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1 July 2002

ips and surges

By Jim Strothman

Weaker electric grid spurs UPS, on-site generator sales.

Deregulation, once touted as a force that would strengthen electric power grids by spurring competition, has had exactly the opposite effect. Every day, the grid becomes weaker because regulatory agencies that once forced electricity providers to invest in equipment infrastructure are no longer driving capital spending. Wall Street has stepped into that role.

That's the view of power supply vendors, which agree deregulation—coupled with the proliferation of mission-critical, computer—driven equipment-has helped their sales. Both market drivers are causing manufacturers and other businesses to buy uninterruptible power supplies (UPSs), power conditioning equipment, and on-site electrical generators.

"In the 50 years before deregulation, utilities were motivated to keep their systems well maintained because they could always recover costs through higher tariffs," observed Sriram Sivaram, president of ABB's Catalyst Power unit in Carlsbad, Calif. "In the deregulated model, they have to go to Wall Street for money, and Wall Street says, 'Why are you burning that amount of cash' to build a substation at a transmission line's 'last mile' or in relatively remote areas where there are only a few people or businesses?"

"Once, Edison [Electric] was paid to assure we all had alternating current," agreed John Pooler, senior software and communications product marketing manager for MGE UPS Systems in Costa Mesa, Calif. "Now we have competing generators [utilities]. The dispatching agency is going to dispatch the lowest-price power available. If you are at the end of the transmission line, where Edison [previously] kept a unit on, you may now see your voltage sagging off. The overall general quality of power is becoming poorer."

GRID CHEAPER BUT UNRELIABLE

The debate rages on whether deregulation is good or bad. Deregulation was Enron's womb, and many believe Enron and others manipulating prices were at least part of California's brownout woes. But deregulation has saved electricity costs for many businesses elsewhere.

Power supply vendors agree deregulation has been good for their bottom lines.

"The grid is the cheapest source of power," Sivaram acknowledged. "As long as power is available from the grid and you can condition it, that's a good solution."

Where electricity is unreliable, however—whether because of deregulation-caused voltage sags, frequent lightning strikes or ice storms, or inferior generating equipment in third-world countries—demand soars for on-site generating equipment.

In California, manufacturers and other businesses draw power from local utilities during the cooler winter months. During summer air-conditioning season, however, many turn to on-site generators. Sivaram's company, Catalyst Power, provides customized packages to accommodate that reality.

Market research firm Frost & Sullivan (F&S) reported the power supply industry generated revenues totaling $1.26 billion in 2001. A recent F&S study shows companies in many industries now require high-quality, reliable power with guarantees against surges, outages, sags, transients, or harmonics. Otherwise, manufacturers face equipment downtime and revenue losses.

BAD ECONOMY HURT

Despite the promise of power supply market growth, the economic downturn hurt revenues.

"Softening economic conditions are challenging both potential customers and service providers," said F&S industry analyst Sara Bradford. Among service providers, the downturn impacted not only smaller regional firms but also multinational organizations, she said.

However, the overall market is already showing signs of recovery, the analyst said. After a dip in 2001, total revenues from services relating to single- and three-phase UPSs and direct current power systems should climb through 2008.

To maximize revenues, the F&S report said, market participants should target new opportunities from emerging technology trends. Software monitoring, for example, could offer an important area for growth.

"Users are slowly abandoning the traditional tendency to wait for equipment emergencies before performing maintenance," said Bradford. "Instead, they are increasingly adopting preventive schedules and ongoing monitoring services."

The progress toward ongoing monitoring should drive demand for remote, computer-based monitoring systems.

"Remote monitoring software programs have captured a viable market in response to users' demands for redundant, reliable systems," said Bradford. "As prices decline for this type of service, large-scale, ongoing service efforts will become even more realistic."

Even with Enron, deregulation issues, brownouts, and weather-related outages, the U.S. grid continues to rank as one of the most reliable electrical sources in the world. In third-world countries and portions of South America and Asia, power supply equipment is a "must have" for manufacturers.

"In Taiwan, for example, fully redundant power quality equipment provided for an entire industrial park, or commercial buildings, is used to attract businesses," said Sivaram, who worked on power quality systems in Asia prior to being named president of ABB subsidiary Catalyst Power. Industrial park builders address power and clean water infrastructure issues "right up front" because utilities aren't reliable, Sivaram said.

Pooler agrees. "In reality, the U.S. has the best power quality worldwide," he said.

However, a number of manufacturers are shifting assembly work to some Latin American and Far Eastern countries where electrical power is poor, boosting business for global power supply equipment makers such as MGE.

China's rapid manufacturing ramp up has created "an amazing backlog of orders" for large turbine manufacturers such as Westinghouse and GE, Pooler added.

9/11 SPURRED ORDERS

The 11 Sept. terrorist attacks also sparked new orders and caused others to think harder about adding on-site power equipment, suppliers say.

Last March, the U.S. Department of State awarded Powerware Corp., an Invensys PLC unit, three multiple-award, five-year contracts worth as much as $125 million to ensure reliable power access at the department's 270 consulate and embassy posts worldwide.

The contracts covered the delivery of power security hardware, including UPS systems; 50/60-hertz generators; generator set overhauls; power transformers; transfer switches and automatic voltage regulators; and a portfolio of end-to-end services. The end-to-end service package calls for Raleigh, N.C.-based Powerware to provide project management, engineering, power audits, installation, systems integration, training, and on-site maintenance.

"U.S. government installations both at home and abroad depend on uninterrupted access to high-quality power," said Scott Dysert, vice president, Powerware Global Services. "By ensuring the highest level of power reliability and availability for their mission-critical applications, our systems will help State Department posts around the world achieve their operational goals."

Powerware was also just awarded a seven-year, $76 million contract with the U.S. Air Force for power protection equipment and systems integration, as well as support services.

HERE COMES XML

UPS technology is generally well established among suppliers. However, some new trends are evolving—for one, extensible markup language (XML) communications.

Suppliers can now incorporate XML—a main ingredient of Web services technologies that is rapidly gaining favor for Internet-based business-to-business and machine-to-machine communications—into UPS systems, said Pooler.

"The interest in XML is coming from network managers," he said. "From your browser, you can tell what each [system] is doing. If you set up the firewall correctly, you can tell from your house." IT

Behind the byline

Jim Strothman is Associate News Editor for InTech.

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