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Powering economic growth in emerging markets

Thu, 11/15/2012 - 17:36 -- Ruth Williams

2-12aCritical Power (CP): How did you come to be CEO of APR Energy?

John Campion (JC): I’m originally from the Irish city of Cork but I came over to the Unites States in 1984, starting my first business in 1987. I founded Show Power, a power rental business for high-profile events including concerts for the likes of Michael Jackson, the Rolling Stones and U2, in 1987. I was the choice of Mick Jagger– he can be very demanding when it comes to power!

I sold that business to General Electric in 2000. This business, renamed GE Energy Rentals, was later bought by Aggreko in 2006. In 2001 I joined Alstom to start a similar business, Alstom Power Rentals, which I bought out and renamed APR Energy in 2004.

CP: APR Energy enjoyed year-on-year first quarter growth of 170% in 2012. What is your secret?

JC: We are a kind of Ghostbusters but for emergency and temporary power. Who ya gonna call? APR Energy! Our business is to supply critical power to emerging economies and fast.

We just put 120 MW into Cyprus and that was up and running in 20 days. Last year’s tsunami in Japan is another good example. The state utility, TEPCO, didn’t even realise there were companies like APR Energy out there supplying emergency power. Their first thought process was to recommission an old 1 500 MW heavy fuel oil steam plant. 

We gave them a bit of an education. We delivered and installed 203 MW into Japan in just 45 days. It was literally planes, trains and automobiles stuff. We chartered seagoing vessels, giant propeller planes and clocked up hundreds of hours of air miles to ensure rapid deployment.

But generally, the customer usually approaches us with a problem. It could be a shortfall of power, perhaps where low water levels have affected hydropower production, or perhaps they have failed to correctly maintain their existing equipment, or where economic growth has outstripped planning.

In the emerging markets we can pretty much foresee when our customer interactions will be. They usually coincide with election cycles. Often the incumbent government likes to be seen to be doing something for their people. Turning on electricity is generally a good way to do that.

CP: How do you ensure quick deployment of emergency power?

JC: We have a stock of equipment. Our headquarters are in Jacksonville, Florida in a 20 000m2 facility under roof. We have regional hubs in Panama, Dubai and Malaysia so we can be relatively fast to anywhere in the world.

2-15We engineer, ship, install, commission, operate, maintain, disassemble and ship out the equipment. Sometimes we help customers sourcing fuel supplies, but given that fuel cost is such a large component of a kilowatt?hour of power we generally encourage them to source their own. 

Our contracts to supply power have a typical duration of between six months and three years. Typically these deals will roll over. We did a six-month deal with EDF in Martinique, but that’s been going on a lot longer than six months and it will continue to do so.

CP: Where are your main areas of growth at present?

2-13JC: Right now sub-Saharan Africa and Asia-Pacific are particularly robust. As is Central and South America. We have just put 100 MW into Uruguay, which was a gas turbine deal. These are gas turbines fired on liquid diesel fuel. The main driver from the customer was emissions. As gas turbines burn a lot hotter they are a lot cleaner than reciprocating diesel engines.

These turbines were rerouted from a job with a large utility in Mexico. The contracts went defective because the permits were going slow. We had an opportunity to move the same equipment on better terms at a better price. Being the good capitalist that I am, I did so!

CP: Some people might say that installing temporary diesel power engines is not a sustainable way of ensuring economic growth is maintained in developing countries…

JC: I would agree. Your average sovereign utility sells electricity at between US$0.12 and US$0.14 per kilowatt-hour but the current fuel cost is around US$0.24 per kilowatt hour. The cost of conversion, i.e. what we do with our equipment, is around US$0.04 per kilowatt-hour. 

Therefore, the cost of power is US$0.28 per kilowatt hour and they are selling it for US$0.14. Ergo, they’re losing US$.14 per kilowatt hour. How sustainable is that? Not very!

Recently I was in Africa taking tea with a Minister of Energy and I said: “You’re losing US$0.10 per kilowatt-hour, how sustainable is this for you?” He said: “I don’t look at it that way. A kilowatt of electricity equates to a dollar of GDP growth. The question is whether I’m prepared to spend US$0.10 to get a dollar of growth?” 

So as long as they’ve got sustainable GDP growth they are prepared to subsidise economic growth with new power generation. But you have to be careful. Some countries are driven by top-level corruption. In some places the only way to get business is to risk going to jail by violating the US Bribery Act or Foreign Corrupt Practices Act. I am not prepared to do that. 

CP: Which technology do you use?

JC: We offer two main options: Caterpillar 3516s diesel reciprocating engines and Pratt & Whitney 25 MW FT8 gas turbines.

We have cooperation agreements with Caterpillar and Pratt & Whitney. Pratt & Whitney are making a mobile product that they sell exclusively to us for the rental market. If an end-user had rented a 25 MW Pratt & Whitney FT8 gas turbine genset on a trailer and having saved all their pennies approached Pratt & Whitney to buy one, they will say “I’m terribly sorry, but we can’t because we have an exclusive deal with APR Energy”. 

However, if, for example, the state Algerian utility wants to buy five of them to move around their country, then that is a completely separate matter. What end-users can’t do is buy them to rent them out again.

CP: How much of your business is accounted for by gas turbine rentals?

JC: Gas turbines represent approximately 20% of our fleet and this is increasing. Our gas turbine fleet is currently fully utilised, although we have got more on order. We like gas turbines for a number of reasons. Number one is that operation and maintenance is a lot cheaper than for reciprocating diesel engines, as you are not changing oil and filters.

Number two is that they’re large rotating machines so the quality of electricity is a lot better than small engines. In terms of grid support and reactive power, a 30 MVA alternator is obviously a great deal more beneficial than a 2 300 KVA alternator on a small diesel engine.

They are also dual fuel, so they can burn diesel as well as natural gas. They are also quieter and less polluting. A diesel engine produces around 600 to 800 ppm of NOx versus 42 ppm for a gas turbine. 

In terms of data centres and other backup power plant I think we are going to see a great deal more natural gas fired machinery, particularly driven by emissions and costs, than we have seen in the past.

Capital costs for gas turbines are roughly 20% higher than diesel generators, but operational costs are a lot less in terms of a gas reciprocating engine against a diesel reciprocating engine. Diesel fuel costs are US$0.24, while natural gas costs can be as low as US$0.04 with good availability. 

Gas availability around the world is becoming more prevalent. There is more gas coming on stream in Indonesia, northern Brazil, West Africa and Asia-Pacific. Furthermore, shale gas is having some impact. When fracking comes fully on stream in Poland, you will see gas prices fall in Europe and gas becoming more of a mainstream source of power generation.

CP: Your competitor, Aggreko, does not offer gas turbines. Do you know something they don’t?

JC: When I was at GE I started a gas turbine rental fleet business and I’ve always been a very big fan of gas turbines. My bet is that Aggreko will be offering gas turbines within 12 months. My view is that they are kind of missing a trick if they don’t.

2-12bSay you’re the general manager of a utility anywhere in the world and you’re short of 100 MW. You’re going to procure three or four large rotating machines, you’re not going to tell your purchasing department to buy 100, 1 MW gensets. 

If Aggreko did offer gas turbines then in terms of technology they only have one option. There are only three main contenders for aero-derivative gas turbines: our Pratt & Whitney FT8, the Rolls-Royce RB211, which has never been the most successful power generation turbine in the 20 to 25 MW range, and GE’s LM2500. 

Rolls-Royce is not really in the mobile gas turbine business, so if Aggreko decides to get into gas turbines it will more likely than not be playing with GE. 

CP: Aggreko seems to be opening a new service centre every week. Are your four locations sufficient to cope with increased demand?

JC: We are quite happy with our four locations – Florida, Dubai, Panama and Malaysia - at the moment. At present they are sufficient but we will see what the market says in terms of expansion.