“We are still today, as an industry, struggling by balancing supply and demand. We are struggling… because we cannot procure all the equipment we need,” said Andreas Schierenbeck, global chief executive officer of Zurich-headquartered Hitachi Energy, noting that the post-covid demand surge and the renewed push for energy security after the Russia–Ukraine war, which started in 2022, have only deepened the strain.
In India, Hitachi Energy has emerged as a key supplier of transformers, high-voltage systems, and automation solutions for transmission and renewable projects. Its listed arm, Hitachi Energy India Ltd, has lined up ₹2,000 crore in investments, including ₹300 crore to expand its Mysuru facility, aimed at doubling capacity and deepening local manufacturing as electricity demand and grid expansion accelerate.
Hitachi Energy India has lined up ₹2,000 crore investment, including ₹300 crore to double Mysuru plant capacity and boost local manufacturing amid rising electricity demand.
To tackle these pressures and meet the growing demand, the company last year rolled out a $6 billion global investment plan to diversify its manufacturing base and secure critical supplies across regions. Schierenbeck said the goal is to build resilience into a system still struggling to meet record electricity demand amid tight production capacity.
To tackle these pressures and meet the growing demand, the company last year rolled out a $6 billion global investment plan to diversify its manufacturing base and secure critical supplies across regions.
Unprepared for demand surge
Speaking on the unexpected demand surge post the covid-induced slowdown, the CEO said: “I think for what we are seeing now in the electricity and the energy market, as a strive for more demand, for more expenditure of grid, nobody had seen it coming except the Chinese. Sorry to say, nobody was seeing that, not the customers, TSOs (transmission service operator), no investment bankers, no analysts, no industry.”
While observing that globally, there was no anticipation and preparedness for the sudden surge in demand, he said China was prepared, and it did long-term planning and built capacity and the grid.
Some customers in the power sector, he said, are struggling in the current scenario as they need to go ahead at reserve capacity or go for framework agreements in order to guarantee production and supplies.
“If you want to have a guaranteed slot for production, then you have to go from transactional behaviour in a very competitive way where you can push prices wherever you want to, to a way where you have to fight your way to the table to get something from the capacity that is a completely new thing,” Schierenbeck said. “So, some customers are adapting, some are having a hard time adapting and they have to deal with the consequences. And just to be very open, I don’t like that situation at all very much because having demand and supply not in the balance is not a good thing for the industry at all.”
Delayed timelines
He added that compared to delivery timelines of about 10 months for transformers a few years ago, deliveries are now expected about 36-48 months after an order is placed.
Worldwide, including in India and major economies like the US, there has been a supply shortage of transformers and other critical components of the power sector, raising concerns of derailing the ambitious energy transition plans.
For India, this threatens not only the renewable energy capacity addition, but also the overall growth of the sector to meet the rising demand, which has been hitting new highs in the past three years and is expected to continue the momentum in the years ahead.
India’s new and renewable energy minister Pralhad Joshi had recently said the country’s electricity demand is expected to double in less than a decade, thereby making grid modernization and capacity-addition key priorities. According to bp plc’s energy outlook, as per the current trajectory, with growing electrification of industries and mobility, the share of electricity in India’s overall energy consumption would reach 50% by 2050, compared to just over 20% currently.
The China factor
On the ongoing trade wars and security concerns over critical components, the Hitachi Energy chief noted that in the current geopolitical scenario, a few countries have hardened their preference for sourcing of critical components, largely raising concerns over Chinese supplies.
The US has decided it doesn’t want transformers out of China, he said. “They don’t get transformers out of China, and we take them from Canada or from Mexico or from Brazil, or we are investing into a setup of power transformers in the US as well.”
Asked about the countries that resist imports from China, the CEO said: “It’s hard to say as black and white. The US has definitely a black position. They said no transformer equipment from China in our grid, full stop. They’re stating that openly, other customers are a little bit more wary. They try to avoid that. Some are a little bit more open because there’s a supply crunch and then they take some equipment from there even if they don’t like it.”
Eggs in various baskets
Hitachi, he said, has diversified its operations and with 150 manufacturing facilities across the world, and is well-placed to cater to the demands in the current fragmented world. “I think that’s the best way to mitigate all the risks, not having all eggs in one basket; having a diversified, stable supply chain where you can react to if a big channel is closed like Panama Canal or Suez, so that you reroute, leveraging the advantages of globalization and local value creation. That has not changed, and I think that has played in our favour in this new world with capacity constraints,” he said.
With operations in critical power sector technologies, including high-voltage, transformers, automation, and power electronics, the company caters to utility, industries, transportation, data centres and infrastructure sectors. Its annual revenues stand at $16 billion.
The company’s listed Indian arm Hitachi Energy India reported orders worth ₹2,190.8 crore in January-March, with the highest demand coming from transmission and renewables. As of end March, its order backlog was at ₹19,245.9 crore.
In August, the company announced an investment of ₹300 crore to expand its manufacturing facility in Mysuru, Karnataka, to double its capacity for producing transformer insulation materials, as part of its ₹2,000 crore investment plan in the country that was announced last October.
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N. Venu, managing director and chief executive officer, India & South Asia, Hitachi Energy said that about two-third of the total corpus would go towards capacity expansion.
The company, which celebrated 75 years last October, will spend this amount over the next to four to five years in various businesses. “And this ₹300 crore what we announced in Mysuru is part of this ₹2,000 crore… Almost two-third of what we said is in the capex expansion which is ongoing at this point in time,” Venu said.
