SKYROCKETING DEMAND for energy overseas has prompted U.S. utilities, independent power producers, and diversified energy companies to get involved in international power plant projects as a way to counter slack demand — and the loss of monopoly markets — back home, according to utility experts. As a result, a global marketplace for power has begun to emerge as international energy companies compete for customers in overseas markets.

World energy demand is likely to double by 2020, with demand for electricity tripling by that date, according to a report released last fall and prepared for Powergen, a British utility, by London’s Oxford Economic Research Associates Ltd. Closer to home, the U.S. Energy Information Administration (EIA) predicts that two-thirds of all growth in energy demand will occur in developing countries and countries in transition. Energy demand in these countries is averaging 4.2 percent growth per year, compared with 1.3 percent growth in industrialized nations and 1.0 percent growth in the United States, EIA says.

Taking Advantage of Growth Opportunities

“We’re looking at developing international growth in demand, which is so limited here in the United States,” says Chuck Griffin, a spokesperson for Atlanta’s Southern Company, whose Southern Energy Inc. subsidiary owns a percentage of Southwest Electricity Board, a regional electric distribution in the United Kingdom, as well as investments in Argentina, the Bahamas, Chile, China, Germany, the Philippines, and Trinidad and Tobago. “There’s larger growth overseas, as well as the potential for competition in the domestic market within the next few years. The growth in other areas will hopefully offset the loss in our traditional customer base,” Griffin says.

In late September, Southern Company finalized its purchase of a 26 percent stake in Berlin’s electric utility, Bewag, for about $820 million in cash. “Berlin positions us to be an electric provider, not only to the rest of Germany, but in Eastern Europe,” adds Griffin. “The experience in England — where full competition will begin this spring — means Southern is learning a lot about what we will eventually have to do here in the United States. And it’s a steadily profitable company, which added to our bottom line
immediately.”

Southern has plenty of company in Britain, according to The Wall Street Journal. In the last two years, 10 U.S. utility subsidiaries have gobbled up eight of Britain’s 12 regional utilities. The largest of the transactions is expected to be a bid by PacifiCorp of Portland, Ore., which had offered $6.2 billion for Britain’s Energy Group PLC last June. As of late last year, PacifiCorp was considering making a new offer for the British utility, said spokesperson Dave Kwamme.

PacifiCorp also owns a portion of a hydroelectric station in the Philippines as well as an electric distribution company, Powercor, in the state of Victoria, Australia. PacifiCorp also is part of a consortium that submitted the winning bid for a 20-year operations contract for three power plants and four adjacent coal mines in southwestern Turkey. “We’re a low-cost utility, which is why we’re able to be successful in business elsewhere, and it speaks to our financial health,” Kwamme says.

Other utilities involved in Britain’s electricity market include Entergy Corp. of New Orleans, which owns London Electricity PLC; GPU Corp. and Cinergy Corp, which each own 50 percent of Midlands Electricity PLC; and Dominion Resources of Richmond, Va., which owns East Midlands Electricity PLC. Also involved are Central & Southwest Corp. and Calenergy Corp. of Omaha.

Marking its entry into the U.K. power market, NRG Energy Inc., a subsidiary of Northern States Power in Minneapolis, announced on December 15 that it had secured financing for a $335 million gas-fired combined cycle facility in North London. It is among the first power projects in the U.K. to be operated on a merchant basis, with the electricity from the plant destined for the U.K. Electricity Pool.

Developing Countries, Developing Markets

Britain is not the only country that has seen U.S. investments of late. For example, NRG has projects in Chile, Estonia, Indonesia, and Turkey, among other operations. And CMS Energy, the independent power-production unit of CMS Energy Corp. in Dearborn, Mich., recently acquired a 49 percent interest in a diesel-fueled plant under construction in southern India. CMS says it is one of America’s top independent power producers, with interests in more than 6,000 megawatts of generating capacity from more than 30 power plants in operation or under construction in Argentina, Australia, India, Jamaica, Morocco, and the Philippines.

“We’re trying to go to developing and growing countries where there are good investment opportunities,” explains Bill McCormick, CMS Energy’s CEO. McCormick recently told the Detroit Free Press that CMS would have assets in upward of 40 countries in the next five years.

Western Resources, a diversified security and energy company based in Topeka, Kan., announced last December that it was moving forward with a joint power plant venture in China with China Power International Holding Ltd. So far, Western Resources has announced plans to participate in several Chinese power projects with up to 2,000 megawatts of capacity. Through its subsidiary, Wing Group, Western Resources has completed independent power projects ranging from 50 megawatts to 2,800 megawatts in the United Kingdom and is involved in other projects in Turkey, Colombia, Thailand, the Philippines, Indonesia, Bangladesh, and Vietnam.

More Players on the Field

Of course, the action isn’t limited to subsidiaries of U.S. electric utilities. For example, Enron International, a subsidiary of Houston’s Enron Corp., is involved in natural gas and electricity marketing in the United Kingdom as well as the Nordic countries. And in December 1997, Enron said it had closed on financing of a $670 million combined cycle power plant in Puerto Rico. The plant will be fueled primarily by liquefied natural gas.

AES Corp., of Arlington, Va., one of the largest independent power producers in the United States, owns or has an interest in 88 power facilities totaling almost 25,000 megawatts in Canada, Australia, Argentina, Brazil, the Dominican Republic, Pakistan, the Netherlands, Hungary, Kazakhstan, China, and the United Kingdom. Most recently, AES was awarded a hydroelectric concession in Argentina.

“Although San Juan Province is the fastest-growing electric market in Argentina, with a 16 percent demand growth this year, it has little generation and weak interconnections,” explains Thomas Tribone, president of AES Americas. “This project will provide much-needed capacity in the San Juan area.”

Destec Energy, a leading independent power producer based in Houston, recently announced that it had been selected along with its partner, Stanwell Corp., Ltd., to build a 766-megawatt facility in Queensland, Australia. The facility will be the first natural-gas-fired baseload electric plant in the entire state of Queensland, according to Destec, which is now a subsidiary of Houston’s NGC Corp., a gatherer, processor, transporter, and marketer of gas and electricity in the United States and the United Kingdom.

“This project represents a significant opportunity to facilitate further industrial development in North Queensland,” said Stanwell CEO Ted Scott. “The station will also diversify our generation portfolio with an environmentally friendly gas-fired facility.”

Foreign Firms in the U.S. Market

More recently, energy companies from other countries have started to become active in U.S. markets. Last September, Britain’s Energy Group PLC, which PacifiCorp hopes to purchase, offered to buy 30 hydroelectric stations from Central Maine Power in Portland, Maine. “We are interested in United States generating markets,” says Aviva Gershuny-Roth, an Energy Group spokesperson. “The area is ahead of other areas [in electric industry deregulation], so obviously we’re looking there.”

Energy Group operates power plants, electricity networks, and coal mines in Great Britain and is expanding into Australia, Poland, and the Czech Republic. In the United States, Energy Group is focusing on Maine, Massachusetts, Rhode Island, and New Hampshire — states that are moving to deregulate their electricity markets.

Another entrant in the U.S. market is France’s Sithe Energies Inc., which recently won the right to purchase about 2,000 megawatts of oil- and gas-fired assets being sold by Boston Edison Co. The asking price? $657 million.

“The acquisition of these plants significantly increases Sithe’s U.S. presence as a leading owner, operator, and developer of clean-burning power plants,” says Sithe chairman and CEO William Kriegal. Thomas May, Boston Edison’s chairman, CEO, and president, notes, “The sale of our assets to Sithe is a clear indication that Massachusetts is opening its electric industry to competition the right way.” The sale will fund a 15 percent rate reduction for Boston Edison’s customers, required to be in place by September 1, 1999, May says. The deal is expected to close in the first quarter of 1998.

Sithe currently operates 22 power plants in the United States and is developing about $5 billion worth of power plant projects in countries including China, India, Pakistan, Thailand, the Philippines, Australia, Brazil, Canada, Colombia, and Tunisia.

Sithe is 60 percent owned by France’s largest services company, Compagnie Generales des Eaux; 29 percent is owned by Marubeni, a major Japanese trading company, and 11 percent by Sithe’s management. Sithe says it expects to spend $1 billion over the next three years building new plants on Boston Edison’s sites.

There soon may be at least one more player: London’s Independent recently reported that British electricity generator Powergen PLC, which has 10 projects in Europe, India, and the Asia-Pacific region, is mulling a $5.8 billion bid for Cinergy in the United States. The newspaper said Powergen will be ready to make its offer as soon as it rules on PacifiCorp’s bid for Energy Group PLC. If the acquisition occurs, Powergen would have a 50 percent stake in Midlands Electricity, one of Britain’s regional power companies.

“The international power business has rapidly become a multibillion-dollar business growing at double digit rates,” explains Anthony Churchill, a senior advisor to the Washington International Energy Group. “The term independent power producer is becoming obsolete; these are firms who think of themselves as global power companies.”

“The emerging global power company is likely to be a large holding company with a portfolio of assets in all parts of the world,” says Churchill, writing in the November 1997 Electricity Journal. He predicts that the current market leaders — mostly U.S. and British companies — will have between 20 percent and 40 percent of their total assets in overseas markets.