RERMAG

Fire Up the Power

On August 14, 2003, more than 60 million people in the eastern United States and Canada lost power as 21 power plants were shut down in a span of three minutes. For some it was a matter of hours; for some residences and businesses it took days to restore functionality and power. Hundreds of billions of dollars in revenue were lost, with small and large businesses enduring losses that were, in some cases, critical and crippling. Power was out in New York, Cleveland, Detroit, Toronto, Ottawa and a host of other large cities.

The great Northeast blackout of 2003 was only one of many disasters — manmade or natural — that occur every year, drawing attention to the need for backup power sources and emergency contingency power plans. Incidents such as hurricanes, the catastrophic California fires of last summer, ice storms, heat waves, snow storms and terrorist attacks all point to why almost every conceivable business should be prepared with power sources in case of emergency.

Power-generation rental is on the upswing. According to a report by research firm Frost & Sullivan, the power-generation rental market in North America peaked in the late '90s at about $700 million and then slumped during the recent economic downturn. Despite the slowdown, it generated revenues totaling $405.9 million in 2002. Frost & Sullivan and other analysts say that number should top $700 million by 2008, if not before. And Luis Ramirez, general manager of Atlanta-based GE Energy Rentals, says the market tops $10 billion when viewed globally with explosive growth in Europe, Asia, the Middle East and Latin America.

There are many segments to the power-generation market in addition to the disaster segment. Power generation is used to power utilities and large manufacturing facilities during maintenance. Construction sites use vast amounts of generated power in the months before the building is built and the utility grids are operating.

The special-event market, including parties, sporting events, outdoor theater and rock concerts, is another major power-generation market. Public facilities such as hospitals, schools and airports make extensive use of generated rental power. And, as the recent Northeast blackout made clear, instability in the utility grid has made the need for power rental more compelling.

“Three years ago, utilities wouldn't even talk to rental companies about supporting them on a long-term basis,” says Ramirez. “They saw us as competitors, trying to compete with them for revenue. Today it has changed. Where many companies thought they had sufficient backup power, as their systems have grown, the backup power that sufficed years ago just isn't there. The blackout last summer opened a lot of eyes about how unstable the grid has become because of a lack of investment over the years, and their need for backup and temporary power solutions.”

What is fueling the industry's growth? Problems with the existing utility grid and the growing awareness of the consequences of lack of preparation are certainly contributing factors. The rising cost of insurance is an issue as well — companies can significantly lower their premium costs by having a year-round backup power system or contingency contract in place in case of disaster, which can take a wide variety of forms. The awareness that rental can help a company keep down its capital expenditures is becoming widespread among power-generation customers, as it is among construction contractors and other rental customers. But as much as any of these factors is the increasing ability of power-generation rental firms to provide service.

“Pre- and post-rental services ranging from engineering assistance to maintenance support are emerging as key distinguishing factors between competitors,” writes K. Ravi, Frost & Sullivan research analyst. “This is a potential end-user base that has experienced and understood the advantages of rentals in comparison with capital purchase.”

The Frost & Sullivan report succinctly sums up the essence of power-generation rental and what gives the segment such an upside. The essence of it is clearly service, which involves extensive preparation by engineers and highly trained personnel. As Jeremy Sockwell, operations and logistics manager for Kohler Rental Power, says: “When you hire a salesman to promote power generation, you don't just give him the keys to the company car and say, ‘Go get 'em Tiger.’”

“Today there are thousands of rental companies that rent generators,” says Horst Wasel, president of the Prime Energy division of Rental Service Corp. “Everybody can rent a generator, you can go to Home Depot and buy a genset and bring it to a customer. But this is a niche market, you need to offer a package with engineering know-how.”

“It's not just dropping backhoes or bulldozers at a jobsite,” says Sockwell. “There are everyday rentals where they want a 20 kW generator to sit at a construction site, and we do that too. But the main reason we're here is to offer a total energy solutions package that includes electricity and climate control. Often customers don't know what they want, they just know they want their production facilities to keep on running, with their lights on and their systems working. We're renting equipment, but we're providing a total energy solution. We deliver that value with engineers, applications specialists who are highly trained, and distributor personnel who are highly trained in voltage and other areas.”

For most of the major power-generation players, renting a genset is just a small part of the equation. The concept of providing an entire energy solutions package that includes temperature control equipment, electrical distribution equipment and oil-free air compressors is indeed the growing trend. And being able to spec applications, troubleshoot problems and offer sophisticated technical analysis is a prerequisite.

“Simply delivering a generator to a customer is the easy part,” adds Ken Cannella, director of national sales for Cummins Power Rent. “Complications can result when the generator has to be connected with the customer's power distribution system. The utility has to be disconnected, and a fuel supplier has to be located. Customers can quickly learn that emergency power is not a do-it-yourself project. This is why we are encouraging our emergency power contract customers to install permanent switchgear to facilitate the quick and safe connection of emergency power systems.”

Beyond emergency

The key to the disaster business is emergency response. When the blackout hit, Kohler sales reps were at a meeting at its Wisconsin headquarters. “When the blackouts hit the Northeast, the reps had just gotten into their vehicles to go back home when they got the news,” recalls Stephanie Dlugopolski, communications specialist for Kohler's global power group. “They turned around, canceled their flights and manned the phones until midnight, getting generators on the road throughout their territories.”

Emergency response is critical; so is preparation. “We offer complete hurricane plans,” says Wasel. “When a hurricane is coming across the Gulf of Mexico, those companies need to be prepared, so we have many contracts with refineries to bring equipment on rent 24 to 36 hours before the hurricane is expected to hit, to prevent power failure.”

Can any rental company enter the power-generation rental market? When it comes to the larger units, not likely. Although the returns can be rental rates as high as $15,000 to $20,000 a day for larger gensets, the cost of those units can easily top $200,000, considerably more for specialized units. And the very nature of the business demands a large inventory.

“You need to be able to handle large orders,” says Wasel. “You need hundreds of machines, a large variety of fleet.”

David Brown, vice president of Carson, Calif.-based MQ Power, which manufactures generators as large as 2,000 kW, says that medium-sized general rental centers should start with smaller capacity generators in the 25 to 40 kW range. “The company needs to determine whether they are going to market with the generators or will they wait for customers to walk in the front door,” Brown says. “In either case, rental stores should avoid the standby power business since it is wrought with costly regulations and stringent restrictions. A general rental center should pursue weekend special events and small contractors who don't require large power sources in their everyday operation.”

While smaller rental companies can certainly develop into a high degree of specialization with smaller generators, it takes a big company infrastructure and capital base to play the Super Bowl. Literally and figuratively.

GE ENERGY RENTALS

GE Energy Rentals concentrates in three areas: entertainment, with units up to about 500 kW; the industrial market, from 25 kW to 1,650 kW and large utility generators from 10 to 25 megawatts. The entertainment projects are more short term for specific events. Also included in that category are golf tournaments that might include a year-long road show, where GE personnel travel with the equipment.

The industrial applications are more long term — well-planned events for shutdowns, for maintenance cycles or peak production periods. GE engineering staff does detailed study.

Utility jobs are mostly global in nature. GE will be involved in the Athens Olympics next summer and has continually been involved in high-profile projects around the world.

“Our engineering people get involved in working with our sales force,” says general manager Luis Ramirez. “Most of our sales force has engineering training. We may not need a full-time engineer for entertainment jobs, but we do need well-trained technicians, and most of ours were homegrown in the industry. Today equipment is more sophisticated than in the past, with more remote controls.”

GE initiated a national call center with 24/7 customer response. “Nobody had it at that time,” Ramirez says. “People had cell phones and beepers and pagers, but no response center with a team for logistics. So we can start to mobilize immediately to be ready for a response and we can mobilize teams in the field with the equipment.”

GE is another example of the benefits of size in the power generation market. “If we need equipment in Wilmington, N.C., we can stage equipment at a nuclear power plant we have there,” says Ramirez. “We have several facilities around New York, in Connecticut and Boston, where we can stage large teams and fleet.”

PRIME ENERGY

Prime Energy, a division of Scottsdale, Ariz.-based Rental Service Corp., rents generators ranging from 100 kW to 1.5 megawatts, producing a different unit for every additional kilowatt. The gensets from 500 kW and below are manufactured by parent company Atlas Copco, but above 500, Prime draws from various suppliers.

Prime Energy's primary business is oil-free air compressors, with generators being an essential ingredient in the creation of an energy package that includes compressed air and temperature control equipment.

Still, generators are an important part of Prime Energy's mix. Often refineries do major maintenance for several weeks, renting Prime generators to provide power, with the units also being used to power Prime's own equipment during the maintenance process.

Major manufacturing plants often rent large generators to supply electricity during turnarounds when they need to turn off gas turbines or other primary energy sources. Prime provides electricity and additional standby power in case of need. Gensets in the 100 kW to 500 kW range power smaller refineries, hospitals, food and textile plants, the pipeline business and the wastewater industry.

Disasters are big business for Prime Energy as well. “We offer complete hurricane plans,” says Horst Wasel, president of the Prime Energy division. “When a hurricane is coming across the Gulf of Mexico and those companies need to be prepared, that's when we go into action. We have contracts with many refineries to bring equipment on rent 24 to 36 hours before the hurricane is expected to hit. The last major emergency rental we had was the big fires in California last year, when we brought six 1.5 megawatts units to the state because of power failures.”

Prime operates on the principle that power-generation rentals require extensive advance work to be successful. “We have product specialists and engineers that go on site and work with the facility to create a clear plan regarding what size generators, transformer and cables, what voltages would be required and how to connect it. Any company can buy a generator and rent it to a customer. But to compete in a niche market with an oil-free air fleet, you have to provide value to the customer, not just deliver the equipment.”

Prime Energy operates from 15 locations in the United States and Canada, as well as some satellite facilities. Some RSC rental locations have power-generation equipment on hand and can support Prime Energy needs if a key customer is nearby the RSC location. Prime has developed its own software to operate the power-generation business and customers can order their needs through Prime's software package.

Prime also offers onsite locations in several places such as refineries, operating 24 hours a day providing equipment when needed or responding to emergency technical needs.

“We have some rental applications where the risk of failure is so high for the customers' process that we have mechanics on the job around the clock,” says Wasel. “On big booster jobs in the pipeline business, for example, if something sticks in the pipes, mechanics have to be there around the clock.”

KOHLER RENTAL POWER

The Kohler Rental Power sales staff had gathered at the factory for some meetings and had just left for the airport when the news hit. From New York up to Canada, the whole Northeastern seaboard and inland as far as Cleveland and Detroit were without power because of the massive blackout. Every one of them headed back to the Kohler office, got on the phones and stayed on them until midnight, making sure every customer was taken care of.

Such is the disaster rental business, which is only part of what KRP does. With a fleet of generators ranging from 200 to 2,000 kW, working from six KRP locations and 82 distributor locations, Kohler has become a major player in the large generator rental business.

In addition to handling disaster situations, KRP does a lot of business in rental for plant maintenance shutdowns. But its primary specialty is the event business. KRP is especially strong in golf tournaments with the PGA being one of its biggest clients. KRP powers concerts and other live entertainment events, volleyball championships and other sports events, and major corporate events such as the Harley-Davidson 100-year birthday celebration.

“We offer total energy solutions packages including electricity and climate control,” says Jeremy Sockwell, manager of logistics and operations for KRP. “Often the customer doesn't know what they want, they just know they need their production facilities to keep running, with their lights on and their systems working. We propose whole solutions, we say here's our proposal for your uptime and shutdown, here are your solutions, here is what your monthly cost will be. It's more than commodity and price point. Providing a total energy solution, we can deliver value with engineers, highly trained applications specialists, and distribution personnel that are highly trained in voltage and other areas.”

Some of KRP's distributors, such as Neptune, N.J.-based Cooper Power Systems, which is also a division of one of the largest electrical distribution companies in the world, play important roles in the power rental business. After the 9/11 terror attacks, Cooper had technicians working around the clock helping to support a temporary office location for Merrill Lynch.

The holiday season is an important time for KRP as well. One Cooper customer had five generators from 1,000 to 1,500 kW at two distribution centers set up especially for the holiday season. “That company can't afford for its conveyor belts to go down,” says Tracy James, Cooper rental manager. “That would make it impossible to run their business. So they contracted with Cooper and Kohler to build switchgears into their building to have mobile generators rolled up on to their facilities in case of blackout.”

KRP has distributors all over the world, including Asia, Latin America, the Middle East, Europe and Africa, providing power for the construction, mining, drilling, government, military, health care, manufacturing and processing, municipal and utility, and telecom industries.

AGGREKO

Long the pacesetter in the power-generation rental market, United Kingdom-based Aggreko manufactures a wide variety of diesel generators up to 2,000 kW, transformers, load banks, fuel tanks, electrical distribution systems, as well as temperature control equipment and oil-free air compressors. With U.S. headquarters in New Iberia, La., Aggreko is probably best known for providing power at such high-profile projects as the 2002 Winter Olympics and the World Cup soccer championships, but the company is involved with a wide range of applications.

In the event category, Aggreko generators have powered the Olympics since 1988, U.S. presidential inaugurations, the Super Bowl, the world ski championships, Cirque de Soleil and the movie “Titanic.” Aggreko has been a major player in the construction and contracting industries, mining, agriculture, fishing, quarrying, oil and gas facilities, petrochemical, refining, pharmaceuticals, manufacturing, food and beverage, shipping, and the utilities and telecom industries.

Aggreko, founded in the Netherlands in 1962, has a long history in the power-generation market. Although it is facing more competition now than ever before, industry observers have never taken it lightly.

CATERPILLAR

Caterpillar does everything in a big way and power generation is no exception. While not every Caterpillar dealer is a major player in the power-generation market, enough of them are to put Caterpillar on the power-generation map. Although Caterpillar has generators ranging in size up to 6 megawatts, 15 kW to 2,000 kW is the range more likely to be found at a Cat dealership. But having the backing of a company the size of Caterpillar makes it possible for Caterpillar dealerships to maneuver freely when attempting to meet the needs of customers.

Caterpillar has its size, its network and a software tool that helps staff quickly and accurately select the right generator set and prepare specifications. Caterpillar power-generation rental specialists can leverage dealer network support and Caterpillar brand-name recognition.

A less common approach, but one that is being used effectively in Louisiana, is to run the power-generation division under the banner of the Cat Rental Store. Chuck Grey, Power-HVAC-oil free air territory manager for Louisiana Rents reports considerable success in gaining market share for Caterpillar in a region rife with competition for power-generation rental in the petrochemical industry and disaster-contingency planning segment.

Like most of what Caterpillar does, the company is likely to succeed in the power-generation market to the degree it places emphasis and resources toward its success.

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