Following the recent announcement by Siemens to spin-off its Power and Gas business, Harminder Singh, Director of Power at GlobalData, a leading data and analytics company, offers his view on the implications of this for the industry:

“Siemens’ latest decision and a similar reorganization announced by GE last year are indicators to the continuing nature of trouble for companies with significant exposure to the conventional power business.

“GlobalData forecasts the total investment in thermal power is set to decline 22% from $122.9bn in 2018, to $95.6bn in 2025. 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.

“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. 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 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, digitalization, etc. Players outside the power sector are eyeing these opportunities and challenging the traditional firms with disruptive innovations. Oil and 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.”