Discussion Paper on International Management and Innovation

Alexander Gerybadze1, Michael Stephan2

Reverse Knowledge Transfer between Commercial Markets and Defense Technology: The Case of Advanced Materials and Gas Turbines Discussion-Paper 06-01 Stuttgart, November 2006 ISSN 1433-531X

1 Prof. Dr. Alexander Gerybadze, Director of the Center for International Management and Innovation.

Contakt: Lehrstuhl Internationales Management (510K), Universität Hohenheim, D-70593 Stuttgart, Tel: ++49-711-459-23249, Fax: ++49-711-459-23446, E-mail: agerybad@uni-hohenheim.de

2 Dr. oec Michael Stephan, Center for International Management and Innovation. Contact: Department of International Management (510K), University of Hohenheim, D- 70593 Stuttgart, Tel: ++49-711-459-23249, Fax: ++49-711-459-23446, E-mail: stephanm@uni-hohenheim.de

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Table of Contents

1. The Changing Relationship between Civil and Military Innovation 3

2. The Economic of Advanced Material’s Innovation and the Role of ”Extreme Businesses” 5

2.1 Price-Performance Improvements Driving the Application of New Materials 6

2.2 Unique Customer Demands and Regulatory Forces Driving New Materials 8

2.3 Understanding the Dynamics of the Innovation Process for New Materials 11 is Critical

3. Advanced Materials in Gas Turbines 13

3.1 Technical Introduction to Gas Turbines 13

3.2 Advanced Materials in Gas Turbines for Power Plants 14

3.3 Materials Innovation in Stationary Gas Turbines 16

4. Changing Relationship between Stationary Gas Turbines and Aeroengines 20

4.1 End of the Traditional Pattern: Aero-derivative Technologies 20

4.2 Price-Performance Improvements of Power Plants as Trigger of Materials 25

Innovation in Stationary GTs

4.3 Regulatory Changes as Trigger of Materials Innovation in Stationary GTs 27

4.4 Competition amongst Manufactures: The Race for Efficiency 28

5. Reverse Knowledge Transfer and Innovation Policy 30

References 33

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1. The Changing Relationship between Civil and Military Innovation

The following paper explores the dynamics of the innovation process for new materials and

analyzes the interplay between military and civil applications in fostering research and

technological advance in this particular field. Advanced materials R&D has been a focus area

for governments in North America, Europe and Asia, as well as for private corporations in

several important industries (chemicals, steel and metals, aerospace, automobiles etc.). The

innovation process for advanced materials is long-term in character, extremely risky and

boundary-spanning, building on the effective interplay between basic research, product and

process engineering, as well as on active involvement of suppliers as well as users, often

from diverse fields.

Many important new developments for advanced materials were originally triggered off by

defense or space applications, and became later applied in a variety of secondary

applications and commercial products. New knowledge was often generated in non-

commercial areas, either for advanced weapon systems or for space applications, and the

flows of knowledge was uni-directional, with more mundane uses of knowledge for

commercial products often described as “fallout” or “spin-off”. This linear, uni-directional

sequence of knowledge flow has been reported for several classes of advanced materials

(advanced steel alloys, composites, ceramics etc.), and the use of advanced materials for

energy applications and gas turbines represents a prototypical case for our argument. Our

paper, however, will emphasize that this uni-directional sequence of knowledge flow has

somewhat become reversed. We will show that some pertinent changes have occurred

during the last ten years that had a significant impact on the relationship between military

and civil innovation.

First of all, innovation works differently in a “post-cold war world”, then is the case for

innovation in the defense sector before 1990. The changing mission of security systems,

reduced military spending in several large countries, and severe restructuring of the

defense sector have undermined the role of the defense sector in the innovation process.

is a result of changes in defense R&D, space programs and weapon procurement

systems during the 1990s, the military can no longer be considered as a major driver of

innovation.

Highly-competitive global markets and innovation activities in large, primarily non-defense

oriented multinational corporations have overtaken the role as driver of the innovation

process.3 R&D directed towards commercial products now represents the dominant

share of GERD in most OECD countries, and it is growing at a persistently higher rate

3 See Gerybadze (2003,2004) and Gerybadze, Reger (1999) for a description of the new global race

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than defense-oriented R&D. As a result, an ever greater share of R&D and innovation

efforts is being directed at dynamic, highly competitive markets for commercial products

and services (IT, software, telecommunication, automobiles, biotechnology,

pharmaceuticals etc.).

In addition to these quantitative changes, we observe significant changes in the mode of

innovation and knowledge transfer. The classical model or sequence of innovation from a

research-driven, more push-type of activity has increasingly become reversed. Mode 1 of

knowledge production tends to be replaced by Mode 2 (Gibbons et al. 1994, Nowotny,

Scott and Gibbons 2001). Mode 2 knowledge production is more open, distributed across

diverse actors, sectors and disciplines, and is highly interactive. The innovation culture

promoted through Mode 2 is significantly different from the hierarchical, secretive and

“closed” culture within the defense system, the organizational routines of which have

been modeled around Mode 1.

“Business-model innovation” and “downstream innovation” leads to a greater share of

user-specific as well as market-context specific knowledge to influence the R&D agenda

and the rate and the direction of change. Highly dynamic end-user markets and service

systems attract an ever greater share of innovation activities in telecommunication, IT,

software, health and in many other areas.

Another very important driver of innovation is the legal and regulatory process in many

countries. Regulatory as well as environmental processes have become very powerful in

influencing the innovation agenda of firms, and both have become particularly important

for the energy and transportation sector. Environmental and regulatory processes are

very critical for shaping the innovation process in advanced materials.

Finally, wealth creation in advanced countries has led to the emergence of luxury good

markets and to the development of products, components as well as materials with

unique performance characteristics. We will call these ”extreme businesses”. Functional

characteristics and performance levels attain very high levels, and users are willing to

pay enormous amounts of money for additional improvements. High revenue-generating

media events channel money into innovation activities for sport events, competition and

leisure activities.

As a result of these changes, a number of new drivers of innovation tend to replace the

classical role of defense and space as a pace-maker. Innovation in advanced materials is

more and more triggered in sophisticated high-end commercial markets (through sport

events, media campaigns, medical applications etc.). In energy and transportation, regulation

has become a dominant force in shaping and influencing the innovation process. The locus

of innovation and the direction of knowledge flows has to a certain extent become reversed.

Knowledge is generated in high-end commercial markets and innovation processes are

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driven by sophisticated and demanding commercial applications. Military technology is no

longer at the forefront of change, and often, military applications and systems are becoming

users of technology, that has originally been developed for commercial markets.

2. The Economics of Advanced Materials’ Innovation and the Role of “Extreme Businesses”

We will show that extreme functional characteristics in some “extreme businesses” are often

driving the innovation process in advanced materials. Economic considerations are based on

the price per weight as the most critical indicator (Euro per kg resp. Dollars per pound).

Advanced materials are first developed and tested by early users with a high willingness to

pay (who accept materials costing in the range of 103 – 105 € per kg). Some selected

products and customer groups are thus characterized by high absorptive capacities for

expensive new materials with extreme performance characteristics.4 Until about 1990,

defense and space represented the highest degree of absorptive capacity for advanced new

materials with predefined performance characteristics at extremely high prices. Anti-radar

coating materials for the stealth bomber or carbon-fibre composites for spacecraft

represented important new material classes, for which prices per kg did not matter much.

After early innovation in defense and space applications, complementary process

innovations and manufacturing in higher volume led to further cost reductions and to

continuous diffusion of advanced materials for a number of commercial products. The

sequence of innovation, and the flow of knowledge was primarily uni-directional: advanced

materials for defense and space first, follow-on innovation in commercial markets later.

A number of factors have led to pertinent changes in the innovation process for advanced

materials after 1990. Reduced expenditures for defense and space R&D and changing

priorities certainly play a role. Restructuring within the supplier industry as well as in the

basic materials sector was also very important. Both has resulted in a greater emphasis on

the basic economics and on profitability considerations with respect to new materials. During

the last ten years, there have been strong pressures for restructuring industrial R&D, both

within the materials supplier industry, as well as in several user industries. These pressures

have resulted in changing priorities and greater cost awareness for materials innovation.

Companies focus much more strongly on their existing core competences, and are thus

unwilling to support more unrelated, long-term and more risky projects. Market forces and

4 Absorptive capacity for advanced materials’ use is influenced by (1) extremely high evaluation of performance

resp. functionality, (2) high income elasticity combined with (3) low price elasticity.

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customer-pull replaces technology-push and the earlier emphasis on engineering excellence.

As a result cost considerations and economic factors tend to dominate the process of

technological innovation.

In this situation, exploitation of existing knowledge bases and the optimization of well-

established materials tends to be the rule. Exploration into new materials classes and

significant shifts away from established materials, a pattern observed during the 70s and

80s, tends to be the exception. Sophisticated new materials, as a result, often fight an uphill

battle in many firms. They will only become accepted in replacing more traditional materials

if their price-performance ratio is considerably lower than for established materials and

processes;

if they do not lead to additional risk-hazards for early users;

if the time needed for effective commercialization of new materials is not too long; and

if trial applications can smoothly be transformed into mass commercial use.

Given this pre-dominance of well-established materials, material-suppliers are only willing to

invest in R&D and manufacturing for new materials, as long as these offer clear

commercialization benefits, with a large and attractive market that can only be seized

through this investment. The time horizon and risk-profile for new material projects should be

within an acceptable range. Furthermore, strong competitive and regulatory forces must work

in favor of new materials.

2.1 Price-Performance Improvements Driving the Application of New Materials

In the past, innovating firms were arguing in terms of performance improvements: a higher

temperature for turbine blades or greater wear-resistance for ball bearings. Today, the critical

question becomes: what is the user willing to pay for the „delta“ in heat or wear-resistance?

The driver for the effective application of a new material is often not the performance

improvement as such. Instead, the initial customer is looking for a unique performance

improvement at acceptable cost.

In Figure 1, we compare price and performance characteristics for a new material. A is the

„status quo“ characterizing the well-established price performance ratio of an existing

material. A new material offering a performance improvement, but which comes at a higher

cost, will rarely be accepted. Also, many innovators believe they can convince customers by

offering a slightly improved material at about the same price of the old material. In most

cases, doing just better in performance than an existing material is not a sufficiently strong

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selling proposition for a new material. The supplier will have a hard time in convincing the

potential user, who is risk-averse and typically much less informed and able to assess true

performance levels.

A unique selling proposition can be attained by the supplier, if a new material offers improved

performance at a lower price. This is illustrated by a move from A into the shaded zone in

Figure 1. Such a favorable constellation is not very likely, however, since the innovator has to

cover R&D expenses and because manufacturing processes for the new material are not

well established. Furthermore, innovators often underestimate strategic responses of

established firms. Large oligopolistic rivals have no hard time in dumping well established

materials and products onto the market in order to drive out a new substitute. Typical

examples are the strong moves of steel manufacturers to prevent the inroad of aluminum

and composite materials into „their“ automotive business.

Figure 1: Price-Performance Characteristics of Old vs. New Materials

Price

Performance

New materialnot accepted

New materialaccepted

Slightly betterthan existingmaterialA

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2.2 Unique Customer Demands and Regulatory Forces Driving New Materials

New materials have an initial cost disadvantage and they have a reputation disadvantage.

They will only be introduced in small niche applications: often in small premium markets

where customers are willing to pay for certain performance levels. They will be tried by

sophisticated customer groups who can better assess true performance levels, or pushed

within particular application areas for which there is no alternative to the new material. We

will call these “extreme applications” or “extreme businesses”.5 These extreme applications

represent strategic market opportunities for specialized suppliers that can offer a unique

material. Such strategic markets are temporarily opened up by discoveries, strategic moves

of competitors or through regulation. In Figure 2, an „external shock“ of this kind pushes the

envelope and the performance level required by customers from P1 to P2. Companies that

supply a product (as an example a turbine blade, an aircraft component etc.) that still

contains the old material, can only reach performance level P1, while the required level P2

can only be attained by switching to the new material. In the stationary gas turbine market,

companies like General Electric (GE) and Siemens developed new turbine generations with

60% thermal efficiency, as will be described in section 3 and 4. For the next years, gas

turbine manufacturers are pushing the frontier to thermal efficiency levels of 65 or even 70%.

As soon as one firm reaches such a critical level, it will attain a strong temporary lead over its

rival. Some new materials and processes like thermal barrier coatings and single-crystals are

critical for the desired efficiency level, and the turbine manufacturer is then willing to pay a

high premium to the material and part supplier.

In the past, defense and space applications were driving the innovation process for

advanced materials. More recently, other unique performance requirements are driving the

selective use of new materials in “extreme businesses” with greater absorptive capacities.

These dynamic application areas include:

Energy applications and the gas turbine industry in particular. The key parameter

here is the efficiency achieved at higher temperatures. This requires new materials

(ceramics, intermetallics) and drives materials related processes (e.g. single crystals,

heat treatment and cooling techniques).

Health products and orthopedic implants. As an example, the key success factor for

hip-joint implants is longer life time. This drives development of materials

technologies like ceramics and porous coatings.

5 “Extreme applications” are related to the concept of “Lead markets” originally developed by Eric von Hippel

(1988). More recent studies on lead markets have emphasized the role of user communities and “freaks” on triggering innovation for extreme products (sport goods, racing equipment etc.). See Franke and Shah (2002) and Lüthje, Herstatt and von Hippel (2002).

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Sport events (Formula 1 racing, world championships) and sport equipment markets

drive new materials innovation. Examples are golf shafts using titanium alloys or

composites, for which a small group of dedicated golf players is willing to pay a high

premium.

Aircraft applications are also very important not just for military, but more and more

for commercial passenger jets. Particular lightweight structural materials like

aluminum-lithium or composites are most suitable, and manufacturers are willing to

pay a very high price per kg weight reduced.

Figure 2: Shifts in Performance Requirements leading to Demand for New Material

Sudden push(often through regulation)Price

Performance

Suppliers withexisting materialcannot respond

Customerswilling to payfor performanceimprovement

A

P1 P2

Only new materialmeeting the newperformance requirement

In many other cases, however, materials researchers look at critical performance levels to be

attained, without studying whether customers are really willing to pay a higher price, or

whether the price of the new material can be reduced below a critical level. They believe that

the market will support a new high-performance material at any price level. Potential

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customers, on the other hand, indicate that they are willing to try out the new material,

provided it does not cost more than the established material. In such a price-sensitive market

environment, illustrated by the left-hand configuration in Figure 3, it will be very difficult for a

firm to succeed in commercializing a new high-performance material.

The shaded zone on the right hand side in Fig. 3 represents the permissible area for

expansion. A new material pushes performance beyond a certain threshold level, and the

market is very demanding and insensitive to price. Customers are willing to pay a high

premium, which leads to an inducement for the innovator to invest in new materials R&D.

Such conditions, which only prevail in few extreme businesses like aerospace, for certain

types of sports equipment or for selected medical applications, certainly work in favor of a

new material. For this very reason, the innovator needs to explore the capacity of the market

to absorb high-price, high-end products.

Figure 3 Premium Prices are Critical for Commercializing New Materials

Price

Performance

Market deman-ding performanceimprovement,but at no higherprice

Working against new material

Price

Performance

Market deman-ding performanceimprovement, andcustomers willingto pay premium

Working in favour of new material

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2.3 Understanding the Dynamics of the Innovation Process for New Materials is Critical

The dynamics of the innovation process in advanced materials is critical and often not well

understood. Performance improvements must always be seen in conjunction with price, and

price-performance indicators must be assessed within a dynamic, not a static framework.

The development cycle for new materials is often very long; furthermore, high-performance

materials are often used for durable goods with a very long lifetime.6 The innovator must

reliably predict the appropriate price-performance ratio to be attained in the future;

furthermore, he will have to guarantee stable performance levels over the extended lifetime

of the equipment. During this extended period, other new materials may enter the scene,

while more traditional materials will continue to improve their price-performance

characteristics.7

Innovators of new materials need to find selected niches, in which they can demonstrate

advantageous price-performance ratios. Due to initial high costs of advanced materials

development, this requires to find a high-performance and high-value application, from which

the diffusion process can be kicked-off. Since the cost of payload in space application is

extremely high, spaceframe manufacturers were always among the first users of lightweight

materials which may be very expensive (in the range of 104 – 105 dollars per kg). The critical

question for such „exotic“ niche application is: can new materials, which are proven under

extreme conditions, be effectively transferred to other, more mundane markets? In other

terms: can we find commercial applications requiring similar performance characteristics, and

can prices be brought down to levels attractive for greater commercialization.8

Prices and costs of old vs. new materials must be seen from a dynamic and more holistic

perspective. Materials used for durable equipment such as aircraft, turbines, automobiles etc.

need to be evaluated from a total cost of ownership perspective.9 The cost of original

equipment parts is often only a small fraction of total costs over the full lifetime (including

6 Aircraft equipment is in service for 30 years or more. A new structural material needs to be reliable over the

full lifetime, and must be easy to maintain and service. This is often difficult to prove in advance, and has thus been an issue in the discussion of greater use of composite materials for commercial aircraft.

7 Especially in the automotive field, suppliers of plastics and composites were always underestimating the responsiveness and innovativeness of steel manufacturers.

8 The critical problem of space and defense applications of advanced materials is often, that they represent such unique requirements, that advanced materials suppliers cannot easily find other markets for more mundane products.

9 The total cost of ownership-concept (TCC) has been promoted by suppliers of systems with large service and maintenance content. As an example, computer manufacturers sell their equipment by arguing that total cost to the user (including maintenance, software and services) may be lower, even if the initial expenditure for the computer may be higher than for their competitor’s product.

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maintenance and spare parts).10 In such cases, the following criteria may be at least as

important or even more critical than purchase prices for materials and parts:

Can the supplier of a new material prove that a critical part has a sufficiently low risk of

failure, and that performance characteristics are stable over the lifetime of the

equipment?

Even in the case of an unexpected failure of the material: will this lead to great difficulty

and strain, or can a critical part be replaced or repaired at acceptable cost?11

Can suppliers prove that there is a sufficient life-cycle cost advantage for parts containing

a new material?

Taking these considerations into account, it becomes very difficult to introduce a new

material to a product or system with a long lifetime, and for which the risk of failure and the

ease and cost of maintenance is hard to prove ex-ante. If the total cost to the customer is a

multiple of the product value, suppliers need to get a very good understanding of life-cycle

cost determinants. In such cases, however, the life-cycle cost advantage is very difficult to

prove for a new material. This problem is the main barrier for greater use of advanced

materials in the automotive industry, which is characterized by product durability, price-

sensitivity, relatively high life-cycle costs and consumer awareness for reliability and

maintenance costs.12 In the energy sector, by contrast, bringing down life-cycle cost has

become a major driver of innovation, and this has resulted in a changing pattern of

innovation to be described in section 4.

These dynamic interactions between price-performance ratios of substitute materials, and a

better understanding of the interplay between economic and technical factors are at the core

of materials innovation. Improved understanding and modeling of the economics of advanced

materials should be a major concern for further research, as well as for engineering

education.13

10 Think of automotive brakes or black-box avionics equipment for aircraft, which are replaced in frequent

intervals. 11 A black-box, replaceable part is better suited as a new materials application than a critical part integral to the

whole structure (e.g. the core airframe of a passenger jet). Commercial aircraft manufacturers are more conservative with respect to new materials than manufacturers of fighter aircraft, simply because the latter provides an ejection seat, while failure of critical parts of passenger jets will have catastrophic effects.

12 Research on advanced materials use at the MIT Materials Research Center has concentrated on modeling the life-cycle cost of new materials, and has shown that this is the most critical issue for new materials in the transportation sector.

13 With the exception of MIT, there is no single university curriculum or research program which has yet addressed the economics of advanced materials.

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3. Advanced Materials in Gas Turbines

In the present section we focus on an area of application, in which materials technology

plays a crucial role with regard to the performance characteristics of the final product, i. e. a

gas turbine (GT). The two primary industry areas in which GTs are used are stationary

turbines for power generation and aero-engines. We begin this case study with a technical

introduction to GTs and a synopsis of the application of advanced materials in GTs.

3.1 Technical Introduction to Gas Turbines

From a technological point of view, GTs for stationary power generation and aero-engine

turbines operate according to the same principles and, thus, basically share the same

technologies. A simple GT is made of three main sections: a compressor, a combustor, and

a power turbine (see figure 4). The GT operates on the principle of the Brayton cycle.

Compressed air is mixed with fuel (e. g. natural gas) and burned under constant pressure

conditions. The resulting hot gas is allowed to expand through a turbine to create energy

(i. e. to perform work). In a GT with 33% efficiency, two thirds of this work are spent on

compressing the air, the rest is available for other work - mechanical drive. With aero-

engines, the mechanical drive is used to generate thrust. In stationary use in power plants

the mechanical drive is used for electricity generation. The efficiency level is the critical

performance characteristics, and GT manufactures aim at improving this performance

parameter.

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Figure 4 A Simple Gas Turbine Model

3.2 Advanced Materials in Gas Turbines for Power Plants

Conventional power plants consist of three key components, i. e. the gas and steam turbine,

the generator, and the instrumentation and control system. From a materials perspective, the

most critical component is the GT. GTs for power generation range in size from 30 kilowatts

(kW) to 250 megawatts (MW). Usually, GTs are classified in four basic categories by power

output: micro-turbines (30 to 100kW), small turbines (100kW-20MW), medium-sized turbines

(20-60MW) and large, utility-scale turbines (60-250MW). The majority of GTs used for power

generation ranges in size from 5 to 250MW (Zink 1998a, Watson 2004).

For a more efficient use of the energy input, several variations of a power generation unit

based on traditional GTs have been developed:

GTs with a heat exchanger recapture some of the energy in the exhaust gas to pre-heat

the air entering the combustor. This cycle is used on low pressure ratio turbines.

GTs with high pressure ratios use an intercooler to cool the air between stages of

compression, allowing to burn more fuel and generate more power.

GTs with a tandem-arranged steam turbine use the energy in the exhaust air to generate

steam. The exhaust heat from a GT is recovered and then fed back to a boiler and used

by a steam turbine to provide a second electricity-generating cycle. Power plants with

combined gas and steam turbine cycles (combined cycle plants) are most popular in

conventional power plants.

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With combined cycle power plants, thermal efficiencies of about 55-58% are being achieved

today. The latest power plant installations of GE and Siemens have pushed the efficiency

limit even beyond 60% (Sanford & Smith 2005). However, despite increased efficiency by

variations of the components used in power generation systems (advances in the overall

system design), the limiting factor of a more efficient use of energy (fuel) input is the

pressure and temperature of the hot gas created in the core section of the power generation

unit.

To increase the efficiency of a land-based GT, the turbine inlet temperature (or also referred

to as firing temperature) and the pressure ratio must be increased. However, with regard to

the pressure ratio and turbine inlet temperatures, limitations arise due to material properties

and cooling techniques. The increase in GT inlet temperatures thus requires advances in the

materials technology. With traditional metal-based materials, turbine manufacturers reached

the upper turbine inlet temperature limits, i. e. 1500-1600° F. To increase firing temperatures,

new metal- and ceramic-based materials have been developed for various sections of the

GT. Apart from limits of existing materials, a second problem is caused by the increase in

firing temperatures with regard to environmental performance. Higher firing temperatures

also lead to higher levels of emissions. Oxides of nitrogen (NOx) are the primary pollution of

concern for GTs fueled with natural gas (e. g. Bautista 1996, p. 46). To achieve the

conflicting goals of higher efficiency on the one hand, which requires higher firing

temperatures, and lower NOx emissions and reduced temperature stress on the other hand,

which in turn requires lower combustion temperatures, the gas-path cooling system in the

turbine has to be improved. Improved cooling techniques require more complex parts in the

turbine bladings. To build more complex parts for the bladings section of the GT (buckets

and nozzles, again major advancements in materials and materials casting technologies are

necessary. The functional diagram in figure 5 visualizes major relationships and conflicting

goals in achieving higher efficiency and reaching better environmental standards.

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Figure 5 Major Determinants of the Thermal Efficiency and Environmental

Performance of Gas Turbines

Thermal efficiency of gas turbine-based power generating systems

+

Environmental performance of

gas turbine-based power generating

systems-

Power system design, e.g.

combined cycle

Gas turbine efficiency

Higher turbine firing (inlet)

temperatures

Improved turbine design (blading

design)

NOx emissions

........

.......

+

+

+

-

+

Improved cooling tech-

niques

+

Advances in materials

technology

Thermal efficiency of gas turbine-based power generating systems

+

Environmental performance of

gas turbine-based power generating

systems-

Power system design, e.g.

combined cycle

Gas turbine efficiency

Higher turbine firing (inlet)

temperatures

Improved turbine design (blading

design)

NOx emissions

........

.......

+

+

+

-

+

Improved cooling tech-

niques

+

Advances in materials

technology

3.3 Materials Innovation in Stationary Gas Turbines

Improvements in turbine technology have reached the limits of currently available (metal-

based) materials. The reason is that thermal efficiency of a GT depends primarily on the

temperature of the gas entering the turbine bladings, i. e. the combustion temperature. In

theory, this temperature should be as high as possible, but in practice it is limited by the

potential heat damage concerning the turbine blades. For that reason, advances in materials

technology are the critical factor influencing potential efficiency increases in land-based GTs.

Historically, turbine inlet temperatures have improved with advanced materials (Bautista

1996, pp. 44-45). Figure 6 shows the evolution in materials technologies for land-based GTs.

Traditionally, turbine bladings were made of metal. The first bladings, built in the 1940sand

50s, were forged from austenitic nickel-chrome steels. In-vacuo melting and casting

increased the percentage content of the alloying elements and advanced the metal’s

strength. In the following decades, materials R&D has helped to further increase the turbine

inlet temperature. With conventionally cast blades, grain boundaries reduce the creep

strength of the metal, particularly when the boundaries traverse the direction of primary

stress. To avoid such boundaries, the so called directional solidification process (DS

processing) has been developed where the grain lines are essentially aligned parallel to the

blade axis (Czech et al., 1995). A further temperature increase can be achieved by using

blades with no grain boundaries, i. e. single-crystal materials (SC alloys).

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Figure 6 Stationary Gas Turbine Materials Development History

1200

1300

1400

1500

1600

1700

1800

1900

1950 1960 1970 1980 1990 2000

Land based turbine materials

SC alloys

DS improved alloys

First row bladealloy temperature

capability (F)

2000 Ceramics

DS processing

IN 792

IN 738

U700

U500

M262

N80A

N80

1200

1300

1400

1500

1600

1700

1800

1900

1950 1960 1970 1980 1990 2000

Land based turbine materials

SC alloys

DS improved alloys

First row bladealloy temperature

capability (F)

2000 Ceramics

DS processing

IN 792

IN 738

U700

U500

M262

N80A

N80

Source: Compiled by the authors; based on Schimoeller (1998), Zink (1996) and Valenti

(1994).

Single crystal nickel superalloys, common in today’s high temperature aircraft turbines, are

now working their way into hot-section component designs for land-based GTs. Usually, first-

and second-stage airfoils are made of single crystal materials, with subsequent stages

incorporating directionally solidified or equiaxed components. By eliminating grain

boundaries, SC technology offers superior creep and thermal fatigue characteristics. Single

crystal materials’ anisotropic mechanical properties also confer a high level of control in

turbine part manufacturing. Scale-up provides a significant challenge in transferring

knowledge on single crystal technology generated in the aircraft industry to manufacturers of

land-based turbines. To accommodate this scale-up, suppliers of airfoils have developed

improved casting methods to produce components at high yields, with an acceptably low

level of defects that can withstand the different thermal and mechanical stresses inherent to

the duty cycles of land-based turbines (Schimoeller 1998, pp. 16-24).

Metallurgy has helped in providing nickel-based alloys and single-crystal blades with higher

resistance to high temperature. However, with firing temperatures of over 1800° F, the upper

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limits of traditional metal applications in bladings were reached. One solution to overcome

this limit is the application of advanced ceramics (Hansen & Schmock, 1996). Advanced

ceramics offer a combination of properties that is often not available from other classes of

materials. These include electrical insulation, hardness, weight, chemical inertness and, most

important with regard to the use in GTs, thermal insulation and high temperature capabilities

(Technical Insights 1993). Thermal insulation refers to the fact that ceramics generally

insulate where metals and other materials conduct heat. High temperature capabilities refer

to the material performance at temperatures over and above those catered for by

superalloys. With extremely high temperatures, corrosion resistance becomes increasingly

important. Oxide-based advanced ceramics are inherently resistant to high temperature

oxidation.

Due to the superiority of oxide-based advanced ceramics with regard to thermal insulation

and high temperature capabilities, a number of components, including combustion liners,

blades, vanes and shrouds, are candidates for ceramic manufacturing. However, at their

current state of development, advanced ceramics are riskier than single crystal metal

materials. Long-term mechanical reliability is of critical importance to the use of ceramics, as

industrial GTs are expected to operate continuously for 25,000 hours or more between

overhauls. Ceramics development must accommodate the time-dependent processes such

as creep, slow crack growth, oxidation and cyclic fatigue, which contribute to a gradual

reduction in component strength. At their current state, advanced ceramics prove vulnerable

to mechanical and thermal stress. The latter refers to the stress that arises due to

temperature changes or temperature gradients. Rapid heating or cooling of a component,

such as may occur in a GT, causes high thermal stress sometimes referred to as thermal

shock. A direct result of thermal stress is the risk of fracture. Thermal stresses are also

important when advanced ceramics are joined to metals or other ceramics (Briggs 1995).

A basic problem of advanced ceramics refers to processing techniques. Producers have

difficulties in making reliable and reproducible parts, since ceramic materials cannot be cast

and require elaborated manufacturing methods to produce more intricate shapes. A major

drawback is also the non-existence of efficient, non-destructive methods for reliable product

testing. Hence, series production of turbine blades using ceramic materials is on a very infant

stage (Czech 1995, pp. 23-25; Bautista 1996, p. 45).

Although advanced ceramics have many potential advantages in turbine applications, it is not

(yet) feasible to produce a fully dense ceramic turbine and combustion chamber. An

alternative to the use of structural ceramic parts is the design and manufacture of metal-

19

ceramic bonds. Metal-ceramic bonds, so called thermal barrier coatings (TBC), were

developed for use in the combustion chamber (Beele et al. 1996). Metal surfaces would not

be able to withstand the inlet firing temperatures for very long without a TBC. These barriers

provide a critical insulating and protecting layer between the combustion gases and the metal

substrate. TBCs are made up of two layers: a ceramic topcoat that provides thermal

resistance, and a metal bond coat that provides oxidation resistance and bonds the top coat

to the metal surface. TBCs have a long, successful history in the aircraft industry and a

growing experience base in the power generation turbine industry.

Historically, TBCs have been applied to GT parts as a patch to extend component life-times

and to reduce cooling air requirements. To accommodate more extreme conditions in terms

of higher temperatures and thermal stresses, however, additional development beyond

current state-of the art TBC is required. TBCs will have to become an integral part of the

components - if the TBC fails, the component fails. Because of a thermal mismatch in

thermal expansion coefficients between the topcoat and the bondcoat, and because of the

bond coat’s ultimate susceptibility to oxidation, stresses build up at the topcoat/bond coat

interface (Czech et al. 1995, pp. 25). A possibility to circumvent these thermal obstacles

would be the use of all ceramic coatings.

To increase the efficiency of a GT by higher firing temperatures while at the same time

minimizing NOx emissions and thermal stress on materials in the hot sections of the turbine,

the gas-path cooling system has to be improved. The evolution of airfoil cooling technology

has accommodated higher turbine inlet temperatures. A major advance was the introduction

of closed loop cooling in the early turbine stages that enables the firing temperature to

increase without an increase in combustion temperature. Since external film cooling air is not

provided with closed-loop cooling, all cooling must take place on the internal surface. As

such, the external surface sees the full hot gas path temperature, resulting in a higher

thermal gradient through the wall. To reduce the thermal stresses that develop - and extend

component life - the outer wall is made thinner. Thin-wall airfoils will be used in the high-

temperature early turbine stages, while conventional thick-wall designs will make up the later

stages where temperature and heat transfer coefficients are lower. Closed-loop cooling of a

GE utility-scale turbine, for example, results in a nominal temperature drop across the first-

stage nozzle of 280F, compared with 80F for open-loop film cooling. This results in a 200° F

permissible increase in firing temperature, facilitating a higher efficiency, but with no increase

in combustion temperature, thereby limiting NOx formation.

20

Closed-loop cooling systems have first been introduced to large-scale utility GTs. Usually the

critical issue in producing hollow, thin-wall airfoils designed for closed-loop cooling systems

is the casting process. With the big nozzles of large utility airfoils, the casting process of thin-

wall airfoils was easier to control than with small- and medium-sized industrial GTs.

However, with developments in casting technologies, advanced cooling technologies are

also being evaluated for the industrial-sized GTs.

Materials processing technologies are of major importance and represent a core part of

ongoing development programs of the major manufacturers and component suppliers. With

metal parts, the dominating processing technology is investment casting. At present, two

critical areas with ongoing development efforts can be identified:

Single Crystal Processing and Casting Technologies: To produce large single crystal

parts for the turbine bladings, sophisticated investment casting methods have to be

developed. The critical issue is to produce components at high yields, with an acceptably

low level of defects that can withstand the different thermal and mechanical stresses

inherent to the duty cycles of land-based turbines.

Advanced Cooling Systems and Casting Technologies: Enhanced casting techniques are

necessary to accommodate the cooling technology advances and optimized flow

patterns. Airfoil wall thickness deviations must be minimized, closed-loop cooling

passages must be fabricated to tight tolerance levels and airfoil contours must match

those developed through aerodynamic analyses. Key innovation areas include the alloy

melt practice; the alloy sulfur content and casting process development.

For future increases in turbine efficiency, ceramic materials will be used for the structural

parts, i. e. the turbine bladings. However, the major bottleneck with ceramic parts is the

development of processing technologies that allow for a reliable production of high-quality

components at reasonable prices. As one expert put it: „With ceramic turbine parts we have

encountered a ‘we can design but we cannot build economically and reliably’-dilemma.“

4 Changing Relationship between Stationary Gas Turbines and Aero-engines

4.1 End of the Traditional Pattern: Aero-derivative Technologies

From a technological point of view, turbines for stationary power generation and turbine

technology for aircraft applications operate according to the same principles and, thus,

basically share the same technologies. Traditionally, the development of GTs has been

strongly influenced by the development of GTs for military (fighter aircraft as well as naval

frigates) and civil aircraft applications (Watson 2004). In fact, technologies that were created

21

to serve the military market have, over the intervening decades, filtered down to the

commercial jet engine and industrial GT markets. Until the beginning of the 1990s, aero-

derivate technology capitalized on extensive R&D investments in (military) aircraft turbines,

as well as their production volumes.

Aero-engine technology has become transferred to the land-based turbine sector in

miscellaneous ways. In the area of small and medium-sized stationary turbines,

manufactures usually used turbine platforms that were first designed as aircraft engines and

then slightly modified the products for stationary operation. These aero-derivative GTs are

very similar to aircraft engine turbines as they are built on the same platform and share most

of the components. Developments in jet engine technology paved the way for diffusion of

products to the small stationary GT market (Donne 1998, p. III). The first aero-derivative

engines were brought to the market in the 1950s. Pratt & Whitney developed the first

industrial aero-derivative GT, the FT4, derived from the jet engine used on the Boeing 707

commercial jetliner and US Air Force KC-135 in 1959.

For a long time, the technological affinity and the lead of the aircraft turbine sector had

severe implications for innovation and shaped competition and product strategies in the

market. Traditionally, manufacturers of aero-derivative turbines, like Allison Engine, Rolls

Royce, and Pratt & Whitney, were rooted in the aircraft turbine business, and then later-on

diversified into land-based turbine production. Others, like GE, were rooted both in the

stationary and aircraft turbine business. In turn, competitors originating from the land-based

turbine sector have tried to access aircraft turbine technologies.

Traditionally, aero-engine manufacturers in the U. S. and Europe have led the development

in advanced turbine materials. European and U. S. governments have funded materials R&D

in the military turbine field. Aero-engine firms, like GE, Rolls-Royce, MTU, UTC (Pratt &

Whitney) and Allied Signal were driving the innovation process of equiaxed and directly

solidified metals, single crystal materials, and composites, like metal-ceramic bonds

(Chambers 1997, p. 6). To take advantage of spill-over effects, industrial turbine firms like

Siemens, ABB, Mitsubishi Electric and Toshiba have sought R&D cooperation with

manufacturers of aircraft turbines.

However, the use of aircraft turbine platforms for stationary GTs is limited due to constraints

in size and weight resulting from their original use in aero-engines. As a consequence, aero-

derivative turbines are limited in the maximum power output (Bautista 1996, p. 44). Aero-

derivate platforms are confined to small- and medium-sized GTs. With large industrial GTs

22

that are designed specifically for stationary applications in power generation and have to

meet different requirements, diffusion of technology has taken a different course.

Manufacturers only have adopted selected key technologies from the aero-engine sector that

proved to be applicable for stationary GTs. Aero-derivate key technologies for large industrial

turbines include (Kuehn 1995; Bautista 1996):

Blading design principles and efficient computational aerodynamic codes: The use of

efficient aerodynamic codes, originally developed in the defense sector, is probably the

biggest contributor to industrial GT advancements and is responsible for considerable

performance gains. Manufacturers take advantage of advances in computer-aided

design, finite element analysis and desktop computing power to design and analyze

blade configuration and other GT-related technologies.14

Temperature resistant materials and processes: Traditionally, advances in materials

technology originated in the defense-related aero-engine sector. Equiaxed, directly

solidified and single crystal turbine bladings materials as well as advanced coatings in

other hot sections of the turbine originally were all developed for aircraft turbines and

later on transferred to the land-based turbine sector with a time-lag of up to 15 years.

Although many technologies could be transferred to large industrial turbines, different design

principles lead to significant adaption and alteration. Since large industrial turbines were

never intended to power aircraft, weight and aerodynamic drag are not constraints. Large

industrial turbines are usually designed with heavy compressor and turbine blades, turbine

buckets, and turbine nozzles and are housed in rugged casings and frames. Furthermore,

large land-based GTs often have three or four times the size of large jet engines. These

differences in design have imposed restrictions on the adaption of aircraft materials and

bladings design technology. Especially the scale-up has posed a significant challenge in

transferring more advanced aircraft materials technologies to large land-based turbines. The

fabrication of much larger equiaxed, directly solidified or single crystal airfoil parts and

components, i.e. buckets, nozzles and guide vanes, for large industrial turbines required

considerable development efforts with regard to metallurgical, mechanical and dimensional

materials properties as well as casting technologies. The largest single crystal complex-

cooled component for a military engine was approximately 10 inches long and weigh 2

pounds; land-based turbines require components 2 to 3 times longer and are ten times

heavier. In a number of cases, the restrictions in casting technologies have forced

manufacturers and suppliers to change blading design. In the case of single crystal

14 Manufacturers of large stationary GTs were enabled to design three dimensional blade profiles with the help of

computer aided design technology originally developed and used in the military aircraft sector (Kuehn, 1995, pp. 25-28; Bautista 1996, p. 44).

23

materials, turbine bladings for aircraft turbines are cast as an integral piece, whereas large

industrial turbine bladings are composed of several single cast parts.

Differences between land-based GTs and aircraft turbines also exist in the operating profiles.

Operating profiles of industrial GTs are long, less cyclic, with fewer transients compared with

those for aircraft GT engines. Therefore, creep, rather than thermal fatigue is the primary life-

limiting mechanism for hot-section materials. In addition, the industrial GT operates in a

harsher, less forgiving environment than an aero-engine because of the potential presence of

the contaminants continuously ingested from the engine surroundings (Marcin & Rawlins

1998, p. 31). These differences in the operating principles in some cases have led to

different technology development paths. E.g., to accommodate the extreme temperature

conditions in land-based gas-turbines, developments in the cooling system design have been

exclusively realized in the stationary turbine sector. With large industrial GTs, closed loop-

cooling systems have been introduced to the market, whereas in the aircraft turbine sector

external active cooling techniques prevail.

In a growing number of cases, in which the extreme operating profiles in stationary GT

applications have led to advances in materials and processes technologies, transfer of

technology has become a two-way street: In the field of thermal barrier coatings R&D work

from the land-based turbine side has made its way back into aircraft engines. General

Electric has applied thermal barrier coatings, originally developed for land-based, utility-scale

turbines, to aircraft engines (Kuehn 1995, p. 25). To accommodate the extreme GT

conditions, additional development beyond current state-of the art TBC was required.

Figure 7 provides a comparative overview of the history of materials development in the large

land-based and aircraft turbine sector. In the 1970s and 1980s, the time-lag of GT

technologies in some of the critical areas of technology was up to 15 years. However, as

visualized in this figure, the gap in materials technology has abated in the 1990s. With the

introduction of advanced ceramics in early 2000, the performance of genuine landbased

turbine materials has even surpassed the performance of aero-engine materials (with regard

to the first row blade alloy temperature capability).

24

Figure 7 Aircraft and Land-based Turbine Materials Development History

1200

1300

1400

1500

1600

1700

1800

1900

1950 1960 1970 1980 1990 2000

Land based turbine materials

SC alloys

DS improved alloys

First row bladealloy temperature

capability (F)

2000 Ceramics

DS processing

IN 792

IN 738

U700

U500

M262

N80AN80

S-816

N-115

2nd. & 3rd. Gen. SC

1st. Gen. SC

DS alloys

IN-100

IN-713

Aircraft turbine materials

1200

1300

1400

1500

1600

1700

1800

1900

1950 1960 1970 1980 1990 2000

Land based turbine materials

SC alloys

DS improved alloys

First row bladealloy temperature

capability (F)

2000 Ceramics

DS processing

IN 792

IN 738

U700

U500

M262

N80AN80

S-816

N-115

2nd. & 3rd. Gen. SC

1st. Gen. SC

DS alloys

IN-100

IN-713

Aircraft turbine materials

Source: Compiled by the authors, based on Schimmoller (1998) and Kuehn (1995).

Technical idiosyncrasies of large land-based GTs served, from a technical perspective, as

starting point from which a number of pertinent changes have led to this phenomenon of

reversed diffusion. Over the last two decades, these pertinent changes have stimulated

technological progress in the field of land-based GT. Technological progress primarily

resulted in efficiency increases and emissions reductions. Efforts to increase GT efficiency

and reduce emission levels have posed requirements on the materials that exceeded the

performance properties of aero-derivate materials. In the fields of advanced ceramics and

metal casting technologies (due to the need for scale-up of the parts) stationary turbine

industry is now in the innovation lead.

An important reason for the inversion of knowledge flows is, of course, that defense budgets

have been cut in most OECD countries in the “post-cold war world” since the 1990s. Many

advancements in turbine materials resulted from technology developed through publicly

sponsored military and space R&D programs. The cut in defense budgets thus led to a

decline in research efforts. The rate of technological progress in materials used for land-

based GTs exceeded the rate of technological progress in aero-engine materials. Besides

25

the cut of public spending, some other economic and regulatory changes stimulated

innovation in the land-based sector and led to the reversal of knowledge flows. These

changes will be analyzed in the subsequent sections.

4.2 Price-Performance Improvements of Power Plants as Trigger of Materials Innovation in Stationary GTs

GT-based power generating systems compete with a variety of different power generating

technologies, among others hydro-based power generation, other conventional fossil-fueled

and nuclear power generating systems. In the field of conventional fossil fueled power

generation systems, the closest substitutes to natural gas-fueled power plants include coal

and oil-fired power plants that are based on steam turbines. The outlook for GTs is very

promising after a depression lasting from the 1980s until the early 1990s. During the past two

decades the market coverage of stationary GTs in power generation has been rising steadily

(Dodman 1997, p. 51). By the end of the 1990s, GTs have become the dominant power

generation technology in the U. S. It is expected, that at least half of all new power

generating capacity to be added between 2002 and 2010 in the U. S. is likely to use GTs

(DOE 2002). Similar figures are available for Europe. Worldwide, about 35% of the currently

installed power plants are based on GT technology.

The growing popularity of GT-based power generation systems can be attributed to several

factors:

Increasing availability of natural gas and optimistic price outlooks: The deregulation and

restructuring of the natural gas industry in the U.S. and the growing export orientation

and privatization of former Soviet Union-based gas companies has contributed to

significant declines in natural gas prices for large customers such as electric power

generators.

Thermal efficiency of GTs: The introduction of combined-cycle systems and advances in

turbine design and materials technology have contributed to a significant increase in the

thermal efficiency of GTs. Combined cycle efficiencies based on commercially available

technology outmatch alternative power generating technologies.

Versatility in use: The big spectrum of GTs in terms of power output provides the power

generation industry with the flexibility necessary to operate efficiently with a balanced

mixture of centralized bulk power and decentralized power. GT-based power plants can

be designed to meet base-, intermediate- and peak-load requirements. This versatility in

use makes GT technology a preferred mode of power generation as it complies with need

26

of power generators for more flexibility.

Short lead time for construction: Compared with other conventional and nuclear power

plants, the construction time of GT power plants is very short (Watson 2004). Even with

large combined-cycle plants, construction lead time rarely exceeds 20 months;

Proven reliability and availability: GT technology that is in use today has a proven record

of reliability and guarantees plant operators a lasting availability with little downtime.

Low capital and operating costs: Capital and operating costs (excluding fuel) of a GT

power plant are estimated at half of that for comparable fossil-fueled power plants

(Watson 2004).

These different factors can be attributed to a broader aspect that can be summarized under

the header of the superior price-performance ratio of GT systems. Under life-cycle cost

considerations, investors often tend to prefer GT-based power generation systems.

Investment decisions in the power generation industry are based on total life cycle cost

calculations (total cost of ownership). Total life cycle calculations take into account all direct

and indirect costs (per kW) that will incur during the life cycle of a power plant. Apart from the

initial investment costs and total estimated fuel costs, operating costs, maintenance costs

and plant availability are of particular importance. In order to attain reductions in total life

cycle costs, advanced materials used in GTs play a very critical role. Apart from the influence

on thermal efficiency and fuel consumption, new materials used in GTs also influence costs

associated with outages. GT outages are primarily caused by wear out phenomena. GTs

wear out in different ways according to their service duties. E. g., thermal mechanical fatigue

is the dominant limiter of life for peaking turbines, while for continuous duty machines it is

creep, oxidation and corrosion. It thus follows that the life of critical turbine components in the

sections that are exposed to high temperatures is to a large extent determined by the

properties and quality of the materials used. Advanced but proven materials technology is

thus a crucial factor that influences the total life cycle costs of a GT. Consequently, the

reduction of total life cycle costs has been a major stimulus of materials innovation in the

industry. Figure 8 summarizes the major determinants of total life cycle costs.

27

Figure 8 Investment decision and life cycle cost considerations

Initial investment costs

Estimated maintenance & operation costs

Estimated fuel costs.....

.....

Gas turbine efficiency, reliability & availability

-

-

+

Life cycle cost considerations

Investment decision

Materials technology

Initial investment costs

Estimated maintenance & operation costs

Estimated fuel costs.....

.....

Gas turbine efficiency, reliability & availability

-

-

+

Life cycle cost considerations

Investment decision

Investment decision

Materials technology

4.3 Regulatory Changes as Trigger of Materials Innovation in Stationary GTs

During the last decade, the electricity supply power generation industry has been reshaped

by significant regulatory changes both in the OECD and in developing countries (Magnusson

et al. 2005). Liberalization and privatization of the electricity supply industry led to the

encouragement of new entrants to challenge the former large public utilities (Watson 2004).

The U. S. have been among the first countries to deregulate electricity markets. Stimulated

by the Public Utilities Regulatory Policies Act of 1978 (PURPA) and the Energy Policy Act of

1992 (EPACT), the traditionally stable U.S. electric power generating industry has given way

to a highly competitive one. Deregulation has created a market for non-utility power

generators as new opportunities for distributed generation and cogeneration arose. Non-

utility customers comprise private investors - so called independent power producers (IPPs,)

- and industrial cogenerators, mainly from energy intensive industries. IPPs compete with

large traditional central power generation plants by operating small-scale, low-cost power

generation plants that are located near their customers, such as industrial parks and large

buildings. Both, IPPs and industrial cogenerators enter the market of power generation under

profitable investment considerations. For these non-utility customers, life-cycle cost

considerations become essential, as they put a consequent focus on profitability. Today,

non-utility power generators account for more than the half of all U. S. power capacity

additions. Similar trends, with a time lag between five and ten years can be identified in

Europe, above all in the United Kingdom and to a growing extent in Germany.

From a demand-side perspective these non-utility customers are a major factor behind the

recent rise in demand for GTs. Non-utility power producers often choose GT systems

because they are easier to site and quicker to develop than similar-sized coal or oil power

28

plants. Overall, the post-privatization financial climate gave strong incentives for power

companies to choose GT technology for new power plants.

Demand for GT-based technology has also been stimulated by environmental regulation in

the OECD countries. More stringent air quality regulations, including the United States Clean

Air Act Amendments of 1990 and the EU Large Combustion Plant / National Emissions

Ceilings Directive favor GTs over traditional fossil-fueled (petroleum or coal) steam turbines

(Bautista 1996). In most OECD countries national ambient air quality standards set limits on

the maximum allowable ambient concentrations of major NOx and other pollutants, for new

units and on major existing emission sources. Compared to other fossil fuel technologies GT

emissions are considerably lower. A typical combined cycle GT turbine systems emits

around 65% less carbon dioxide than a traditional coalfired power plant for each unit of

electricity generated, almost no sulphur dioxide and relatively small quantities of NOx

(Watson 2004). The superiority in NOx emissions was mainly achieved through advances in

materials technologies.

4.4 Competition amongst Manufactures: The Race for Efficiency

Historically, the market for GTs was dominated by a few large power plant system

manufacturers (Ghemawat & McGahan 1998). Among the dominant players were Alstom,

GE, Mitsubishi, Rolls Royce, Siemens and Westinghouse. ABB entered the market in 1988.

A number of smaller manufacturers, like Allison Engines, Kawasaki, Pratt&Whittney and

Solar Turbines occupied market niches. The oligopolistic market structure promoted a

peaceful coexistence of the main „competitors“. In the pre-deregulation era, nationalized

and/or monopoly electric utilities would by equipment from national manufactures on the

basis of long-term user-producer relationships (Magnusson et al. 2005, p. 11). Pricing of GTs

and power plants was influenced by meetings among representatives of the main

manufacturers to negotiate the terms of forthcoming bids, and the competitors were familiar

with each other in the sense that they had decades of experience competing with each other

in the turbine market and for several other electrical products (Ghemawat & McGahan 1998).

However, by the end of the 1980s the situation began to change. The growing competitive

pressures from the demand side and the need for substantial R&D expenditures to keep up

with competitors GT designs led to a fundamental restructuring and consolidation in the

industry (Magnusson et al. 2005). Some of the latest milestones in a sequence of increasing

concentration in the GT market include the

acquisition of the power generation division of Westinghouse by Siemens in 1997;

acquisition of Allison Engine Company by Rolls Royce in 1995;

29

acquisition of ABB’s large-scale power generation business by Alstom in 1999;

acquisition of ABB’s small- and medium-sized GT operations by Siemens in 2003.

This consolidation has resulted in just four major players in the industry that dominate the

market for large GTs and combined cycle GTs: GE, Siemens, Alstom and Mitsubishi

(Magnusson et al. 2005, p. 11). These big players in the GT field are also incumbent firms in

the supply of integrated systems, i. e. turnkey power plants.

The increasing complexity in the design and manufacturing of GT parts, like turbine bladings

and control units, has led to the establishment of specialized suppliers of individual power

generation components. In the field of advanced materials, Howmet Castings, a business

unit of Alcoa Inc., and Precision Cast Parts are the leading supplier of precision cast blades,

rotors and other turbine parts. Within their materials domain these suppliers have developed

advanced processing technologies and have helped the big players to overcome in the ‘we

can design but we cannot build economically and reliably’-dilemma.

Since the beginning of the 1990s, the top four manufacturers have tried to outperform one

another and continuously increased the thermal efficiency of combined cycle power plants. A

list of the most advanced models of large, heavy duty GTs of the three manufacturers is

compiled in table 1. It reflects the present level of technical progress. GE was the first

company that reached the 60% level with the market introduction of the H-model combined-

cycle GT in 2002. With the introduction of the SGT5-8000H model Siemens got ahead of GE

and crossed the 60% level. Within 15 years competitors pushed the efficiency limit by almost

8% from 52,4 % to more than 60%. To a large extent, the efficiency increase was achieved

by advances in materials and processing technologies. Further advancements in materials

technology, especially with the use of structural ceramic parts in GT bladings, will help to

push the limits further and to come close to the final limit of around 70% thermal efficiency.

30

Table 1 Race for Turbine Efficiency in the 1990-2005 period

Model NameTurbine

Inlet Tem-perature

Combined Cycle

Efficiency

NOx (simple cycle)

MW (Combined

Cycle)

Turbine Bladings Materials

Year of Market

Introduction

Siemens-Westinghouse* SGT5-8000H N.A. >60.0 N.A. 530 SC, TBC 2005

GE Power Systems GE 107H2 2,600 F 60.0 N.A. 520 SC, TBC 2005

GE Power Systems GE 107H1 2,600 F 60.0 N.A. 480 SC, TBC 2002

ABB Power Generation GT26 2,300 F 58.5 25 387 DS 1996/1998

Siemens KWU V94.3A N.A. 58.0 9 380 SC 1997

GE Power Systems MS9001G 2,600 F 58.0 N.A. 420 SC 1997

GE Power Systems MS9001FA 2,350 F 56.3 N.A. 376.2 SC 1996

Westinghouse 701F 2,460 F 56.1 25 356 DS 1994

GE Power Systems MS7001FA 2,350 F 55.9 N.A. 259.7 DS 1993

Westinghouse 501F 2,350 F 55.2 25 168 DS 1992

Siemens KWU V64.3A 2,200 F 52.4 9 135 DS 1990

The SGT5-8000H is the first new frame developed after the merger of Siemens and Westinghouse

5. Reverse Knowledge Transfer and Innovation Policy

The race for higher efficiency and lower emission has also been supported by publicly

sponsored research projects. Historically, turbine technology developed for defense

applications has trickled down to land-based, civilian engines. Many of the advancements in

the private, stationary turbine sector resulted from technology developed through publicly

sponsored military and space R&D programs. In the past, direct government funding for

civilian stationary turbine development has been minimal. The overwhelming majority of

public research efforts focused upon aero-engine turbines in the priority fields such as

aeronautical materials technology. The rationale of the exclusive funding of aero-engine R&D

was rooted in the assumption, that aerospace technology will diffuse to other sectors and,

likewise, will benefit stationary GTs in the long run.

However, governments in OECD countries have realized that not all developments in the

aero-engine sector are transferable to stationary gas-turbine applications. E. g., R&D

projects with focus on weight saving materials are of limited benefits for stationary turbine

systems. Furthermore, as conventional materials technologies and design principles of GTs

reach their limits, the technical and economic risks involved in the next generation of

advanced turbine systems will be much greater than in the past (DOE 1997, p. 89). In the

beginning of the 1990s, both perceptions have led to the establishment of public funded

research programs in several OECD countries. In the U. S., the Advanced Turbine Systems

(ATS) program was an eight-year effort (1992-2000) to develop cleaner, cheaper and more

efficient GT systems for both utility and industrial electric power generation (Richerson 1997,

p. 80). The program was jointly funded by industry and the U. S. Department of Energy

(DOE). The DOE offices fund the industry research, development and demonstration efforts

31

on a cost shared and cooperative basis with industry partners. The ATS program covers all

major competitors in the U. S. GT industry. The total cost of the program is $700 million with

a cost share of $450 million by industry. In Germany, public sponsored research efforts in the

field of advanced materials for GT applications are organized through the „New Materials for

Key Technologies of the 21st Century (MaTech)“ program of the German Federal Ministry for

Education, Science Research and Technology (BMBF). The program put a focus on the

development of metals, ceramic materials, composites and related processing technologies

with the overall goal to increase the efficiency of stationary GTs (NMT 1998, p. 60). The

program was initiated in 1994 with a duration of 10 years. The BMBF funding was up to 50 %

of the total eligible project costs. Public funding summed up to approximately $60 million

(NMT 1998).

A greater percentage of public R&D funds in most OECD countries is being directed towards

increasing the international competitiveness of national firms, research in information

technology, life sciences and environmental protection. Defense-oriented R&D, by contrast,

has become reduced in its influence on the innovation process. In a similar way, private

business R&D investments have concentrated on IT and software, pharmaceuticals and

biotechnology, as well as on new services, while the aerospace sector is no longer among

the leading R&D spenders. As a result, the most sophisticated technology and new

knowledge is generated in dynamic business environments characterized by extreme

performance requirements. The military sector and the aerospace industry is no longer the

“breeding ground” of new technology, as was the case before 1990. Non-military applications

and more dynamic industries and service sectors set the pace and influence the early

generation of new knowledge. In more and more cases, technologies, new product concepts

and systems solutions that were originally introduced in commercial markets, are later

applied and adapted for military applications and in the aerospace industry. From an

important generator of new knowledge, the defense sector as well as the aerospace industry,

have somewhat become more a user of knowledge and technologies originally developed

elsewhere. This will lead to changing priorities and new concepts of managing innovation in

the military sector, emphasizing more the intelligent use and smart systems configurations,

as opposed to a research mission and technology-push type concept.

32

Figure 9: Change in Lead Applications: Inversion of Knowledge Flows

in the Turbine Industry

Inversion of Knowledge Flows

Race for More Turbine

Efficiency

Public Sponsored R&D Programs for Stationary Turbines

Environmental Regulation

Superior Price/Per-formance Ratio of GT-Power Plants

Increases in Competition

Decline in R&D efforts

Acceleration of Technical Progress in the Stationary Turbine Materials Field

Slow Down of Technical Progress in the Aero-Engines Materials Field

Reduction of Defense Budgets

Reduction of Military Spending

….Lack of Lead

Applications for Aero-engine Materials

Inversion of Knowledge Flows

Race for More Turbine

Efficiency

Public Sponsored R&D Programs for Stationary Turbines

Environmental Regulation

Superior Price/Per-formance Ratio of GT-Power Plants

Increases in Competition

Decline in R&D efforts

Acceleration of Technical Progress in the Stationary Turbine Materials Field

Slow Down of Technical Progress in the Aero-Engines Materials Field

Reduction of Defense Budgets

Reduction of Military Spending

….Lack of Lead

Applications for Aero-engine Materials

33

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