Power-plant Builders The Inevitable Shrinkage

Germany’s ambitious transition to renewable energy has left the country’s power plant builders out in the cold, forcing Siemens, GE and Mitsubishi Hitachi to cut thousands of jobs as orders have plummeted. Even large orders from abroad cannot reverse the trend.
In Germany, who wants to buy a gas turbine nowadays?

Power plant suppliers are cutting thousands of jobs in Germany due to the country’s government-mandated shift to renewable energy sources, shrinking demand for gas turbines and steam generators.

In 2015, domestic orders fell to €600 million, or $645 million, less than half the previous year’s sales. Although it is believed 2016 was a better year for plant builders than the year before, the level of business still remained subdued.

The industry, including its three biggest companies Siemens, General Electric (GE) and Mitsubishi Hitachi Power Systems (MHPSE), has decided to cut thousands of jobs.

"The German energy transition has led to a structural breakdown across the entire industry of conventional power generation," Rainer Kiechl, chairman of the MHPSE Management Board, told Handelsblatt.

This time, it is not a question of relocating parts of the production or achieving a higher margin. There simply is no work. Representative of union IG Metall

Even the firm’s greater expansion into Poland and South-East Europe could not change this, he said. “It could not entirely compensate the almost complete elimination of the core market.”

Germany’s “Energiewende” – the country’s transition from nuclear power and fossil fuels to renewable energy sources - is well under way, especially since the nuclear catastrophe in Japan’s Fukushima in March 2011. It prompted Chancellor Angela Merkel to order the shut down of all the country’s nuclear power plants by 2022.

Germany has also set the goal of generating 80 percent of energy consumption by renewable sources in 2050. This way it wants to reduce greenhouse gas emissions by 40 percent by 2020 compared with 1990 levels and by 80 percent by 2050. Renewable energy now makes up a third of the electric power consumed in the country.

The build-up of renewable energy from wind, sun and water has accelerated has also hurt other companies in the industry, such as utilities E.ON, RWE and Steag and construction firm Bilfinger.

For builders of conventional plants, international orders worth more than €7 billion in 2015, only helped to slow down the decline. But the assignments are not high enough to hold capacity and staff in the long run.

Duisburg-based power station builder MHPSE, which had taken over the power engineering division of insolvent Babcock Borsig group in 2002, is about to reduce a third of the 1,000 employees based at its headquarters.

At the end of last year, U.S.-based technology group GE announced it would cut more than 1,000 of approximately 1,700 jobs at its plant in Mannheim, leading employee representatives to fear the site could be given up completely.

07 p19 German Power Plant Construction-01

The plant, which produces gas and steam turbines, was inherited by the U.S. firm as part of its acquisition of power and grid businesses of French rival Alstom in November 2015.

Similarly, for rival Siemens, even a mega-deal could barely make a difference. Last year Siemens celebrated the largest single order in its history when Egypt ordered twelve large gas turbines worth up to €6 billion.

The project is due to run until 2018. But despite this, the firm plans to axe up to 2,200 jobs in Germany and more than 4,000 worldwide.

"This is a one-time effect and not a sign of recovery of the market or an improved employment situation," the firm said. Although the order had allowed it to better utilize capacity in its Berlin and Mülheim sites, global demand for large gas turbines was still stagnating, it explained.

MHPSE has already begun talks with its workers’ council and the metalworkers’ union IG Metall about how to make job cuts in the most socially responsible way. The cuts, which are scheduled for spring, have workers’ representatives perplexed. "This time, it is not a question of relocating parts of the production or achieving a higher margin," said IG Metall. “There simply is no work."

A lot of the staff in question are highly qualified engineers. Some would find work elsewhere, the union said, adding: "But whoever is trained in a specific sector will face a problem.”

"Business is only done abroad nowadays," said Klaus Gottwald of the mechanical engineering industry association VDMA. He pointed to a possible reprieve in plant servicing. However, since maintenance budgets have also been halved, orders have shrunk in numbers and size, he said. Similarly, sources close to a large German electricity producer said the firm was concentrating only on safety-related areas, everything else had to wait.

As a consequence, the number of disruptive incidents at power plants has increased, said Reinhard Maass, managing director of industry service trade body WVIS. "The number of unscheduled standstills has risen from 2 percent 12 years ago to 13 percent today," he said.

But could the gas sector at least benefit from the phasing-out of nuclear power in 2022 and the foreseeable end to the coal-powered electricity? Businesses are skeptical, mainly because the renewable energy market has been steadily expanding, offering an alternative source of electricity generation.

As a result, many businesses are trying to adapt their capacities while scouting new business areas. MHPSE, for instance, will in future focus on optimizing existing plants, service, flue gas cleaning and energy storage. With this reorientation, the group is also trying to escape the prevailing price pressure in power plant construction, which according to Mr. Gottwald, has seen prices fall by up to a third.

 

Martin Wocher is an editor with Handelsblatt, focusing on the mechanical engineering and steel industries. To contact the author: [email protected]