Euan Blauvelt, ABS Energy & Power, United Kingdom
The world market for power distribution transformers is worth $16 billion. Driven largely by three regions, new growth markets are emerging and rapid growth is forecast for the replacement business.
In 2000, $16 billion worth of high voltage (HV) power and distribution transformers will be sold and purchased throughout the world. Eighty per cent will be manufactured in Western Europe, North America or Asia and 78 per cent will be bought in those same regions.
The world market is driven by these three regions. They make the bulk of the equipment, consume most of it and supply the rest of the world. The global trade in HV transformers is 17 per cent of production.
Figure 1. Production, intra- and extra-regional exports
Asia constitutes the largest market in the world, worth $6.4 billion with $6.2 billion of manufacturing, and net imports of $0.2 billion. China is the largest player in the world, and at $3.5 billion is 27 per cent larger than the second largest, the USA. Japan is the third largest producer and consumer, the largest exporter and a net exporter. Although much smaller in scale, India is the only other net exporter of power and distribution transformers in Asia. About two thirds of Asian exports are within Asia.
North America is a triangular business consisting of the USA, Canada and Mexico. Manufacture totals $3.2 billion and consumption is marginally less. The three countries have net exports of under $30 million. The USA dominates overwhelmingly, accounting for 83 per cent of production and 88 per cent of demand. Canada and Mexico act as manufacturing bases for the USA.
Western Europe has quite a different pattern and occupies the leading position in terms of world trade. In terms of size, the EU is the third largest market in the world at $2.9 billion and the second largest manufacturer at $3.7 billion. Out of $1.4 billion of exports, $0.9 billion are delivered to destinations outside Europe. Western Europe not only has a stronger global trading base than North America and Asia but it is nationally more fragmented in terms of production.
Figure 2. New and replacement transformer capacity in Western Europe, 2000-2010
Several factors account for this difference between western Europe and the other markets. Firstly, the sheer size of the domestic markets of China and the US has provided an incentive to satisfy domestic demand first. The Chinese electricity sector is currently growing at a faster rate than in any other country and demand constitutes 40 per cent of the global total. In both cases demand is high and will continue to be high as the power networks expand and develop.
Another factor for the European dominance of the market is historical. Many of the European companies were instrumental in establishing the electrical systems in former colonial territories. While GE and Westinghouse were occupied in creating what is now the largest national electrical generating system in the world, the European companies were piling up building blocks in world markets.
The Japanese, Korean and Indian companies provide the third chapter of the story. Mitsubishi, Furukawa and Toshiba are well-established companies but they have not been in the international transformer markets as long as the Europeans. However, they are making a formidable impact, as evidenced by their high level of exports. The newer electrical giants such as Bharat Heavy Electrical and Kirloskar of India, Hyundai and LG Group of Korea are more recent entrants and will be powerful forces in the future. More competition can be expected from companies in China, Eastern Europe and the FSU, Brazil and Mexico.
An ABS report, ‘World Markets for HV Transformers’, found that total system transformer capacity (including generation, transmission and distribution of electricity) of Western Europe increased at a compound annual growth rate (CAGR) of 0.67 per cent between 1995 and 2000 and is forecast to grow at a CAGR of 0.63 per cent between 2000 and 2005, to slow down to 0.39 per cent from 2005 to 2010. This translates to total growth of 3.2 per cent from 2000 to 2005 and 2.0 per cent from 2005 to 2010. These are the growth characteristics of a mature electrical supply industry. The systems developed early in the history of electricity because the economies of Europe were economically developed, technology and finance were available.
Figure 3. Total system transformer capacity of western Europe
This early development was rapid because the geographical area is small compared to countries like Canada, Brazil, China and India. The current speed of development of the electricity networks in the developing world is a reflection of the change in pace of economic development. When Britain industrialised nearly two centuries ago new ground had to be broken; the technology had to be written and the capital markets expanded. Today vast funds of money are available and technology is tried and tested. So it is with the electrical industry; we have seen growth in China from 2 GW generating capacity in 1949 to 230 GW 50 years later and repetitions of this achievement all over the world.
This growth amounts to a yearly increase in total system transformer capacity of approximately 26 000 MVA across Western Europe between 2000 and 2005, slowing to 18 000 MVA between 2005 and 2010, due to new installations. This, however, is not the market in totality. Western Europe is a mature market with little future growth in capacity and in some cases reduction of capacity is already taking place to substitute more efficient and cleaner plant. But because the market is mature, there is a substantial growth in replacement business.
Developing countries offer relatively little replacement business so far because much of the plant is not very old and environmental concerns generally take second place to the need to build capacity. The volume of replacement depends on the size of the installed base in the past. In a survey conducted by ABS in early 1999, the accounting life of plant assets was examined in over 70 utilities around the world. With some exceptions the overall average for generating and transmission plant was 30 years. This translates into replacement volume in 2000 equivalent to 3.3 per cent of the installed base in 1970.
In 1970 China had a total system installed capacity of 108 800 MVA, India 74 850 MVA and Brazil 60 450 MVA, indicating that normal replacement business in 2000 will be about 8100 MVA for these three large markets. In comparison, Western Europe had an installed base of 1 965 844 MVA in 1970, necessitating replacement of 65 460 MVA of capacity in 2000, eight times the volume of the three huge developing countries. In contrast, China will install about 77 000 MVA of new system capacity annually in 2000-2005, India 23 000 MVA and Brazil 20 000 MVA.
Assuming that new construction continues as forecast, globally, the volume of replacement business will equalise new capacity installations at sometime during the next five years. The annual business will be double the level of new installations of 350 000 MVA per annum.
That situation was reached in Western Europe long ago. In 2000, replacement transformers outnumbered new capacity three to one and by 2010 this ratio will increase to 5-6 to one.
There are several implications for this market trend. Firstly, there is the obvious point that the transformer business available is far higher than the sales of units for use in new installations. While new installations will decelerate as markets mature, replacement business will increase in direct relation to the past increase in the installed base. The replacement growth in Western Europe will be continuous and by 2030 will be two and half times its current level.
There will be increased conversion to other fuel sources and technologies. In the most advanced countries, gas is already being substituted for coal, both for reasons of availability and environmental benefits. While perfectly serviceable coal plants are being mothballed in the countries which can afford to do so, in less wealthy countries there may be a tendency to make do with existing plant until it has to be replaced, and then use the opportunity to change to more efficient or clean technology. This is the case in Eastern Europe and the countries of the former Soviet Union. In Russia, Ukraine and Belarus, surveys show that 40 per cent of electrical equipment is beyond its useful life.
There is also a tendency towards smaller units and this will be accelerated with the increase in replacement business. Old, large units, especially high capacity dielectric units may be replaced with other types of smaller transformers. In the UK, for example, the generation building programme in the 1960s relied heavily on large, not very efficient installations. These will be converted to smaller units as replacement proceeds.