Steve Edwards - the new chairman, president and chief executive officer of Black & Veatch - discusses what he sees coming in the future of the hydropower industry in North America and abroad, and the role he sees Black & Veatch playing in that future.
By Marla J. Barnes
Black & Veatch is a global engineering, consulting and construction company that specializes in infrastructure development in energy, water, telecommunications and environmental markets. Founded in 1915, Black & Veatch offers engineering, procurement, design, consulting, asset management, environmental and security design consultation services.
PennWell recently sat down with Steve Edwards, newly named chairman, president, and chief executive officer of Black & Veatch, to discuss the role the company is playing in the hydropower industry and the vision he has for Black & Veatch in his new role. The following is a transcript of that discussion.
Q: Please share about the philosophy of "ONE Black & Veatch" - the initiative to offer your entire suite of services to clients across market sectors - and what that means for the hydropower sector.
Edwards: Philosophically, "ONE Black & Veatch" is an effort to pull the company together and leverage our talents across all the markets we serve - energy, water and telecommunications - instead of seeing them as individual divisions.
We had previously heard clients saying "I didn't realize Black & Veatch did that." As I travel around the globe visiting our offices, I'll see these concentrations of talent that are doing something that I didn't know we had done. It's exciting to work towards leveraging these talents and abilities and offering a broader-spectrum solution to our clients.
We have evolved as a company from where we were 10 years ago, but there is still a lot more we can do. The more our people learn about the other parts of the business, the more they can do to contribute across the company as a whole including our hydropower business.
Q: Hydro is part of your water sector as opposed to the energy sector, but are these divisions going to continue?
Edwards: I don't think they will be called divisions for much longer - they'll be considered businesses. The term "division" infers separation, but that's not what we're about. It's about working together as ONE Black & Veatch.
In a given year, there are a thousand projects that utilize common proccesses and tools, share knowledge across the boundaries, and work together between water, energy, and telecommunications. As we increase that going forward, those boundary lines will disappear even more.
Q: There is clearly opportunity for hydro development in the future. What are your thoughts on the challenges of financing, especially new greenfield development of hydro projects?
Edwards: Hydro clearly has a place in the future of power generation. Many of those challenges are obviously high capital costs. Even with low operating costs, hydro development requires someone willing to take a long-term view to yield the benefits from those projects. There are a lot of companies that have that capability to take a long-term view, so then it's a matter of getting the financing package. If it's a good project, we can get the financing. If the utility or developer cannot do it on their own balance sheet, then there are ways to deal with that through public-private partnerships.
As many developing countries have the resources needed for development and it's a good long-term investment that provides decades of good service once in place, we think hydro is a viable option in many of the markets we serve, such as Southeast Asia, Latin America, Canada, the U.S. and UK.
Q: Regarding the point of your energy and water sectors working together, there are a lot of companies in the U.S. that have considered adding a turbine to a water supply pipeline to take advantage of the resource and produce electricity. Do you expect to see more of that in the future?
Edwards: We definitely do. We are seeing good opportunities there. We've been selected to do work on a project like that for Scottish Water. There are a series of potential projects using hydro technologies within existing water and wastewater systems. It's definitely something we would like to do in other places as well, and we see potential for growth there. It's not going to be in huge increments of power generation, but to not tap into it is essentially to waste energy, and we know that we can't waste energy going forward. It's a solid approach, and there is really no reason not to take advantage of it.
Q: I talk to a lot of people in the hydro industry who say there is no way we can compete with gas, and hydro projects are getting overlooked because of that. What are your predictions about where the price of natural gas is going? Should hydro be concerned?
Edwards: Our projection is that gas prices will eventually climb in the U.S. into the $5 or $6 range per BTU. A lot of the production right now is being driven by pursuit of the natural gas liquids, so the gas they are getting is available for whatever they get for it as additional profit. There's been a flood of gas to the market, and prices have dropped as a result. Naturally, the generation fleet has been able to respond because there are a fair number of natural gas generating units out there, and it has displaced to a large degree coal and some of the other types of generation.
From a capital standpoint, I believe that the power industry on a global basis understands that natural gas is volatile. As prices rise again, the market will resume being competitive. Many will begin to look for ways to diversify their sources of energy as prices increase, and hydro will be a competitive option at that time.
Q: One of the challenges to hydro development is related to concern about the environment - specifically about fish passage and protection. These issues are being dealt with, but the extensive licensing process still reflects these concerns. What are your thoughts?
Edwards: We certainly see that. My view is that this is increasingly becoming a levelized playing field. Regualtory officials and the environmental crowd have never liked coal. They have taken their shots at hydro and natural gas and even at wind and solar depending on the project. I think it's really a matter of educating the regulating officials and explaining that it is a solid project with solid technology. We need to explain the impacts and what's being done to mitigate those impacts and pay attention to the environment while still keeping the lights on. I think hydro holds up well to that kind of analysis. Any given project may draw the attention of someone wanting to shut it down, but a well-put-together project that does a good job of communicating the benefits of hydro specifically as opposed to the alternatives will do fine.
Educating the consumer is equally important. There are some valid concerns when you look back at the history of the industry, particuarly regarding fish and wildlife, and many have been addressed. There are a lot of neat things being done today that weren't being done 10 or 20 years ago that have mitigated many of those concerns. Within the consumer sphere, there isn't a clear understanding of what today's technology looks like and how it does help the environment. It's incumbent on us to inform the public of this.
Q: So what other challenges do you see, and conversely, opportunities, for the hydro sector?
Edwards: Well clearly, licensing and regulatory issues are very common. Financing is also an issue.
Q: Following up on the financing topic, because Black & Veatch has "out-of-the-box" thinking about financing, can you share with us some mechanisms or models to obtain financing?
Edwards: I think you will see more of the public-private partnerships in the future. These will look different than what has been done in the past. Essentially, if there's a good project, there are people willing to invest in infrastruture. They need to understand the risks and returns of such a project, yes, but we can help them understand those in both the U.S. and in developing countries. We can also assist them in working with clients and owners to get the projects to financial close. We know that a number of financial entities with funds available are looking for good investments. We know what kind of returns they're after and also the risk profiles that drive their decisions. If it's a good project, there's a way to get the financing at a reasonable cost.
Q: In terms of critical infrastructure, Black & Veatch has a unique perspective when you look across the sectors you work in. Tell me your thoughts about how telecommunications, water and energy can all work together to address some of these critical infrastructure challenges?
Edwards: We work in all three of those areas: water, energy and telecommunications. For the most part, private investment is dominating telecommunications. The money is out there, so that's developing quickly in the U.S. In the case of energy and water, that private money can do as well as the funds that are available through the utility's rate-based mechanisms, but what we see particularly with the municipal and state governments is that tax revenues have decreased over the course of the recession. They have rebuilt themselves somewhat over the ensuing years, but generally there's a feeling that it's never going to be like it was before.
The amount of money flowing from the federal government to the states and local communities is definitely decreasing. Tax revenues are much tighter. Certain programs are utilizing much higher percentages of the budgets they do have to take care of their people. Most of the shortages where money is not being spent is on things that you don't really see. There are a lot of things that are buried in the ground and work behind the scenes so that when they flip a switch, the lights come on, and they have come to just expect that. I think we need to educate consumers about those things they don't see that makes their power and water reliable. There is a lot of buried infrastructure, for example, that's not in place. There's a lot of work to be done on the nation's transmission grid in order to enable the further development of renewables and other generations resources. It provides an efficient platform for the nation's industry and the economy, so it's got to be done.
Q: So how do you see hydro and dams specifically fitting into that dynamic?
Edwards: In the U.S., you're basically looking at the existing fleet, so the bulk of work will be refurbishing and enhancing existing facilities. Pumped-storage projects may be a good balance to the other renewables from a grid perspective, and small hydropower is still a viable option with small dams. In the U.S., a large new hydro project is pretty difficult, although we see some potential for that in Canada still.
There's a lot of potential there with refurbishment and uprating existing dams including adding generation to non-powered dams. We have recently completed the Lower Baker Unit 4 Powerhouse project for Puget Sound Energy and have underway the Twin Falls Hydropower Plant project for we energies, both under alternative delivery methods. There are challenges to that type of development of course, but if it were easy, there would be a lot of other people doing it. We like difficult things.
Q: Regarding the whole water-energy nexus, what is your thought about the nexus between power and water, and what is the importance of recognizing that?
Edwards: Our view is that in order to provide water, you need electricity, and in terms of hydro, the converse is also true. They are dependent on each other. We think because of our large areas of expertise in both that we can help clients understand how to optimize their operations to use that dependency to their advantage.
What we are seeing now is an increased emphasis on water and energy conservation, along with energy efficiency, so it's a good time to leverage our expertise across these two businesses and strategize on how to increase efficiency overall. Many of our water clients are working on projects that could easily support an energy component, while many of our energy clients are seeing the role water could play in their systems if they were to take advantage of asset management and optimize their networks. There's a lot happening on both sides of the equation, and I feel that we are particularly well-suited to try to help both of those businesses optimize what's done in that area.
Q: As you are new to this role in the company, where do you hope to lead Black & Veatch in the future?
Edwards: Our goal is to have a much more balanced portfolio geographically and to maintain some very good performance at the company as we do that. We've set some strong objectives for Black & Veatch to reach billion in revenue by 2020, and to also diversify our markets both geographically and within a business line perspective. We anticipate growth in a number of areas outside of our domestic markets, including movement in India and in many parts of southeast Asia.
Over the past three years, we've met or exceeded our objectives, so we are headed in the right direction. We still have a lot of work to do to make the geographic expansion plan work as we want it, but the more I travel and visit our offices, the more I believe we have the right group of people with the right attitdues to make it happen. They're excited about what we are trying to do and are committeed to it. I've met many of our people at "town hall" meetings and have listened to their concerns and their feedback. There is a lot of passion in the company and it makes me even more confident that we will meet our obejctives for 2020.
Q: Do you see hydro as a major part of that growth plan for Black & Veatch?
Edwards: I definitely see good growth in hydro. We see potential growth in southeast Asia and Latin America, along with programs like what we are doing with Scottish Water, as well as refurbishment-upgrades and pumped storage opportunities in the U.S. facilities.
With the continued growth in renewables, there will absolutely need to be more storage to make that efficient. There's no doubt, that's a given. Storage should start becoming more and more prevalent. Pumped storage will have to compete with emerging technologies. If it can do that, it should succeed because the need will be there. By offering the flexibility to operate under very constrained time frames, it adds reactive power to the grid, on a very flexible basis. Those are additional features that other solutions may not have and we are involved in various project opportunities of that type in the U.S.
I am excited about that opportunity, as well.
Marla Barnes is publisher and chief editor of Hydro Review.