Power gap: APR Energy's Laurence Anderson on the IPP rental market
By Murray Pollok09 May 2012
APR Energy is expanding its international power projects (IPP) rental business at a dramatic rate. Murray Pollok spoke to the company’s co-founder, Laurence Anderson.
APR Energy can react quickly when required, setting up a 50 MW or 100 MW power plant in less than 30 days, or faster; "We did it in a week in Martinique", says Laurence Anderson, APR's co-founder, president and chief operating officer, "You work 24 hours a day, and make sure that everyone is working together."
That kind of speed is not unusual in the international power projects (IPP) business, where power if often required in the aftermath of a natural disaster or where temporary shortfalls in the grid supply need to be made up.
It's a market where APR Energy has been active since 2004 when Mr Anderson and APR's CEO, John Campion, co-founded the company by buying out the IPP rentals business from Alstom Power.
The two men's careers have been linked since they worked together at Californian power rental company Showpower in the 90s, followed by a shorter spell at GE Energy Rentals (after GE acquired Showpower) and then Alstom Power Rentals.
"We knew back then that the growth industry we wanted to be in was IPP - doing the large megawatt jobs for utilities and industrial customers that need power", says Mr Anderson, speaking from APR's Jacksonville, Florida headquarters, "We could see a growth potential, and we saw that there were not many people doing it."
Then, as now, APR's biggest competitor is market leader Aggreko. There is a difference between APR and Aggreko, however, in that APR is focused purely on the IPP market and is does not touch the smaller ‘local' power rental projects that remain a major part of Aggreko's business. Among other things, this allows APR to focus on big power technology and a narrower customer base, and to operate without a large network of depots.
And the potential in the IPP market is enormous. Mr Anderson says industry studies indicate that the true demand for temporary power may be around 25000 to 35000 MW, which is much more than the current IPP rental capacity.
"If you look at Aggreko's IPP fleet of around 5000 MW, and our fleet which is passing 1000 MW", he says, "Include the odds and ends of the regional players and you might have 8000 MW of potential capacity. [That means that] the largest part of customers are unserved year to year." He says customers rely on favourable weather, on rolling black-outs, or by extending the lives of old power plants.
This shortfall exists because of limits in the supply of power generating capacity, and because of the finance required to building up fleets.
In APR's case, revenues starting growing significantly from 2009 onwards as it successfully raised capital. This growth has become dramatic in recent years as the company attracted further investment from Soros Fund Management and Albright Capital Management (the private equity business run by former US secretary of state Madeleine Albright).
The process culminated in June 2011 when APR was acquired by Horizon Acquisition Co, a London-based private equity business. APR is now listed on the London stock exchange.
The investment has boosted APR's fleet from 350 MW at the start of 2011 to close to 1000 MW now, located at around 15 sites in the Caribbean, Panama, Peru, Argentina, Botswana, Mozambique and Japan (following the earthquake and tsunami of last year).
The company's revenues are growing along with the fleet, with sales of around $120 million in 2010 likely to have grown by 65% to $200 million last year. The company's footprint is also expanding, with new hubs in Panama and Dubai and plans for one in South East Asia.
The vast majority of its existing contracts are in developing countries, where power infrastructure is vulnerable to weather (low rain has an obvious impact on hydro-electric power) or where economic growth and rising demand is outstripping the installation of permanent power capacity.
This geographical focus is "driven by the market", says Mr Anderson, "that's where the demand is. We're looking at opportunities in developed markets. There are energy issues where you and I live - it's just that customers tend to take a longer term view. We are in active discussions in the developed world."
He thinks APR will "absolutely" have contracts in Europe or North America within two years and says developed economies are starting to see the same weather-related issues as the developing world and also have the problem of an ageing power infrastructure to contend with.
There is also the nuclear issue, with several developed nations - including Japan and Germany - reconsidering nuclear power in the wake of the Fukushima accident. "We've still got to see how the dust will settle in what the nuclear dependent countries will do."
As part of its growth strategy the company has formed two important partnerships over the past year. One was an agreement with Caterpillar and Ring Power, Cat's Florida-based dealer, under which APR gets diesel generator sets from Ring Power at "beneficial" pricing. In addition it will get access to contract opportunities sourced by Cat dealers.
Caterpillar has also recently signed long-term IPP agreements with two other power renters, Netherlands-based Energyst and Energy International (EI) in Miami. Lawrence Anderson says APR's agreement is different in that it is the only one of the three not to be owned by Cat dealers - Energyst is owned by 10 European dealers while EI is a sister company to Gecolsa, Cat's Colombian dealer.
"We were aware of the other two players - we knew it was part of Caterpillar's plan", he says, and differentiates APR from the other two players, "We are by far the largest and most active global partner. EI and Energyst are more regional."
The other agreement is with Pratt & Whitney Power Systems, which will give APR exclusive access to Pratt & Whitney's 25 MW mobile gas turbines for rental applications. The two companies have already cooperated on a rental contract in Japan following last year's disaster.
Mr Anderson says the Pratt & Whitney agreement is part of a move to offer a variety of energy sources to suit customers, with traditional diesel generators, natural gas reciprocating engines as well as dual-fuel turbines (that can operate on diesel or natural gas).
Capital expenditure of between $230 and $260 million is forecast for this year, and Mr Anderson, although not willing to provide details of how the company is investing, does say that fleet has been strong in diesel generators in the past and that APR is looking to balance that with more dual-fuel and natural gas units.
That's an enormous investment in the business, and one that will give a significant boost to its fleet. APR is in as much of a hurry as some of its clients.