Power Companies Realign Business Priorities as Grid Composition Changes
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- Dec 26, 2019 5:21 pm GMT
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As the composition of the power grid changes globally, major players within the transmission and distribution sector are redefining their business priorities and staking out their positions in the new grid.
The General Electric Company (GE) was forced to write down $22 billion, much of it related to its power unit, last year. The company began a restructuring initiative last year for its power unit. During the latest earnings call, it reported an increase of 3% in its revenues for the unit even though orders were down by 1%. H. Lawrence Culp Jr., GE CEO, said the company was “right-sizing” its power unit for market realities. GE’s gas-fired turbines are the core product in its Power business unit segment. But the rise of solar and wind have affected its order pipeline.
According to data from McCoy Power Reports, an industry research firm, there has been an industry-wide decline in orders for conventional gas-fired turbines since 2011. Forecast International, another research firm, predicts that the slump in demand and soft prices is expected to continue into the early 2020s. “It will probably be 2022 before annual increases in installed capacity equal those of 2018, which represented a substantial reduction over the years,” the firm wrote last year.
In the meantime, demand for more efficient turbines that can wring out more electricity per unit of fuel has increased. Such turbines deliver power of 100MW or more. The average output of a power generating gas turbine in 2018 was 110 MW. By 2027, it is expected to climb up to 116.5 MW.
Mitsubishi Hitachi Power Systems (MHPS) has stolen a march over GE in this segment, winning 41 percent of orders for high output turbines. GE is a distant second with a 28 percent share and Siemens ranks third with a 21 percent share. But the Boston-based company leads the overall market for turbines with a 33 percent share followed by MHPS with a 31 percent share.
German conglomerate Siemens is witnessing a similar realignment in its business. The Munich-based company’s profits from its gas turbine business last year fell by a whopping 75 percent due to a slowdown in orders for its turbines. In May this year, it announced a separation of the Gas and Power division as a standalone company. The same division is planned to be listed publicly by September 2020. Meanwhile, the remaining portion of its power division will focus on smart cities through its Digital Industries and Smart Infrastructure business. The idea behind the split, according to chief executive Joe Kaeser, is to ensure that the new company wouldn’t have to compete with its own smart infrastructure division.
Hitachi, the other big player in the transmission and distribution sector, is doubling down on the grid. It purchased ABB’s grid business for $11 billion last December. ABB manufactures transformers, long distance electricity-transmission systems and energy storage units. The acquisition is part of Hitachi’s move away from nuclear power, a form of energy that has come into disfavor after the Fukushima disaster in 2011, towards a more lucrative networks business, it estimates will net $100 billion by 2020. That figure is predicated on growth in the electric cars, storage batteries and renewable energy businesses. The Japanese company also has a partnership with GE to build nuclear reactors. However, that business is not doing well. It reported a decline in revenues and profits during the latest quarter. Mitsuaki Nishiyama, senior vice president at Hitachi, told analysts that business was “worse than expected” in its energy segment mainly due to de-provisioning of nuclear plants.