Is it good to be in power?

We were all required to take science courses in school and one of the ones I signed up for was basic physics. In one lecture the professor explained temperature convection, and just in case you missed or dozed off during that one, that’s where a temperature difference in gases, liquids or solids will strive to equalize through convection.

Today we are witnessing convection on a previously unprecedented global scale; the shift I’m referring to isn’t what you’d think, it’s not about climate change or temperature, but represents one of the greatest migrations of power and capital that the world has ever seen. Although the economy has put a bit of a damper on things of late the flow is still heavily eastern in direction.

The “Power” I’m referring to is in the degree of increased world influence and electric generating capacity that’s lighting up whatever device you looking at right now.

The Anglo-Spheres dependence on imports is a power and production vacuum that has been escalating for decades and one that the East has been willingly filling, putting millions to work in jobs and at wages that westerners “currently” refuse to accept. All this eastward migration or “convection” of capital and power is happening for one of two reasons; one as payments for the goods the west is importing, or two, by companies looking to get in on the boom to build infrastructure, factories and supply the goods craved by the west.

This convection of wealth and power is a virtuous and maybe vicious circle that is expanding with each revolution. Each revolution of exports-payments-investments means boat loads of money and influence for the Sino-sphere and cash drainage for the Anglo-sphere.

But what is missing and needed for the circle to continue to expand is power in the form of electricity and with all this inflowing cash and demand for increasing generating capacity you would think it’s a great time to be in the power business in Asia, wouldn’t you?

From a demand standpoint the potential for power plant contracts couldn’t look brighter.

China alone is expected to add generating capacity over the next fifteen years equal to the current total of the United States and build at a 6:1 ratio. India is right behind and percentage wise most other Asian nations are forecasting similar trends.

True it’s great for many industries but when it comes to developing the power plants that are needed to power Asia’s continued growth we have a bit of a different scenario.
So before you decide to hang out your shingle and build a power plant or two, consider the following.

It’s a rather capital intensive industry, the field is well served by MNC’s like Doosan, GE, Siemens, Alstom and the elephant in the room, China, has its own state companies that are turn-key capable competitors with a distinct advantage in the domestic market; and believe it or not, it’s been said by some that Chinese bids for projects in India, Vietnam… are subsidized through currency controls and supported labor?

One more factor you may want to consider including in your business plan is the rate utilities are allowed to charge per KW. Controlling the price makes operating power plants at an investor acceptable margin difficult at best, and so many are investors are leery of jumping in without long-term guarantees.

In Vietnam, according to a November 21, 2011 article in the Saigon Times, Electricity Viet Nam suffered severe losses in 2011 because as theMinistry of Industry and Trade put it in the article, Power last year was sold for 1,061.4 Viet Nam Dong/kWh while the cost of one kWh was 1,180 VND, which means that EVN suffered a loss of 120 VND for each kWh sold.

The Asian power market is certainly dynamic, moving quickly and changing directions almost by the hour. Everyday there are articles on a new power plant being built here, a wind farm breaking ground there, or plans for a new nuclear power station that is going to be built in one country or another.

So while the West clamors for cheap goods and wrings its collective hands, the East is doing whatever it takes to see that new generating capacity is continually being added to the grid. This assures the cycle will continue and the opportunity for development and a chance to profit and garner more power is seized.

The US says this is all well orchestrated and monetary policy is a key part of the mix. According to western governments exchange rates are said to be managed so that consumer economies in the west don’t prematurely reach the point where they can no longer afford eastern products.

The theory is that if that happens it would halt or postpone “convection” before domestic Sino-Sphere economies have attained a level that would make them self-sustaining, thus breaking the virtuous circle that is driving their development and consequently power generating capacity.

If and when western economies and lifestyles that are heavily based on services, not goods (76% in the US) become unsustainable and Asian countries reach the tipping point where they no longer depend on exports to support their economies the west will certainly be facing a new reality and those aforementioned unacceptable jobs might look pretty good back in Hoboken or Athens.

So for now we’ll just have to wait and see how far the pendulum swings eastward and what happens if it doesn’t swing back toward center.

Dale Gerstenslager, General Manager, Public Relations & Communications Department, Managerial Division, Doosan Heavy Industries Vietnam Ltd, (Doosan Vina)