advancements such as combine cycle gas turbines (CCGTs) have the potential to reduce this period. The cost of investing in CCGTs is low, the construction period is less than that for traditional turbines, and they emit relatively less CO2. Therefore, the investing community has to consider all these factors to decide the profitability of their investments in the power generation equipment and services market.
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