Global power sector struggling on broken supply chains, component crunch: Hitachi Energy CEO

“Today, we are still struggling to balance supply and demand as an industry. We are struggling… because we cannot supply all the equipment we need,” said Andreas Schierenbeck, global CEO of Hitachi Energy, headquartered in Zurich, noting that the post-Covid demand surge and the renewed pressure on energy security following the Russia-Ukraine war that started in 2022 have further deepened tensions.

Hitachi Energy has emerged as a major supplier of transformers, high voltage systems and automation solutions for transmission and renewable projects in India. Listed arm Hitachi Energy India Ltd lined up ₹2,000 crore investment included ₹300 crore to expand the Mysuru plant, aiming to double capacity and deepen domestic production as electricity demand and grid expansion accelerate.

Hitachi Energy India lined up ₹2,000 crore investment included ₹300 crore to double the capacity of the Mysuru plant and increase local production in the face of rising electricity demand.

To cope with these pressures and meet growing demand, the company implemented a $6 billion global investment plan last year to diversify its production base and secure critical supplies across regions. Schierenbeck said the goal is to add resilience to a system that is still struggling to meet record electricity demand due to tight generation capacity.

To cope with these pressures and meet growing demand, the company implemented a $6 billion global investment plan last year to diversify its production base and secure critical supplies across regions.

We are unprepared for the increase in demand

Speaking about the unexpected surge in demand following the Covid-induced slowdown, the CEO said: “I think because we are now seeing more demand in the electricity and energy market, more grid spending efforts, no one saw this coming except the Chinese. I’m sorry but no one was seeing this, not customers, not TSOs (transmission service operator), not investment bankers, not analysts, not industry.”

While he observed that there was no foresight or preparation for a sudden increase in demand globally, he said that China was prepared, made long-term planning, and established capacity and network.

He said some customers in the power sector are experiencing difficulties in the current scenario as they need to maintain spare capacity or enter into framework agreements to guarantee production and supply.

“If you want to have guaranteed space for production, then you have to go from a very competitive transaction behavior where you can push prices wherever you want, to a path where you have to fight your way to the table to get something completely new from capacity,” Schierenbeck said. “So some customers are adapting, some are having a hard time adapting and they have to deal with the consequences. To be frank, I don’t like this at all because supply and demand not being in balance is not a good thing for the industry.”

Delayed timelines

He added that deliveries are now expected around 36-48 months after the order is placed, compared to delivery times of around 10 months for transformers a few years ago.

Across the world, including in major economies such as India and the United States, transformers and other critical components of the energy sector are experiencing supply shortages, raising concerns that ambitious energy transition plans will be derailed.

For India, this threatens not only renewable energy capacity growth but also the overall growth of the sector to meet rising demand, which has reached new highs in the last three years and is expected to continue its momentum in the coming years.

India’s new and renewable energy minister Pralhad Joshi had recently said that the country’s electricity demand is expected to double in less than a decade, making grid modernization and capacity addition key priorities. According to Bp plc’s energy outlook, as per the current trajectory with increasing electrification of industries and mobility, the share of electricity in India’s total energy consumption will reach 50% by 2050, from just over 20% currently.

China factor

On the ongoing trade wars and security concerns regarding critical components, the Hitachi Energy chief said that in the current geopolitical scenario, several countries have hardened their preferences for the supply of critical components, which has largely increased concerns regarding Chinese supplies.

He said the US decided it didn’t want the transformers to come out of China. “They don’t buy transformers from China, and we buy them from Canada, Mexico or Brazil, or we invest in a power transformer installation in the United States as well.”

Asked about countries resisting imports from China, the CEO said: “It’s hard to say in black and white. The USA definitely has a black position. They said there is no transformer equipment from China in our network, full stop. They make it clear that other customers are a little more cautious. They try to avoid it. Some are a little more open because there is a shortage of supply and they buy some equipment from there even if they don’t like it.”

Eggs in various baskets

He said Hitachi has diversified its operations with 150 manufacturing facilities worldwide and is well positioned to meet the demands in the current fragmented world. “I think that’s the best way to mitigate all the risks, not to put all your eggs in one basket; to have a diversified, stable supply chain where you can react if a major canal like the Panama Canal or the Suez is closed, re-route taking advantage of globalization and local value creation. That hasn’t changed, and I think that’s played to our advantage in this new world of capacity constraints,” he said.

With its activities in critical energy sector technologies, including high voltage, transformers, automation and power electronics, the company serves the utilities, industry, transportation, data centers and infrastructure sectors. Its annual revenue is 16 billion dollars.

Hitachi Energy India, the company’s listed Indian arm, reported orders worth ₹2,190.8 crore during January-March, with the highest demand coming from transmission and renewable energy sources. As of the end of March, the order backlog was at the following level: ₹19,245.9 crore.

In August, the company announced an investment. ₹It will expand its manufacturing facility in Mysuru, Karnataka by ₹300 crore to double its transformer insulation materials production capacity. ₹2,000 crore investment plan in the country announced last October.

N. Venu, General Manager and Chief Executive Officer of Hitachi Energy India and South Asia, said that approximately two-thirds of the total body will increase capacity.

The company, which celebrated its 75th anniversary last October, will spend this amount on various projects over the next 4-5 years. “And this ₹300 crore we announced in Mysuru is part of this ₹2,000 crore… Almost two-thirds of what we said is related to the capital expenditure expansion that is going on right now,” Venu said.