The gas turbine crunch

Demand for turbines is growing fast, but so are lead times — causing serious headaches for developers and even cancellations. In Texas, one of six cancelled projects cited “equipment procurement constraints” as the reasons for its withdrawal. Lead times are stretching to four years and sometimes more. Costs are climbing. So what’s behind the bottleneck? In this episode, Shayle talks to Anthony Brough, founder and CEO of Dora Partners, a consulting firm focused on the turbine market. Shayle and Anthony cover topics like: Why previous boom-bust cycles in turbine manufacturing have left the industry skittish — and why Anthony says leaders are approaching this new peak with “guarded optimism” The competing demands on the turbine supply chain, including from power, oil and gas, and aerospace industries How lead times have ballooned to four years and, in some cases, even longer Factors affecting the market beyond load growth, like renewables, storage, affordable gas, and coal retirements How investment in tech innovation has raised turbine efficiency How the industry is preparing for hydrogen — if hydrogen scales up Resources: Latitude Media: Engie’s pulled project highlights the worsening economics of gas Latitude Media: High costs, delays prompt withdrawal of five more Texas gas plants Power Magazine: Gas Power's Boom Sparks a Turbine Supply Crunch Marketplace: Will we have enough natural gas turbines to power AI data centers? CTVC: 🌎 Gas turbine gridlock #236 Credits: Hosted by Shayle Kann. Produced and edited by Daniel Woldorff. Original music and engineering by Sean Marquand. Stephen Lacey is our executive editor. Catalyst is brought to you by EnergyHub. EnergyHub helps utilities build next-generation virtual power plants that unlock reliable flexibility at every level of the grid. See how EnergyHub helps unlock the power of flexibility at scale, and deliver more value through cross-DER dispatch with their leading Edge DERMS platform, by visiting energyhub.com. Catalyst is brought to you by Bloom Energy. AI data centers can’t wait years for grid power—and with Bloom Energy’s fuel cells, they don’t have to. Bloom Energy delivers affordable, always-on, ultra-reliable onsite power, built for chipmakers, hyperscalers, and data center leaders looking to power their operations at AI speed. Learn more by visiting BloomEnergy.com. Catalyst is supported by Third Way. Third Way’s new PACE study surveyed over 200 clean energy professionals to pinpoint the non-cost barriers delaying clean energy deployment today and offers practical solutions to help get projects over the finish line. Read Third Way's full report, and learn more about their PACE initiative, at www.thirdway.org/pace.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Shayle Kann?

  Hey everybody, this is Shayle. Happy holidays. This week, we are re-releasing a podcast that we recorded earlier this year on the gas turbine crunch. I will say that since that episode has been released, the crunch has gotten even crunchier and the big turbine OEMs are just as sold out as they were before, perhaps even more so. And you've seen lots and lots more announcements of purchases and long lead times for all sorts of different kinds of gas turbines. We're getting broader and broader. Aerod derivatives are becoming a thing. Boom supersonic has pivoted a little bit from building supersonic jet engines to jet engines that can be repurposed for data centers. So it's just as important as it was months ago. And I thought it was

• 0:44Shayle Kann?

  a really good conversation because people don't really understand and appreciate how the the gas turbine supply chain works. With no further ado, here's our episode from earlier this year.

• 0:57Speaker 01

  Latitude Media, covering the new frontiers of the energy transition.

• 1:03Shayle Kann?

  I'm Shayle Khan, and this is Catalyst.

• 1:07Shayle Kann?

  What's your outlook on timelines? Do you think that the lead times just get longer and longer and longer? Are we at the peak there? Is it going to get worse? Do we know?

• 1:16Speaker 02

  Good question. I actually don't think they're going to get much worse. I think all of the OEMs are working like crazy to try and shorten up their lead times or at least make sure they don't get worse.

• 1:27Shayle Kann?

  Coming up, it's due time. We talk about the gas turbine market.

• 1:40Speaker 01

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• 2:11Speaker 01

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• 2:37Speaker 03

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• 3:12Shayle Kann?

  I'm Shayle Khan. I invest in early-stage technologies at Energy Impact Partners. Welcome. So it's a good time to be in the gas turbine business. Between the relaxation of emissions constraints and the rapid load growth that we've discussed innumerable times on this podcast before, perhaps the biggest winners are the companies like Mitsubishi, Siemens, and GE Vernova who make turbines. Of course, one result of that is that they're pretty well sold out, and they have a lot of pricing power. So it's an interesting moment where momentum is clearly flowing toward natural gas power generation, but it's also actually pretty difficult to build any more of it, especially in the near term. Anyway, it's a really interesting market and one we haven't really talked about here. So let's fix that.

• 3:56Shayle Kann?

  To rectify the situation, I brought on Tony Bruff. Tony is the president of Dora Partners, which is an energy and gas consultancy specializing in what's going on with the gas turbine industry. Here's Tony. Tony, welcome.

• 4:08Speaker 02

  Thank you. Glad to be here.

• 4:10Shayle Kann?

  I want to start by you giving me a little bit of a recent history lesson on the the gas turbine market. How has it been developing over the past, I don't know, you tell me what the relevant timeframe is, but a couple of decades?

• 4:23Speaker 02

  That's a good question. I mean, there's been a lot of dynamic change over the last few decades. I mean, it used to be in the 70s and 80s, there were pretty much just two major OEMs, you know, General Electric and even Westinghouse at the time, now owned by Siemens. But really, the the number of OEMs have have been have gravitated towards three major OEMs, MHI Mitsubishi Heavy Industries, Siemens, and General Electric, or now now it's GE Vernova. There are other strong players in the market, for example, solar gas turbines. A division of Caterpillar is a significant player in the small gas turbine market. So

• 5:05Speaker 02

  how has it changed? So how's it changed? It's really evolved, not just in terms of the OEMs, but but also there's been, you know, several, I'll call them bubble periods. You know, there was a big bubble period in 1998, 1999 through 2001, and then the market basically fell off a cliff. And it slowly built back up to a really good set of years back in 2012. And then it kind of fell off again. And now we're kind of at another peak, but I would call today's peak more of a real market driven, realistic set of scenarios that's driving the market today.

• 5:44Shayle Kann?

  That's interesting that you say that. I mean, because I knew it was characterized historically by these sort of boom and bust cycles. And I think we've seen this in other sectors in the electricity market as well. We've talked before on this podcast about transformers, for example, where you have these very long lead times. And one of the reasons that there are still such long lead times is that transformer manufacturers have gotten burned in the past by building out more capacity and being oversupplied into a market that turned out to bust. And I had a sense that there's kind of a similar dynamic in the turbine world. But it sounds like you're saying this one seems like it's different. What drove those bubbles that then burst in in recent history in the market? Was it over exuberance about new gas generation build that just didn't come to fruition? Or something else?

• 6:28Speaker 02

  No, actually, there's actually several different dynamics. And that's a really good question. If you go back to that first big bubble back in 98 through 2001, that was really being driven by an artificial demand created by Enron. I mean, they clearly were sending artificial signals to the marketplace that were driving up the cost of electricity significantly in several regions of the country, California, Texas, and other areas. And that was also right around the same time that deregulation was coming into play. So those two factors created a lot of panic in the marketplace.

• 7:10Speaker 02

  And keep in mind, a large utilities in the 60s and 70s, they, everything was regulated. So they were pretty much just, they only built when they could get the public utility regulators to approve investment. But as deregulation came into play, deregulation came into play, everybody was just basically learning, okay, how do we, how do we make money now that there's regulated, deregulated, and semi-regulated markets to deal with across the country and even to a degree in areas outside the country in Europe and Asia, for example. So, and then the Enron thing just created a significant,

• 7:55Speaker 02

  I would say, artificial signal to the marketplace. So those two factors really drove a bubble in the market. And a little bit of it was unreal. I would say at least half of the volume was. Artificial.

• 8:10Shayle Kann?

  Maybe to put a finer point on that then, because this ties to both the deregulation and Enron, which obviously are tied to each other, but is what was happening there, a lot of speculative development of what would be merchant gas projects that never came to fruition? I want to draw that distinction because what's interesting about today's moment is that like, you know, you, I don't know, I don't think there is a lot of new merchant gas being developed. Mostly what's happening is it's other utilities saying, we need it for, because we need more capacity, or it's data centers and they'll be the long-term off-take on the project. So you're actually not like subject to the merchant risk. You are subject to the, will this data center ever get built risk, which is kind of a different thing.

• 8:53Speaker 02

  Well, that's true, but, but, but most of that activity was not merchant. Well, there were IPPs, there were a lot of IPPs and wind power producers that were speculating without a doubt. But, you know, there were a lot of orders that were canceled, even by large regulated and semi-regulated utilities like Southern Electric. You know, there were, they had a huge set of orders and a lot of that stuff had to get either canceled or bought and then resold on the marketplace. It was, it was a real disaster for everybody when the bubble burst.

• 9:33Shayle Kann?

  So we'll get into the market today in a little bit more detail, but do you think that there is, given that history, given that there is some boom and busts and some cycles that the market has gone through, does that lead to a more conservative approach from, as you said, basically the three big OEMs that control what 70% of the market or something like that to expand capacity? Or do you think that they share the view that you expressed, which is actually this one's real, I'm not too worried about being overextended. If I expand capacity now, I'm sold out through whatever it is, 2029, 2030. And so I should just build as much as I possibly can. Like, where do you think they are on the spectrum?

• 10:12Speaker 02

  Yeah, well, I think there, there's guarded optimism, very guarded optimism. I mean, certainly all of the OEMs are investing in the future for new production capabilities, particularly Siemens and General Electric, Gieverno, I should say. The other thing to keep in mind is About half of the gas turbines that's ordered in the marketplace aren't even for the electric power utility market, they're for the oil and gas market. And so, all of the supply chain that's feeding those three OEMs and others are also competing for supply chain resources going into the oil and gas market.

• 10:56Speaker 02

  And some of those OEMs are also delivering into the oil and gas market. So there is a lot of interesting dynamics going on, and it's important to look beyond just the power generation or the utility sector when you think about what's happening in the marketplace.

• 11:15Shayle Kann?

  Yeah, can you say more about that? I think that's one thing people don't always appreciate on the outside. What does that supply chain look like and what are the big categories of sort of end markets that these products get sold into?

• 11:28Speaker 02

  Right, well, that's a great question. I have, basically, I described the supply chain for the gas turbine industry in four different levels. I call level zero is raw materials. So, you know, you talked about transformers, well, copper is clearly a big raw material when it comes to transformers, but for gas turbines, it's the super alloys, nickel-based alloys, chromium, all those other expensive key ingredients, titanium, all those things that are involved in the raw materials for gas turbines. That's what I call level zero.

• 12:06Speaker 02

  Level one is actually manufacturing the raw pieces of product, for example, blades and veins and things of that nature that are being cast or forged. Level two is where they're actually manufacturing the gas turbine from all those components that were developed on level one. So that's where the OEMs are producing a, you know, what I call flange-to-flange gas turbine. And then level three, which is the fourth level, is where it all gets put together into a final package and delivered to an operator's site, installed, commissioned, aftermarket

• 12:50Speaker 02

  activities, all that sort of thing.

• 12:54Speaker 02

  So all of those, and then when you keep in mind, levels zero and level one are also being impacted by the aerospace industry. You know, there's something like 40,000 aircraft in backlog right now in the world. Well, guess what? All of the same level zero material suppliers and all the level one forgers and casting shops and things of that nature in what I call level one, they're all supporting the aerospace industry at the same time.

• 13:33Speaker 02

  So you can't look in isolation at the electric power utility market for gas turbines in isolation because you have to consider what's happening in the aerospace industry and what's happening in the power and the oil and gas industry because, as I said, 50% of the industrial gas turbines that are delivered in any given year approximately aren't even for the electric power utility sector, they're for the oil and gas sector.

• 14:03Shayle Kann?

  And in terms of the market dynamics today, I guess, obviously, we have this booming demand for gas turbines in the electric sector, whether on grid or off grid. Some people are doing gas turbines for bridge power for data centers or whatever, but let's call that all in the electric sector ultimately.

• 14:22Speaker 02

  I agree.

• 14:23Shayle Kann?

  Is the demand, I mean, oil and gas prices are low right now. Does that mean that there's low investment on that side? And so most of the demand is shifting to electric power generation? Or is that not sort of how the cycle works on the oil and gas side?

• 14:37Speaker 02

  Well, you know, that's a great question, Shayla. The good news is for those that are involved in the oil and gas industry is by and large, most of the large oil and gas players have long-term thinking in mind. So they're making five, 10, seven and 10-year strategy developments for strategy. Now, well, in any one year, they might reduce their order activity because the oil and gas prices are down? Absolutely, that's correct. But in the long run... Oil and gas companies basically stick to a strategy that, an investment strategy,

• 15:18Speaker 02

  that, that keeps them investing. And typically, what we see are what I call seven-year cycles in the oil and gas industry. It'll go up, peak at about year seven, and then come back down, slowly come back down, and then go back up again on another seven-year cycle. And it's all driven by upstream activity for development of oil and gas, midstream for transmission, and then downstream where you have a lot of LNG refinery activity, all that sort of stuff. And all those things are somewhat independent of each other. So it does level out the market for the oil and gas industry a little bit, which means

• 15:59Speaker 02

  that the investment stays. And when you look at the midstream oil and gas market, most of the players midstream, they're making their money not on the price of oil and gas, but on transmission of oil and gas. So they're very much, I don't like to use the word immune, but the sensitivity to the price of oil and gas is really low. They're still going to make money because everybody's still using the oil and gas, albeit maybe at a lower price. But their taxing fee for moving the oil and the gas through the pipelines is still pretty robust, and they're making their money. So they're investing.

• 16:42Speaker 01

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• 18:51Shayle Kann?

  I want to talk about, I guess, two primary things with gas turbines in the market, particularly for electricity generation, which is where I spend a lot of time right now. One is timeline, and the other is price. And so we hear a lot right now in the news about both of those things. On the timeline side, we hear about folks like Giever Nova being sold out through 2029 with an order book behind that. That's sort of, they can sell as much as they can build, at least at the moment, it seems. And then on price, there, you know, I don't have visibility into the actual market pricing, but one interesting data point that you might have seen recently was, I think it was John Ketchum or somebody from NextEra said, you know, a decade ago, I could have

• 19:34Shayle Kann?

  built a new natural gas project for like 750 bucks a kilowatt. I think I'm going to get the numbers close, but not exactly right. And today it would cost me 2,500 bucks a kilowatt. I don't know how much of that is the turbine itself, but I'm interested in the relationship between how long it takes to get new turbines and how expensive they are becoming.

• 19:52Speaker 02

  Yeah. Good question. And that, that 750 was for a combined cycle plant. And I think the 2,2500 is a bit aggressive. It's, but it's definitely up around 30 to 35% over the last five years. The price is definitely up. I track all of that very, very closely.

• 20:10Shayle Kann?

  And is it purely a supply demand thing?

• 20:13Speaker 02

  Uh, yes and no. Again, raw materials at level zero, raw materials are up everywhere. Even before all of the tariffs come into place, you were seeing demand on aluminum, nickel-based alloys, titanium, all of these things are all interrelated. Again, I'm coming back to the aerospace industry. When you've got, you know, the aerospace industry, you know, ordering 40,000 aircraft, that's at least 80,000 gas turbines. So, you know, and they're all, they're all drinking from the same supply chain. So, for the most part.

• 20:54Speaker 02

  So, no, it's, it's not just supply and demand. It's, it's also being driven from, well, it's, of course, supply and demand is related to the cost of raw materials. So, I don't want to discount that. But, but certainly raw materials is a big part of it. And if you look at some of the, you know, US government's tracking of producer price indices on all of these different elements, you'll see a pretty significant bump in the last three years that is very indicative of what you and I are just talking about.

• 21:26Shayle Kann?

  What's your outlook on timelines? Do you think that the lead times just get longer and longer and longer for a while? Where are we in the cycle of like, the lead times have been getting longer? Are we at the peak there? Is it going to turn back the other direction? Is it going to get worse? Do we know?

• 21:41Speaker 02

  Good question. I actually don't think they're going to get much worse. I think all of the OEMs are, in fact, I know all the OEMs are working like crazy to try and shorten up their lead times or at least make sure they don't get worse. And part of the reason why is that, I mean, customers are eventually just going to get weary, say, okay, we're just going to put things off because they're, you know, as it is, they're putting down 15, 20, 25% non-refundable deposits. I mean, all of those things are very painful for customers. And these OEMs have been living through these things, these busts and booms before, and they don't want to upset their customers too much. So they're all working hard to at

• 22:26Speaker 02

  least flatten out the timeline and if not, improve it. And I'm seeing signs of that across the board.

• 22:33Shayle Kann?

  Today's timelines are in the, or sorry, lead times are in the like four to five year range. Do I have that about right?

• 22:38Speaker 02

  I would, I would say between 36 and 48 months. I suppose there are some OEMs that are claiming up to 60 months, but I would say on average, it's around the 48 month period.

• 22:49Shayle Kann?

  Got it. The other thing I'm curious about is size, right? There's obviously, you know, it's not a monolithic market. Even within power generation, there's different products that serve different use cases and at different scales. And I think the scale question is sort of an interesting one because the question is sort of, is what's getting built or what is being designed to get built? Large scale generation, gigawatt scale type of stuff, is the, the fact that data centers driving a lot of this changing the desired scale of the end customer? And what does that mean for the products in the supply chain?

• 23:24Speaker 02

  Good question. Well, I actually look at the market drivers. I think there's at least five major market drivers. And in each one of those market drivers, small, less than 20 megawatt gas turbines, turbines 20 to 100 megawatts are, are seeing a different set of dynamics. And then what I call jumbo sized units, which are, you know, 150, 250 megawatts and above, those I call jumbo units. They're all being affected differently, driven by the different market drivers. And I, I say there's at least five market drivers in the marketplace. One is grid scale battery storage.

• 24:05Speaker 02

  Number two, coal plant retirements. Number three, grid scale renewable energy expansion. Number four, the development of rapid development of data centers and artificial intelligence exploitation or expansion. And then just the availability of of natural gas and its affordability is, I'd say, the fifth driver. And if you look at each one of those different drivers, those three sized units are all being affected differently. And if you want, I could actually walk through each of the different drivers and then explain how each one of those three different markets are being affected.

• 24:43Shayle Kann?

  Yeah, I mean, it's interesting that you describe that, right? Some of those drivers, I would think, would be a suppressant on demand.

• 24:50Speaker 02

  I agree.

• 24:51Shayle Kann?

  So the growth of grid scale energy storage, right? Grid scale energy storage is sort of a gas peaker replacement product on the grid, right? Predominantly. So I would presume that suppresses the market to some degree, but maybe are you saying it it results in smaller units being developed on the grid?

• 25:07Speaker 02

  Yeah.

• 25:08Shayle Kann?

  Or what's the dynamic there?

• 25:09Speaker 02

  You're a great lead in Shelby. Actually, you would think, just generically, you think off your head, oh, well, grid scale battery storage, that's got to drive down the demand for gas turbines. Actually, in some cases, the answer is exactly right, but not in all cases. So, I mean, if you if you actually look at the market and what's happened with grid scale, I would say, large jumbo sized units, absolutely, they are being, it's a negative, it's a negative dynamic. If you look at gas turbines, say, 40 to 100 megawatts, actually, it's a it's an opportunity

• 25:52Speaker 02

  because there are several of the developers are counting on gas turbines to recharge or develop what I call hybrid systems that use.

• 26:07Speaker 02

  Gas as a, when its cost is low, to spin up the gas turbine and recharge their grid scale battery storage. So they're not just relying on renewable energy to recharge their batteries. So, um, so, and then when you look at the real small gas turbines, generally they're not being quite as affected by the grid scale battery storage segment. But clearly, as you correctly pointed out, or you felt intuitively, yeah, large power plants, jumbo units, it's a negative. But for gas turbines, 40 to 100 megawatts, it's actually a little bit of a positive influence.

• 26:47Shayle Kann?

  Mm hmm. And then I imagine, right, coal plant retirements, big projects coming offline presumably get replaced with big assets, at least if you're trying to do one for one. So I assume it's, that, that is all things equal, a, a positive signal for larger scale turbines.

• 27:05Speaker 02

  Yeah. For, for coal plant retirements, uh, it's really for all three segments, the, the less than 20 megawatts, the 40 to 100, and the large jumbo, it's a positive influence, but mostly for the large jumbo units. But interestingly enough, you see a lot of mobile power and peaking units being installed as support for the grid where coal, coal plant retirements are occurring.

• 27:33Shayle Kann?

  Well, you see that in the context of some of your other drivers, right? Like, I know of some projects that are, coal plant is retiring, we're going to replace it with like a big solar plus battery installation, and then we probably need some smaller scale peaking gas to supplement that.

• 27:50Speaker 02

  Yeah.

• 27:51Shayle Kann?

  Right? It's like that kind of thing.

• 27:52Speaker 02

  Well, yeah, if you look at, uh, if you look at grid scale renewable energy, I mean, there's, the, the amount of, of grid scale activity is going up just explosively. It's expected to double, uh, in the next five years. And the cost of, levelized cost of electricity for, for solar power is, is way, way down. But.

• 28:14Speaker 02

  So that has a negative impact on the large utility or jumbo sized gas turbines. But but definitely it has a positive influence on mobile units, peaking gas turbines. Just because when the when the sun goes down and the wind stops blowing, you know, you've got to have backup power. And those units, I would say, from about 15 megawatts up to 100 megawatts are actually very good investments for, I call it, renewable offset.

• 28:48Shayle Kann?

  And when you mentioned the mobile thing, I mean, those types of installations, you don't necessarily, you're not looking for mobile generators. I think of the mobile generators as being a good fit for either like an off-grid type application, you see a lot of this in the oil and gas world, or for bridge power type situations where you're looking to, this is what you see now, where, look, we need, we need power now because we're building a data center and the grid connection is going to take three to five years. So we need a bridge, but we don't need it forever. Am I wrong to think that that's where the mobile power segment ends up?

• 29:22Speaker 02

  Well, you're not wrong, but you're not 100% right either because clearly when it comes to data centers and artificial intelligence, mobile power and even permanent onsite power is as a backup to the and supporting the the demand for data centers is a very strong influence on both mobile power and permanent onsite units. But believe it or not, there's a lot of utilities who will buy mobile units. They'll and they'll locate them in a what they call a grid sensitive area. And over the course of five to 10 years, they'll improve their infrastructure.

• 30:07Speaker 02

  And then they'll move those mobile units to another sensitive grid, grid sensitive area. And so the mobile power has just been a fantastic opportunity for basically three companies. Solar Gas Turbines, the division of Caterpillar, G Vernova for their mobile units, and for MHI Aero Power for their mobile units. Those three players have done extremely well with mobile powered units for a variety of reasons, even in oil and gas, but, but for the reasons that you and I have just discussed for in the last 10 minutes, absolutely. And I don't see that market going away at all.

• 30:47Shayle Kann?

  Yeah, if anything, it's getting supercharged by additional use cases, as we've discussed.

• 30:52Speaker 02

  Absolutely.

• 30:53Shayle Kann?

  Which, which gets to that sort of

• 30:54Speaker 02

  You're 100% on target.

• 30:55Shayle Kann?

  Yeah, which gets to that sort of, the one that seems to be the, the biggest net new thing that's happening right now, but like is, is a huge deal, is all the gas turbines being developed for data centers, whether mobile or stationary, right? But you see like, you know, there's that partnership between Chevron and Engine Number One, where they've, they've secured gigawatts worth of G Vernova turbines. They're going to go use those to develop a bunch of data centers. And then I'm not sure whether those are actually intended to be permanent or just bridge power. But like, that's one example amongst many. And it seems to me is the, is the factor that's kind of tipping this market over the edge from just being a generally tight market to like a historically tight market.

• 31:39Speaker 02

  Yeah. Well, you, you're making a good point. I mean, if you look at data centers, there's like 11,000 data centers serving the digital commerce and artificial intelligence community already around the world. And, and because they, many of them have been around, the average electrical load's around four megawatts. But there's like 1,400 new data centers planned in the United States alone. And, and over a thousand of those are all large scale. They're going to need a lot more than four megawatts. I mean, some of those data centers Their electrical load is more than the community around them.

• 32:21Shayle Kann?

  Yeah, there's a

• 32:22Speaker 02

  I mean, it's just incredible.

• 32:24Shayle Kann?

  Electric co-op, I think it's Susquehanna co-op or something like that in Virginia. That like I remember seeing some some filings, some regulatory filing where they were projecting their load growth to like more than double, uh, based on purely a couple of data centers that are coming into the territory.

• 32:42Speaker 02

  Yeah. In fact, you you just touched on a good point. That whole region around Virginia, Washington DC, that whole area. There's more data centers in that area than anywhere else in the world.

• 32:52Shayle Kann?

  Right.

• 32:53Speaker 02

  It's just a mecca of data centers. But but these dynamics are really interesting around data centers and I don't think it's going away. I think it's uh, you see people using artificial intelligence more, digital commerce is just booming and it's not going away.

• 33:10Shayle Kann?

  To to me, two things can be true at the same time. I think it can be true that this is the demand from the gas turbine OEM perspective, the demand is real. The market will buy an enormous volume of new gas turbines to serve these markets. And that's also true, by the way, of like utilities who are trying to manage interconnection requests and so on. Like it can be true that that is real and also that we are in a speculative bubble on the development side. Because there will not be, I mean, as you correctly said, there are a thousand large scale data centers in development in the United States, and I will state categorically, I don't think there will be a thousand new hyperscale data centers in the United States anytime soon. I don't think there's actually that much demand for it.

• 33:53Shayle Kann?

  So like both things are true. There's all these, there are cowboys out there trying to take advantage of the moment. So the challenge, of course, then, if you are on the supply side, whether it's a utility or you're a gas turbine OEM, is how do I make sure that the buyers I'm signing up with are real? And that gets to your point of like these big non-refundable deposits. If you have all the market power, that's sort of how you take advantage of it. So it seems like they're doing the right thing in that regard at least.

• 34:18Speaker 02

  Yeah. Well, and the other dynamic to keep in mind, Shell, not only that is It's not just one of these market drivers that's making things happen. It's all five of these market drivers that I've mentioned, including the price of natural gas, which is very affordable in the United States. So when you combine all of these, what I call market drivers, it creates a situation where these OEMs are relatively comfortable building out a supply chain strategy to support the market because they're not just relying on one dynamic. Back when I was an executive at one of these large OEMs 20 years ago, we were basically

• 35:03Speaker 02

  counting on only one of those market drivers to happen, and one of them didn't happen. And so it hurt our strategy. But now you have a situation where you have three to five key market drivers that are all paying the market. And so it creates a little bit of, I would call, risk comfort for the OEMs because they know it's not just one thing they're counting on to make the market move.

• 35:30Shayle Kann?

  Okay, final question for you, I guess, is on the technology side. Is there any, I mean, these are pretty mature technologies. Is there any significant innovation that either we have seen recently or that you expect to see in the next few years? Like, will the market change as a result of technological innovation? Or is this just a rinse and repeat and stamp them out as much as we can kind of a situation?

• 35:51Speaker 02

  Yeah, good question. I would touch on two areas. First off, all of the OEMs have spent an enormous amount of money trying to get, and they've been very successful, in slowly increasing the efficiency of their combined cycle plants. I mean, it used to be combined cycle plants, average efficiency was about 55%. And they slowly crept it up to 60, and then they kind of hit a dead spot, and they couldn't figure out how to get above 60. And then they started developing their, I'll call it, a very holistic strategy to the power plant. So it wasn't just the gas turbine, it was the HRSG, it was all sorts of different...

• 36:35Speaker 02

  Technical factors that they were levers that they were pulling to try and squeeze more efficiency out of their power plants. And and they crept it up to 60, then they got to 60 and a half, 61, 60.3. I mean, they're they're starting to push 62% efficiency and more. And I don't think they're going to quit because if you look at the if you look at the levelized cost of electricity for and that's a big factor that these utilities are using in assessing which OEM they're going to use. Fuel is a big, big element in the levelized cost of electricity.

• 37:15Speaker 02

  So the more efficient and the more efficient, the more effective that the OEM is in convincing that customer that they have a more efficient unit and even guaranteeing it, the better for them. They'll be more competitive. So efficiency is it's not coming up by leaps and bounds, but it's a gradual increase over time. It's been quite remarkable, to be honest with you. You got to hand it to all three of the major OEMs that they've been able to make some very significant improvements in efficiency, albeit very difficult. The second big area of technology development is is converting their combustion systems

• 37:58Speaker 02

  over to using hydrogen. Now, I put all of that into a big, big set of quotes because while they're all working on hydrogen and they can and they've all demonstrated to a degree some capability of operating in hydrogen, the biggest problem is where are they going to get it? The amount of hydrogen that you need to run one of these large jumbo sized units, it's just an enormous amount of gas. And where are you going to get it from? So while they're all spending a lot of money and their engineers are working very diligently and doing some fantastic development.

• 38:41Speaker 02

  I have some doubts as to where, whether the market will actually see a significant increase in purchases of gas turbines that actually are using hydrogen. But clearly, they're all working on it.

• 38:55Shayle Kann?

  Yeah, it's a, it's a, you know, the bet is if we build it, they will come. If we build hydrogen-ready gas turbines, then the market will show up for them and the hydrogen will be there. And of course, it's a dynamic market for hydrogen at the moment. So we'll find out whether that plays out well for them. But good point on efficiency. It's like a steady grind, but it adds up a lot over time.

• 39:16Speaker 02

  Yeah.

• 39:17Shayle Kann?

  Tony, this was awesome. Really appreciate the time. Thanks so much for joining.

• 39:22Speaker 02

  Thank you.

• 39:24Shayle Kann?

  Tony Bruff is the president of Dora Partners and Energy and Gas Consultancy. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. Prelude backs visionaries accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at preludeventures.com. This episode is produced by Daniel Waldorf. Mixing and theme song by Sean Marquand. Stephen Lacey is our executive editor. I'm Shayle Khan, and this is Catalyst.