Opinion: Is the Power Equipment Market Bracing for a Recession?

Power equipment suppliers are yet to report a major slowdown in spending as a result of the financial crisis. However, many expect 2009 to be a tough year as customers seek to cut corners and rein in spending. David Binning reports.

Like so many industries, the power sector had been coasting along on the crest of a wave for some time before the last October's unravelling of the global economy and the resulting credit crunch. On the one hand developed economies were enjoying unprecedented growth while developing economies – namely the BRIC countries of Brazil, Russia, India and China – entered unchartered territory with regard to their economic development.

The result was exponential demand for power across the world, and with it the accompanying 'picks and shovels' to support its development. Tighter regulations being imposed by governments in Europe and elsewhere on carbon emissions helped to create new markets also, such as CCS (carbon capture and storage) biomass co-fire conversion and others. In short it was perfect storm of opportunity for suppliers of power equipment and services.

Now, some six months into a storm of an altogether different kind, the mood is understandably glum, especially with so many of the world's major economies sliding deeper into recession, leading to forecasts of a large-scale decline in energy consumption. Yet while no one in the power industry is under any illusions about the implications for business, the bad news is still yet to appear as red ink on the balance sheets for many companies.
Weathering the storm

Speaking at the International Power Summit in Rome in early March, managing director of Italian environmental engineering technologies company Magaldi, Fulvio Zubini, said that while most industry sectors are clearly down the power industry is yet to see much of the fallout. "Business is generally worse, but the crisis [for the time being at least] does not seem to have affected the power industry all that much." Zubini said.

But this did not mean he did not harbour concern for the fortunes of developing economies. "I expect, however, some delays and cancellations in projects developed by private companies in emerging areas such as India."

Magaldi is a niche provider of environmental engineering solutions including bottom ash handling systems for bottom-fired boilers. Zubini said environmental regulations were expected to provide further insulation for his area of trade along with emerging cost benefits. "2008 was the best ever for the company – we now have a very satisfying order backlog. We are still confident of achieving good results in 2009 despite the financial crisis."

Nevertheless, it would seem that buyer behaviour is changing with some in the power industry reporting that the sales process has become noticeably more difficult and protracted over the last few months as a result of the global financial crisis.

Camfil Far sales director Jose Frias said his company – a global cooling and ventilation specialist – is seeing finance executives take a deeper interest in procurement as companies work harder to tighten up their balance sheets. "Finance people are much more involved now; procurement is requiring approval at a far more senior level," Frias said.

Suppliers of power equipment and solutions hope that customers can temper their anxieties about the state of their balance sheets by considering the long-term benefits of investing in new equipment for improved efficiency and environmental performance, all ultimately leading to reduced costs.

"Naturally all of our customers want to spend as little as possible, however, utilities are wise to the benefits they get in operation and maintenance and they buy from us eventually," Zubini said.

Published by: power-technology.com - See full article here