By Rod Walton and Kelvin Ross
The energy transition is many things. One of those, honestly, is a corporate journey.
Many of the power generation sector’s biggest companies are making big moves, big bets, big hedges as they figure out Destination 2050 is really going to look like. Will renewables dominate? Will gas-fired turbines still lead the generation mix? Will hydrogen ever really happen?
Multi-sector energy giant Siemens is certainly one of those majors which are honing their business plans to be nimble and adaptive. This year it has spun off its power generation equipment and services units into Siemens Energy.
“I’m a big fan of transformation,” said Christian Bruch, who has come over from Linde to be the new chief executive of the newly-formed Siemens Energy. “We have a great portfolio [but] were not satisfied with the financial performance.”
Bruch spoke with industry media writers in advance of today’s Capital Market Day with investors. He talked about everything from the future of hydrogen in Siemens gas turbines to wind energy, transmission and, not least of which, natural gas as a transitional leader.
Siemens Energy includes the longtime company’s turbine unit business, long-term service, the Siemens Gamesa wind energy joint venture and T&D technologies. The newest and shiniest rotating equipment is always attention-getting, but long-term relationships and research are where the growth may be.
“Forty per cent of revenue today is in the service business,” Bruch said. “It’s great to bring [new] turbines inà¢€¦ but we are trying to convert this into long-term service contracts.”
Siemens also is eager to push significant research and development into all kinds of new resources, such as experimenting with hydrogen, scaling up electrolysis capacity needed to produce the H2 in ample quantity, protecting smart grids with state-of-the-art controls and making conventional generation resources more sustainable and efficient.
The company is allocating about €1bn ($1.2bn) to research annually with 5000 R&D employees spread across 15 centres globally. The key to success in research is finding like-minded help.
“What we’ve got to focus on is looking toward co-creation with partners,” Bruch said. “Right now less than five per cent of our R&D spend comes from the outside. I want to see this go up.”
Some of those joint ventures include work into raising the percentage of hydrogen in gas-fired turbines. Hydrogen does not have a carbon atom so it could be key to decarbonization of the turbine mix.
However, this has been talked about for a while and provides plenty of logistical challenges. Siemens is investing money in ‘green’ hydrogen (in which the electrolysis is powered by clean energy resources like wind or solar) but it must be patient in a long, slow, deliberate march.
“We strongly believe in the future it will be the pillar of the energy industryà¢€¦but it will be in the future,” Bruch told the trade journalists. “This business will only be successful if we get costs down, which I believe is possible.”
The key goal is decarbonizing the generation sector, so it matters less how you get there. For one thing, Bruch cautioned that no one should write off the importance of natural gas-fired contributions for the distant future.
“Conventional technologies like natural gas will be required going forward, no question,” he said. “The industry has not been vocal enough on what’s needed to get through the energy transition, what’s needed to get us to a more sustainable world.”
It’s not cut and dried, not solely one way or the other.
“Everything renewable is good, everything conventional is bad,” he recited familiar motifs of the energy transition. “This is not a black and white situation.”
Gas-fired turbines and technologies are going to remain huge for Siemens, despite recent years of declines in financial gains on that part of the business. The company’s global backlog for new units is €31bn ($37bn) and close to $56bn for the service order backlog.
He sees long-term potential for growth in a variety of power generation fronts. Some forecasts indicate that global demand for electricity will grow 50 per cent by 2040, and connections are finally made to hundreds of millions of people who currently live without power.
The key question?
“How do we serve a growing demand for electricity with the challenges of climate change?” Bruch offered.
At today’s virtual capital market day, Siemens AG boss Joe Kaeser said the spin-off “is a key milestone in implementing our Vision 2020+ strategic concept. We create an independent leader in the energy business with a strong brand and the most comprehensive offering in the energy sector.”
He said Siemens Energy was “best equipped to lead the global energy transformation in a sustainable and economically feasible way” and added that the new Siemens AG “in turn will become a transparent and significantly de-risked company”.
“With its core businesses Digital Industries, Smart Infrastructure and Mobility, it will play a significant role in shaping the industrial digitalization, called Industry 4.0.”
The capital market day heard that Siemens Energy is aiming for accelerated profitable growth, with its management aiming to achieve an Adjusted EBITA margin before Special Items of 6.5-8.5 per cent for the 2023 financial year.
Burch said at the market day: “Siemens Energy is a mirror of today’s energy world. Our comprehensive and diversified products, solutions and services enable us to meet the world’s increasing energy demand while at the same time supporting efforts to reduce greenhouse gases. This puts us in an ideal position to support our customers with the energy transition.”
He reiterated that the rising demand for energy needs to be met in an environmentally-friendly way ” sustainable, affordable and reliable. Nevertheless, he stressed that the transformation of the energy market starts from various points and proceeds at different speeds. It depends on individual countries’ economic development and political agendas, as well as their access to energy sources.
“The challenge our customers face is to convert their installations to a more sustainable setup. But we also need to face the fact that this transformation will not happen overnight. There are still over 850 million people worldwide without access to electricity. So the question is how to bridge into an affordable, reliable and sustainable power supply.”
“What we therefore need,” Bruch added, “is the courage to find interim solutions that make us better today, based on available technologies, such as increased efficiency or the use of clean fuels”.
“At the same time, we must continue to use innovative technologies to ensure that we do not get stuck in intermediate solutions. Siemens Energy is the right partner to address all of these challenges.”
Rod Walton is Clarion Energy Content Director.