Following the recent announcement by Siemens to spin off its Power and Gas business, Harminder Singh – Director of Power at GlobalData – offers his view on the implications of this move for the industry, in which investment is set to shrink significantly in the years ahead as countries strive to decarbonise their economies.

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“Siemens’ latest decision [to separate and list its power and gas division] and a similar reorganisation announced by GE last year are indicators to the continuing nature of trouble for companies with significant exposure to the conventional power business,” he observed. 

 

The fossil-fuel power-generation business is undeniably tough: revenues at Siemens’s gas-and-power unit have fallen 13 per cent a year on average for the last two years. GE’s power business is shrinking at almost exactly the same rate.

 

“GlobalData forecasts the total investment in thermal power is set to decline 22 per cent from US$122.9bn in 2018, to US$95.6bn in 2025,” Mr Singh continued. “This declining trend, which has been continuing for the past five years, will significantly dent the revenues of players across the value chain, specifically those with low diversification.”

 

Renewables’ “high entry barriers”

 



“The renewable energy equipment market is already very competitive and will pose high entry barriers to players that traditionally focused on conventional power. The market could see some consolidation, with players trying to form alliances to gain a foothold in the renewables business, as was seen in the case of the merger of Siemens and Gamesa in 2017,” he speculated, adding that similar deals are also being witnessed in the utility space, a key example being the asset swap deal between E.ON and RWE last year. 

 

The search for new business models

 

“The changing energy landscape will force players to look for new business models to serve new and emerging segments such as distributed generation, energy storage, electric vehicles, digitalisation, etc. Players outside the power sector are eyeing these opportunities and challenging the traditional firms with disruptive innovations. Oil & gas majors such as Shell and Total are making their presence felt in some of these segments through acquisitions as part of their long-term strategy.”