March 26, 2019 / 10:28 AM / 2 months ago

Siemens turns to China's SPIC to help turn around gas turbines

ZURICH (Reuters) - Siemens and China’s State Power Investment Corp (SPIC) plan to co-operate on energy plants in the latest move by the German engineering company to revive its ailing gas turbines business.

FILE PHOTO: An employee of Siemens AG works on the a gas turbine in Berlin November 8, 2012. REUTERS/Tobias Schwarz/File Photo

The strategic partnership follows speculation that Siemens is looking to find a joint venture partner for the business, where sales and profit have collapsed amid falling demand and cut-throat price competition.

China is one of the few remaining markets for gas turbines, which have lost ground elsewhere due to the increasing popularity and cheapness of renewable power generation.

Siemens Chief Executive Joe Kaeser said the deal with one of China’s big five state-owned power companies could go further.

Siemens also signed a technology collaboration deal with China United Heavy-duty Gas Turbine Company, in which SPIC is the majority shareholder.

“The objective of both parties is to form a longstanding partnership extending beyond the scope of the agreements announced today,” Kaiser said in a statement.

Siemens declined to comment on the extent of further agreements or whether it was a prelude to SPIC taking a stake in its Power and Gas division.

Reuters reported last week that Siemens was looking to find a solution for the troubled business by its investor day in May, with sources saying discussions between Siemens and Japan’s Mitsubishi Heavy Industries had intensified.

Siemens was also looking at other options for the business where profit halved during its first quarter, the sources said.

BENEFITS FOR BOTH

The agreements signed in Beijing on Tuesday will support collaboration in product demonstration and novel management systems for decentralised energy systems, Siemens said.

Both companies agreed to cooperate in new projects and develop gas power systems globally. No technology would be sold by Siemens to the Chinese firm, instead allowing SPIC to use its design system for gas turbines.

Financial details of the accord, which Siemens said would create a China-based supplier network, were not disclosed.

“Both parties are set to benefit from the expected structural growth in China’s electricity generation market,” Kaeser said.

The deal follows an earlier agreement between Siemens and SPIC last year on technology and training.

Gas-powered power plants are becoming increasingly popular in China as the country to seeks to reduce its reliance on coal.

Total capacity rose 10 percent to 83.3 gigawatts last year, according to data from the China Electricity Council.

FILE PHOTO: A sign of Germany's industrial group Siemens AG in Duisburg, Germany, January 28, 2019. REUTERS/Wolfgang Rattay/File Photo

China accounts for roughly around a third of the market for heavy duty gas turbines, which has seen a collapse in global demand from around 200 units per year in 2014 to around 100.

In the future China is expected to buy around 20 gas turbines per year.

Prices have also fallen due to competition between Siemens, General Electric, Mitsubishi Hitachi Power Systems and Ansaldo Energia.

Reporting by Vera Eckert and John Revill, editing by Edward Taylor and Alexander Smith

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