NEWS RELEASE March 2019
Wet FGD: Most Profitable Markets
By Bob McIlvaine, President of McIlvaine Company and former President of Environeering
Wet calcium based FGD systems treat more hot gas than all the other air pollution acid gas removal systems combined. There are 2 million MW of installed systems. These systems clean 7 billion cubic feet per minute of exhaust gas. The average installed cost was $200,000/MW resulting in a cumulative investment of over $400 billion. The O&M, consumables and replacement market exceeds $50 billion per year. The capacity growth rate has slowed to 1%/yr. This is due to a combination of 1% retirements in the West, more than offset by a 2% growth rate of new plants in Asia and elsewhere. New construction is averaging 30,000 MW per year. The market will grow over the next 10 years regardless of greenhouse gas initiatives. Some countries in Asia with indigenous coal and no natural gas have no other choice than to install coal-fired power plants if they want to grow their economies in the next decade.
In 1965 I was sales manager of Environeering. The company sold scrubbers and turnkey systems to foundries, chemical, pulp and paper and mining companies. I received a call from Jim Jonakin of Combustion Engineering (CE) explaining that we had been chosen as the partner to pursue the power plant FGD market. In 1968 I had become president of Environeering. The company designed and built the scrubbers to be installed for the world’s first commercial size wet limestone system at Union Electric Merrimac station. Shortly thereafter Environeering became a subcontractor to United Engineers who installed the first magnesium oxide sulfur recovery systems. The partnership with CE continued for several years and included systems at Louisville Gas and Electric, Northern States Power, and other utilities.
In 1972 Environeering was sold to Riley who eventually became Babcock Power. I managed the environmental subsidiary and was involved in the systems under design for Central Illinois Light Company and South Mississippi Power.
In 1974 I founded the McIlvaine Company whose first product was a manual and newsletter on FGD. The initial purpose was to help power plants with FGD maintenance issues. This was before the creation of EPRI, so there was no alternative source for guidance. The FGD publications have continued with over 500 monthly updates during the 45 years. The focus expanded to include market reports as well as merger and acquisition advice. I have had the unique opportunity to examine financial statements of many private as well as public companies which were involved in M&A endeavors.
I can look back and see that the biggest cause of problems for FGD system and component suppliers was the focus on revenues rather than profits. This problem in turn is caused by the easy access to forecasts for revenue but not profits. To rectify this problem McIlvaine Company is creating Most Profitable Market (MPM) forecasts.
McIlvaine is offering a service to help suppliers quantify the market in terms of the obtainable gross profit at various prices levels resulting in the revenue and gross margin combination toprovide the Most Profitable Market (MPM). This is defined as the market for which the supplier can most profitably supply its products and services given its capital and knowledge resources.
Total Available Market (TAM) for new systems is $6 billion/yr. The O&M, parts, replacement and reagent cost is $50 billion/yr. This includes O&M presently supplied by the plant and not a third party contractor. The Serviceable Obtainable Market (SOM) is the market that can be addressed with the lowest priced product at even small unit margins. This market is $20 billion per year. The MPM for an individual supplier is a much smaller percentage. However, it is not impossible that one supplier with remote monitoring, process management software could generate revenue of $2 billion.
In the 1980s Mitsubishi and Air Products and Chemicals formed Pure Air. They contracted with NIPSCO to install and operate an FGD system at the Bailey station. NIPSCO made no capital investment. It paid Pure Air an agreed amount for every ton of SO2 captured. Some years later Air Products revealed that the enterprise had been very profitable.
MET sold an ammonia scrubbing system to a North Carolina utility on the same basis of payment per ton of SO2 captured. In this case, with ammonia as the scrubbing liquor, MET would also generate revenue from ammonium sulfate sales. Soon after the order was received, MET issued a press release showing EBITA projections of over $100 million during the life of the contract. (The order was canceled for unrelated reasons a few months later). There is still an opportunity for sale of products other than gypsum. One option is sulfuric acid another is hydrochloric acid. A variation of this design is the sale of rare earths.
The major problem for system suppliers is pursuit of revenues and not high gross margins. This mindset discourages R&D. Environeering discovered that a rod deck scrubber with its turbulent action was much more cost effective than spray tower designs. It tried to persuade Combustion Engineering of the advantages but was told that no innovations would be considered. The spray tower design originated because of all the plugging of more efficient scrubbers. The only advances over the years have been minor improvements in this very inefficient approach. Riley had two successful rod deck installations when it became part of Deutsche Babcock. The acquirer had a spray tower design and didn’t want to consider switching to the rod decks.
Combustion Engineering allocated $25 million to develop FGD scrubbing in 1965. A 10,000 cfm Environeering scrubber was installed at CE Kreisinger labs in Windsor Connecticut. For several years R&D was conducted with sufficient funding. However, with the first commercial installation the R&D funding disappeared. Mitsubishi (now MHPS) has spent a considerable amount on R&D. They are an exception in the industry. However, I would question as to how much of this is pure R&D and how much is just engineering improvements. Mitsubishi installed a full size scrubber in its research facilities. I would contend that this is very valuable in improving spray patterns and other engineering aspects. However, instead of a 400,000 cfm unit, I would argue that a 1000 cfm unit is the ideal size to try most innovations.
At the time Environeering was acquired by Riley, it was operating a liquid encapsulation scrubber pilot unit at Tampa Electric. The scrubber used a principle similar to the toy soap bubbler. The slurry and flue gas were converted into a toothpaste-looking foam. Soak time was variable depending on the chosen ductwork length. The mass transfer characteristics are thousands of times higher than a packed tower. A mechanical foam breaker then separated the gas and liquid. The problem was that it was only 99.9 % reliable. This meant that 0.1% of the time a full size scrubber could be emitting 4 million cubic feet of foam per minute. So work was underway to make the system 100% reliable. However, the chairman of Riley interceded soon after the acquisition to cancel this research. EPA saw the merits and funded its own study. However, it was unable to duplicate a design, which had been under development for a decade. Therefore this promising technology has not been pursued since.
Why has the FGD industry not invested more in R&D? The answer is because the markets in any one country have been volatile. The FGD market in the U.S. boomed for only a short time. It then boomed in Japan and Europe for a short time. More recently it boomed in China but the market there has now receded. The Indian market is being pursued by companies such asBHEL which is using the same old spray tower designs that have been around since the 1980s.
Huge upgrade potential. With $50 billion being spent on maintaining the existing systems, which rely on technology developed in the 1960s, there is a big opportunity for suppliers with better products and approaches. Due to new environmental regulations at many plants, there is the potential for major projects. Chinese power plants have added tail end wet precipitators to meet tough new emission standards. The rod deck takes up a small space. A spray tower can be converted to a rod deck in the bottom portion and the WESP in the top portion.
The original FGD systems also removed particulate. Dravo Lime (now Carmeuse) used venturi scrubbers (similar in principle to the rod deck but takes more space) to capture both particulate and SO2. Natural oxidation rather than forced oxidation is combined with sludge fixation to create impermeable aggregate (no mercury leaching), which was used in parking lots or landfill. The cost of these systems, even with a back end wet precipitator, are much lower than forced oxidation, spray tower, and gypsum systems with toxic metal cleanup.
The combination of an existing precipitator plus the Dravo Lime design can meet the particulate regulations. The system has proven to reduce the particulate emissions from the precipitator by 50%. There are a number of cases where wet lime rather than limestone gypsum would provide the lowest total cost of ownership. Lime is much more reactive and requires a much smaller capital investment. Lime can also result in a very high purity gypsum, which is superior to precipitated calcium carbonate as a magazine paper coating.
Components: Suppliers of components with lower total cost of ownership can penetrate all the countries. Gardner Denver made a convincing case that their oxidation blower had the lowest cost of ownership and received an order in China despite higher first cost. There are many components such as pumps, valves, nozzles, hydrocyclones, and belt filters subjected to the abrasive slurries. Most of these purchases are being made by very large utilities who increasingly are using data analytics, centralized purchasing and total cost of ownership analyses to make decisions.
Remote O&M and IIoT: System and component suppliers have the opportunity to provide yearly contracts to cover replacement, repairs and service. Presently some valves may be opened routinely whether or not there is a problem. Other valves are not opened when they should be. In both cases there is an added cost to the operator. With remote monitoring, maintenance and guidance, the overall cost can be reduced. The plant and the supplier can split the yearly savings.
Summary: There is a substantial profit opportunity in the wet FGD market. Suppliers of systems, consumables, and components should obtain forecasts of the Most Profitable Market(MPM) for their products in each region but also with each of the major utilities The MPM is derived from the SOM, which is provided in N027 FGD Market and Strategies. McIlvaine will assist in determining what portion of SOM at what pricing and packaging strategy constitutes the MPM. Part of the analysis will be to determine the cost of ownership of all the options. This in turn will be based on decades of evidence gathered in 44I Coal Fired Power Plant Decisions.
The MPM forecast of purchases by each owner is also available. A small number of utilities operate most of the systems. Forecasts for each owner and for each plant within a system are available based on data extracted from 42EI Utility Tracking System.