GE thinking on thermal power plant construction in Japan

General Electric plans to break into the Japanese market for fossil-fuel power plants, aiming to capitalize on demand for efficient facilities at more-competitive prices as crowding in a newly open retail electricity market squeezes utilities.

The American conglomerate plans to team with Japan’s Toyo Engineering on large-scale facilities with outputs topping 500,000kW, which can cost tens of billions of yen each depending on scale. GE’s first move will be participating in upcoming bidding for a project in the greater Tokyo area. It will seek to win orders for two or three plants a year thereafter.

GE had focused on equipment for which it controls much of the market, such as natural gas turbines, which it has supplied to Japanese utilities for more than three decades through a partnership with Toshiba. It is switching gears to engineering, procurement and construction projects, in which one business or consortium handles every step of the process — a specialty of Japanese players.

Many of Japan’s fossil-fuel plants were built in the 1970s and are showing their age. The Development Bank of Japan estimated in 2015 that roughly 20.5 million kilowatts in gas-fired generating capacity was being built or renovated nationwide, at a cost of some 2.5 trillion yen ($22.2 billion).

Until recently, big plant projects were handled mainly by major Japanese power equipment makers such as Mitsubishi Heavy Industries, Hitachi and IHI, making for a largely closed market. But this started to change when the government fully deregulated the retail electricity market last April, Toyo said.

New entrants from other industries piled into the market, sparking fierce price competition and driving up demand for plants that are cheaper to build and run. Even Tokyo Electric Power Co. Holdings pushed for cost cuts on a thermal plant project. Independent power providers account for about 40% of new fossil-fuel plant construction, according to the 2015 DBJ report.

GE acquired Alstom’s power business in 2015 and bought the heat recovery steam generator operations of South Korea’s Doosan Engineering & Construction last year. Such deals have expanded the American company’s plant engineering and construction capabilities and operational know-how.

GE also plans to leverage its cutting-edge turbine technology. Combined-cycle power plants capture waste heat from gas turbines and use it to boost the output of steam turbines, improving efficiency. GE plans to incorporate such a system into a $900 million plant project in Brazil slated to go online in 2020.

Another trump card is “internet of things” technology, which GE uses to analyze data from factories and industrial equipment to make operation and maintenance more efficient. By teaming with engineering specialist Toyo to handle plant projects from start to finish, while also lowering overall construction and operating costs, GE may force the domestic players that have monopolized the market to rethink their strategies.

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