The sales staff at Valley Detroit Diesel's Los Angeles office
is coming in at 3 a.m. and going home at 9 p.m. and they still
can't keep up with the calls for help. So they're trying to talk
faster.
"It's insanity," said sales manager Rick Cole. "It's like being
in a tidal wave every day. You think it's going to get better and
it's not."
That's because California's power crisis doesn't seem to be
getting any better, and businesses have discovered that they need
what Cole's staff is selling: the ability to generate electricity.
Valley Detroit Diesel offers both big diesel generator systems
and smaller, new-technology microturbines. A grocery store or
computer center that buys such a system can use it as backup if
the state power grid goes out, or it can bypass the utilities
altogether.
So what Cole's shop really markets is independence and
reliability for businesses. And California's power meltdown has
led businesses to appreciate just how valuable those things are.
In fact, experts say the rolling blackouts and unstable
utilities in California are making the case for a faster
nationwide shift toward "distributed energy" -- power that
originates from generators at individual sites instead of from
great centralized plants.
"I think we will see a shift in the way people think about
energy," said Debbie Haught, a program manager at the U.S.
Department of Energy. "Now all of a sudden people realize that if
my store goes down, if my business goes down, I'm losing money,
and it's actually helping the economic argument" for distributed
energy.
Companies that hope to benefit include traditional power system
suppliers such as Caterpillar Inc., Detroit Diesel and Kohler Co.,
as well as firms that offer newer innovations such as
microturbines -- Capstone Turbine and Honeywell Power Systems are
the biggest players.
The California power crisis "will have a huge impact," said Ake
Almgren, chief executive of the Chatsworth, Calif.-based Capstone
Turbine. "What we see now at this stage is a rather dramatic
increase in inquiries about the microturbine . . . five to 10
times as much compared to the fourth quarter of last year."
But there are hurdles. Getting permits to install a
supplemental power system can still be daunting for a business,
especially permits related to air quality and those required to
connect a generator to an existing power grid system.
"That's changing slowly but surely," said Nick Lenssen, a
senior director in the Boulder, Colo., office of the energy
consulting firm Primen. "It's an evolutionary process. Over the
next few decades, we will definitely see an increase of on-site
generation, not just for backup but for primary energy needs."
Companies have long installed backup power systems to protect
against blackouts, and some -- such as hospitals and nursing homes
-- are required by law to do so. Traditionally, such systems are
based on diesel engines, which are relatively inexpensive to buy
and operate.
But they are also dirty, and most states restrict diesel
generators to a few hours of operating time.
Natural gas-burning engines have become a popular alternative
for large-scale, longer-term uses. One supplier, Waukesha Engines
-- a Wisconsin-based subsidiary of Halliburton Co. -- is
scrambling to keep up with interest in its products in California.
"We've sent a team out there to strategize on how to streamline
the issues of interconnecting [with the power grid] and air
permits," said John Hoeft, marketing director for Waukesha. It
currently takes about seven months to get a generator system
online for a California customer, he said.
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While Halliburton does not break out Waukesha's sales figures,
Hoeft said his company has seen $10 million in unexpected business
in California in the past six months.
Marko Pencak, a financial analyst with Credit Suisse First
Boston, said California is an extreme example of the factors that
were already making distributed power increasingly attractive.
As companies become dependent on sophisticated equipment that
contains microchips, they grow less able to tolerate glitches in
the public power supply, he said. An on-site generator can produce
steady, reliable juice.
What's more, having a supplemental system lets a business
switch off the power grid at peak hours of use. That can save a
business money and ease the burden on the overall system.
The microturbine industry was transitioning from research to
production just as the California crisis hit. Capstone Turbine
shipped two units in 1998, 211 in 1999 and about 800 last year. It
currently has more than 900 on back order. According to analyst
Lenssen, Capstone and Honeywell account for about 90 percent of
the market in microturbines today, although a number of
competitors are entering the scene.
Microturbines -- which are basically little jet engines that
burn natural gas, propane or even methane generated by landfills
-- offer smaller-scale solutions than big diesel or natural-gas
systems. A refrigerator-size microturbine might produce anywhere
from 30 to 75 kilowatts of electricity -- potentially enough power
for five or six homes.
A large McDonald's restaurant, by comparison, might consume 150
kilowatts at peak usage, and a hospital might take up to five
megawatts, said Almgren, the Capstone CEO. The microturbines can
be linked in packages of up to 20 units to serve some of those
larger needs, he said.
The units are expensive -- from $30,000 to $55,000 apiece --
and the rising cost of natural gas has made operating expenses
high.
But those costs can pale compared with the electricity charges
some California firms are paying. To try to hold down costs, some
businesses agreed -- before the energy crisis struck -- to
"interruptible power" contracts, which stipulated that in times of
crisis, their power could be cut off.
Now many of those companies are finding they cannot afford to
interrupt their industrial or computer processes, so they are
paying penalty rates 100 times greater than usual to get power,
said Cole.
That predicament makes almost any alternative seem
cost-effective by comparison, he said. Cole's company installed
its own Capstone microturbine about eight months ago and runs it
from 7 a.m. until midnight every day to supplement the Southern
California Edison grid and to ensure that central computers can
run uninterrupted.
It's turning out to be a big marketing tool, as well.
"People are coming by -- I don't even know how they found our
name, and they're showing up at our office because they hear about
our turbine and want to see it running," Cole said.
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