Electric Power Generation
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Industry Overview
The electric power generation industry consists of 2,200 power generating plants with combined revenue of $80 billion. Major companies include Duke Energy, Excelon, American Electric Power, and Consolidated Edison of New York. The industry is highly concentrated: the 50 largest firms operate more than 50 percent of the generating facilities and earn over 85 percent of industry revenue. In addition to investor-owned utilities, there are about 2,000 government-owned electric power companies at the federal, state, and municipal level, and another 900 user-owned electric cooperatives.
Competitive Landscape
Demand is driven by commercial, government, and residential needs for electrical power, which depend on population growth, economic activity, and electricity prices. Profitability is determined by government regulations and fuel costs. Large companies have an advantage in negotiating fuel contracts and being able to pass the costs of implementing government regulations directly to consumers. Small companies can compete effectively by exploiting market niches, such as offering “green power” in regulated markets. The industry is capital-intensive: average annual revenue per employee is $642,000.
The electric power industry has been moving to deregulation for many years. Federal laws have been modified to remove many of the structural constraints, and state laws are changing to encourage competitive provision of electric power. Structurally, deregulation policies are separating transmitting and delivering electric power from power generation, and companies are either divesting their generation facilities or putting them in an independent corporate entity.
Products, Operations & Technology
The primary product of the industry is alternating current (AC) electrical power (95 percent of revenue). Byproducts of generation that are also sold include natural gas and steam.
Electricity is produced by generators that convert mechanical energy into electrical energy when large coils are rotated in a powerful magnetic field. About 80 percent of commercial power comes from turbine engines powered by steam produced by burning fossil fuels (coal, petroleum, and natural gas); about 9 percent is produced using steam from nuclear reactors; about 6 percent from conventional hydroelectric conversion; and about 4 percent from renewable sources (solar, wind, and geothermal). Power plants typically produce between 500 and 900 megawatts of power, or enough to supply the needs of 500,000 to 1 million households. Larger plants require special metals and fabrication and require more downtime for maintenance, while smaller units aren't as economical to operate.
The output of the generation plant is stepped up to a high voltage (typically 155,000 to 765,000 volts) at the transmission substation for connection to the power distribution grid. The grid transports power from multiple power stations to local distribution systems for delivery to homes and businesses.
Selecting the method of powering an electric generator is key to its long-term efficiency, since fuel costs are 80 to 90 percent of plant operations and maintenance costs. The cost of environmental pollution controls are also a major consideration in selecting a power source. Petroleum and natural gas emissions can be controlled at reasonable costs, but prices for these fuels are often volatile. Coal prices are the most stable of potential fuels, but emission controls can be expensive and some of the control technology is untested. Challenges to designs, extensive environmental studies, and lack of a long-term solution for nuclear waste drove the costs of nuclear power plants to five times that of conventional plants and the approval process to more than 12 years. Hydroelectric plants are the most thermally efficient and least polluting generation method, but the number of suitable locations for dams is limited and long-term downstream effects are a growing concern.
Some consideration is being given to having multiple power sources for generators, but that raises power plant costs considerably. A number of state initiatives, particularly in the western US, are aimed at increasing power from renewable sources to about 15 percent of commercial electric power.
Power plants are highly automated with monitoring equipment sensing and measuring all operations, from burning fuel to controlling plant output voltage, frequency, and amperage. Monitoring equipment senses load changes in milliseconds and adjusts output accordingly. In nuclear power plants, monitoring is highly sophisticated and includes reactor performance and radiation monitoring. The control systems at nuclear power plants can sense dangerous conditions and automatically shut down the reactor.