By Benedikt Kammel
Siemens AG (SIE)’s new orders for its power-transmission grids have slowed in the second half, partly because political upheaval has brought infrastructure spending in North Africa to a standstill, the head of the unit said.
Siemens will probably generate new orders of about 7 billion euros ($9.6 billion) at the power transmission unit in the year ending Sept. 30, Udo Niehage, who runs the subsidiary, said in an interview. In the first half, the order intake reached almost 4 billion euros. Orders for 2011 will still exceed last year, when the intake reached 6.77 billion euros.
“It’s noticeable, and we won’t end the second half in the same way that we ended the first,” Niehage said in an interview on the Spanish island of Mallorca yesterday. The company reports earnings for its full year on Nov. 10.
Siemens has traditionally held a major market positions in Algeria, Libya and Morocco, and Niehage said the company evacuated more than 100 people from Libya alone as rebel forces sought for months to depose Muammar Qaddafi’s government. The German engineering company’s grip on the North African market may be at risk once reconstruction resumes, as competitors seek to muscle into the market, Niehage said.
The energy division’s overall new orders in the second half will slow, after the intake didn’t advance in the third quarter, Siemens said on July 28. The division, which also includes fossil-power generation, renewable energy and distribution units, is Siemens’s second-largest by revenue after the industrial unit. Michael Suess, named head of the business in April, and Niehage met journalists in Mallorca to visit a transmission site near Palma de Mallorca.
Grid Upgrade
The power-transmission unit is benefiting from higher demand in countries such as India, Russia and Brazil, as well as the replacement of ageing transmission equipment in North America and Europe, Niehage said. In Germany, which plans to pull out of nuclear energy in the next decade, a push to build up more renewable-power sources will require an expansion of the grid to accommodate more wind and solar-energy power, he said.
The Munich-based company announced this week that it will follow Germany’s exit from nuclear power, and has shelved plans to create a joint venture with Russian atomic-energy company Rosatom Corp. Siemens has gradually retreated from nuclear-plant construction, and the company sold its stake in a joint venture with Areva SA of France in 2009.
Triumvirate
The shift in energy policy may require more than 3,000 kilometers (1,900 miles) of new power-transmission lines as more electricity is generated in remote areas such as offshore wind farms, from where it needs to transported to industrial hubs, Niehage said, citing a figure by Germany’s Dena energy agency. The cost to build up the grid may exceed 20 billion euros, he said, citing Dena.
Siemens competes with ABB Ltd. (ABBN)of Switzerland and France’s Alstom SA (ALO) in the European market for transmission equipment. ABB, based in Zurich, remains ahead in areas such as transformers, a lead Siemens would only be able to overcome with the help of acquisitions, Niehage said. Possible targets may be Asian competitors, though none of them are currently for sale, he said.
Siemens is also among the largest makers of wind turbines, a business the company created from the acquisition of Danish manufacturer Bonus A/S in 2004. The market for solar energy has not yet reached an industrial scale similar to wind power, and Suess told journalists that “we’re still in a stage where you have a lot of different technology bets to make.”
Profitability at the renewable energy division has halved, with operating profit at 7 percent of sales in the quarter ended June 30, from as high as 14.2 percent 10 quarters earlier. Last month, Siemens said it will split its renewable energy division in two, separating wind energy activities from solar and hydroelectric power.
“It’s a signal that we’re willing to invest in this business,” Suess said. “We are going to expand it in the same consequent way that we did with Bonus. There will be a clear growth path in solar.”
