Viewpoint -- Distributed Power Has A Bright Future

Growth projections point to growing demand for local energy generation.

While traditional markets for diesel and turbine engines are declining, engine makers are becoming increasingly confident about growing sales to burgeoning markets for distributed electrical power generation. Companies that include, Cummins Engine Co., Caterpillar Inc., Ingersoll-Rand Co., and the soon-to-be-GE Honeywell International. expect sales from the markets for electrical power to increase 10% to 20% in 2001. And projections for growth in that market support those companies' expectations and indicate that they can expect continued growth in the sector for the next five years. Cummins, Caterpillar, and Ingersoll-Rand talked about their enthusiastic expectations for sales to the distributed electrical power generation market in Orlando, last month at Morgan Stanley Dean Witter's Powergen 2000 Conference. Distributed electrical power generation is filling in for traditional, huge power-generating facilities in a number of ways and is providing a substantial growth market for mature products. In North America, enterprises that use large amounts of electrical power are buying equipment to generate their own power for high-cost, peak-power-usage times. Other enterprises that are concerned about the reliability of the North American electrical power grid are installing equipment as back-up measures. Consumers also are showing increased interest in back-up and peak-cost shaving. Internationally, small generating units that use diesel or turbine engines also are meeting the demand for electrical power while large facilities are being built as an alternative to large electrical energy production facilities. The small generating units have the advantages of providing power immediately; they don't require extensive transmission lines and equipment, and they can be easily relocated. Doug Herman, manager for distributed generation technologies at Palo Alto, Calif.-based electrical power industry think tank Electrical Power Research Institute (EPRI), estimates that distributed power today is a $5-billion-a-year market. He agreed with analysts' estimates that it could grow to be a $30 billion a year market by 2010. Herman said internal combustion engines now account for most of the market, and that is likely to remain so because wind and solar power options are still developing. Caterpillar, Cummins Engine, Ingersoll-Rand and General Electric are eagerly jumping into those markets to increase their earnings in 2001 and beyond. Caterpillar said distributed power generation combined with rentals of power-generating equipment will provide 10% of its $19.7 billion sales in 1999. By 2005, Caterpillar expects power generation and rentals to deliver 20% of its annual sales. Cummins Engine last week said it expects distributed power generation to provide more than $1.6 billion in sales by 2005, while operating margins rise to 9% for the sector. Ingersoll-Rand formed an independent power sector Oct. 11 and expects significant results from the unit as it introduces new microturbines by the middle of next year. Ingersoll-Rand has not released sales expectations for the sector. Meanwhile, GE reportedly expects that 20% of sales at its GE Power Systems will be derived from distributed power generating products within the next five years. GE Power Systems, a $10 billion business unit in 1999, is the largest producer of large electrical power-generating equipment in the world. GE's acquisition of Honeywell will add new small turbine engine products to GE Power Systems' existing lines of equipment. The diesel and turbine engines these companies plan to sell to this growing market are mature products with good margins. The ample growth in power distribution markets should give each of the companies plenty of room to grow and will help them offset the current declines in their traditional markets.

Bruce Vernyi writes for BridgeNews

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