CWIEME Shanghai in conversation with Sadiq Saeeb, Principal Analyst, Power Technology Research
Which regions would you classify as emerging markets for Chinese transformer manufacturers to consider over the next few years?
Americas and Europe: In Europe and North America they’re evolving the grids they’ve established over the years because they were not originally designed to cope with a couple of new factors which are impacting them: extreme penetration of intermittent variable energy systems and variable loads like electric vehicles. These are the two key drivers we think will impact these established markets. Despite this, entering these markets is not easy for new players as in these countries there are local manufacturers with years of experience and premium quality transformer products, and the demand for these types of products is very high. If we talk about the numbers in 2017 for power transformers at high voltages in the grid, North America and South America had market volume of $5 billion. In Europe the top 28 EU countries drive the market for the rest of the region, and their market volume was $1 billion for the year, just for power transformers. I reference both because transformers are a global product as supply and demand from one region can impact other regions: the power transformers that are manufactured in North America and Europe are exported to each other, unlike other types of transformers.
Brazil is the biggest market in terms of volume but market accessibility is very low, similar to that of the established markets. It’s difficult because it’s saturated by local transformer markets and hence not very easy for Asian players to start providing equipment as utilities have a strong preference for local manufacturers.
However, Peru and Chile are very interesting and can have very high potential for Chinese players. Chile’s power grid is divided in to four separate parts but their plan is to connect all four parts of the grid together and that has led to announcements of many huge T&D projects which is definitely going to drive the whole transformers market as well. These markets in Peru and Chile are therefore open for foreign manufacturers and it’s not that difficult to provide equipment or transformers to them.
Gulf countries are going to be the biggest market for traditional and power transformers. The reason why is because they’ve already been expanding exponentially in the past four or five years. Huge projects in T&D have been announced by the governments and the market drivers are once again being interconnection between power grids, this time internationally with Egypt with Saudi and UAE with Saudi. Transformers are essential for these interconnecting power networks.
Sub-Saharan African countries aren’t that well established except for Nigeria, South Africa, and Kenya so these are the countries to keep our eyes on. In South Africa, their largest utility Eskom is under pressure to reduce the cost of their development plan. Up until now they had requirements to use transformers from local African countries but with the pressure to reduce the cost of the plan it will give enough room for foreign industry players to contribute to this cost cutting, especially Asian players.
Northern African markets – Tunisia and Egypt are the growing countries for T&D because Per capita demand of electricity is rising.
China remains the biggest market for volume. The power transformers market for 2017 is $5 billion USD. However, in other emerging markets such as Indonesia, Malaysia, India and Vietnam, there are lots of projects being announced. The market drivers are that the grids are not 100% electrified so to complete this and harmonize these grids we need more transformers in the near future. $1 billion in USD is expected to be the market volume for T&D across the next three years for this region.
Which competitors or competitive markets should Chinese transformer manufacturers be keeping their eyes on in the coming years?
I think the major advantage Chinese manufacturers have over American or European manufacturers are low prices that put them on a competitive edge against the tier one manufacturers. This way they can target some of the emerging markets we already touched on in the previous question because quality is second to price in these regions. In terms of low cost though, China has already received competition from Indian and Korean manufacturers, who have won some large T&D projects in these emerging markets. Indian construction company L&T won a huge tender in the Gulf to supply transformers. Another Indian company Crompton Greaves won tenders in Indonesia because of their local presence in Indonesia and their low prices – they have offices all across the country. It’s also easy for to transport these bulky products from India to these emerging markets.
Korean player Hyundai is working in close coordination with the Vietnamese government. All these examples show that just having a low price from the government is not the only factor at all.
Another advantage the Chinese manufacturers have is investment from the Chinese Government. They’ve invested in Pakistan and Sub Saharan Africa but I don’t think this approach is sustainable long-term because some of the foreign aid agencies like the World Development Bank, Asian Investment bank and also the German banks are starting to pile in a lot of investments in these emerging markets, so China no longer have this unique advantage.
One particular example are the African T&D markets: T&D tenders in the last two years went to Chinese companies because the African utility companies received lots of money from the Chinese government. But long-term there are a couple of steps the Chinese need to look at to build long-term sustainable relationships. One is that they need to establish partnerships with the utilities, because if you look at the European and American markets the utilities and system operators have very strong local relationships with transformers and switchers manufacturers.
The second is gaining local presence in terms of manufacturing units. If you look at some of the transformer manufacturing units of European Tier One manufacturers, they were not built in Europe over the past two to three years, they were built in Africa, Egypt, Asia etc.
Transformers products are definitely globally traded, but the lead-time of the equipment is also important. In the US some of the T&D equipment in grids have been damaged by storms but because of long lead times they haven’t been able restore the grids very quickly. They’ve now made joint ventures and partnerships to tackle this. For example, there is a partnership between thirty US companies whereby in emergencies they can share and borrow each other’s equipment. Otherwise there is a 13 to 15-month lead time for new equipment. And we’re going to see more of this as local manufacturing in one location suits a utility well.
ABB have a huge manufacturing plant in Egypt – this shows their commitment to succeed in these markets. Since they built it you can see that they’ve started to win lots of tenders in this market and it proves my point of local presence being very important. So in summary, local manufacturing presence and building local relationships by having offices in key emerging markets is key for the blanket agreements that are very common already and secure exclusive business for three to five years at a time. Chinese manufacturers should focus on this.
And then what about any new technologies and overall grid infrastructure development?
I’ll tackle this in two parts: those that are already impacting T&D industries and then those ideas still in R&D but haven’t reached industrial scale yet so are not yet changing the mindset of utilities and having them change their plans.
Firstly, asset house monitoring of transmission equipment is already happening everywhere and it started in the transmissions sector where the equipment is extremely important and therefore keeping track of the health of the equipment is paramount to the systems operators and utilities. Installation of sensors for power transformers and collecting the data was already happening. Right now it’s at stage two where there are more sensors but they’re doing more than just collecting data, they’re monitoring and doing the diagnostics on the equipment based on it. A prime example of this connected equipment is digital transformers, which three or four tier one transformer manufacturers introduced in recent years. The underlying transfer of info is the same as usual transformers however they can now get connected to a central system and can relay the data to it, over a period of time. Decision making can then take place automatically based on this data. Predicted maintenance can be done for example without having to wait for a transformer to fail, which is great if that failure means a whole city has a blackout!
For a specific example, In the US utilities are opting for this digitally connected equipment mainly because the distribution grid is very old so they need to replace the distribution transformers and switchers over the next four to five years anyway.
This concept is not limited to one type equipment only. Nowadays you hear about digital substations where every piece is intelligent enough to have predictive, decision making abilities on their own. AEP in the US have installed a digital substation recently. This is, I think, the first application of these digitally connected transformers but there are other applications as well because this kind of equipment can interact with other devices as well e.g. solar and wind. And you can collect data from both if you install digital equipment in to the distribution grid.
Then the other aspect for digital transformers is their capability to change the real time parameters of the system. A distribution grid has had the difficulty to maintain voltage and reactive power for the end consumer, and this gives it real time control of these things. If a variable load from an EV comes along the distribution grids needs to evolve accordingly, however, other solutions are to install intelligent equipment to change parameters accordingly on their own.
So definitely this is happening in North America and Northern Europe. Germany and the UK are benefiting from the smart or digital transformers that have been installed saving costs for utilities due to less disastrous conditions for the grid and fewer failures.
Finally, we can actually talk about another aspect when these loads are not connected with the grid, i.e. in the case of V2G where vehicles can inject power back to the grid. Power transformers help because they can channel the power of flow in a directional sense.
What are you currently working on with regards to EV?
We’re writing a report on the impact of EVs on the grid, but not a traditional report as there are lots already. We wanted to convey it from different angles. Our research team covers the grid side and we also have in the industrial automation side and storage technologies too.
Firstly, the question mark right now as governments plan to introduce X million electric vehicles by Y date is how the grid infrastructure will be impacted? Do utilities need to plan ahead of time? If yes then what kind of planning, what kind of infrastructure needs to be replaced? So they can handle these numbers of EVs.
Secondly, charging infrastructure: what are the standards of charging? There are three standards – one by Japanese manufacturers and utilities and car manufacturers. Then there was one built by an American institute and a final one by Tesla – so right now there are three. Automotive manufacturers are supporting different ones.
The third is EV value chain – fairly traditional and there are already many reports on this.
Fourth – the use of block chain, what’s the potential of block chain within this ecosystem EVs?
We can talk about anything within these sub-topics, but from my perspective we are looking at some of the key markets where the plans are to introduce EVs by 2020 or 2025. We’re looking at the existing distribution grids and seeing what the impact on these would be. In North America, distribution grids need to be upgraded in some of the hot spots. For example, in California EVs will definitely have an impact and their utilities are already upgrading their grids investing lots of money already. This is proof that utilities do need to invest money within their distribution grid. Transmission/higher voltage grids are not going to be impacted by EVs is what we’ve found – every country already has lots of extra capacity. So it’s the local distribution grids impacted first. Maybe in ten years it will trickle to transmission grids but right now it’s local girds.
In the EU, Germany, UK, Norway and Netherlands are the key markets we looked into. What we saw was distribution grids are very established and they’ve lots of capacity for EVs. EVs can get connected, not a problem, but the focus of the utilities within these countries is a bit different: they don’t plan to install physical equipment in the grid. In fact, the focus is towards smart charging solutions, those V2G applications where EVs are not a burden on the grid but a support infrastructure for it. Once again, it’s all about the mindset when it comes to the smart charging solutions or shipping the peak of electricity from the dense points to the lower density points. German distribution grids are very well designed and have capacity to take the EVs they’ve forecasted by 2020, however, there are hot spots that can be impacted – cities like Munich or Hamburg, where the local municipalities they’ve invested some money but not too much as the distribution grid was already planned in a way that can take in this load of EVs very easily.
Up until now the focus of charging infrastructure was mainly on one type of chargers – slow chargers because they’re AC voltage chargers - and thousands are already installed in Europe and the US. However, because of issues from the increase in range of EVs the charging infrastructure needs also to be upgraded. So the problem is to install these faster chargers and what the standards are, as touched on before!
How will you be using CWIEME Shanghai to further your knowledge or contacts in 2018?
In general, if you talk about China it’s hard to establish relationships without having a local presence in the region. This trade fair is an excellent opportunity for us to build that relationship with those stakeholders in the transformers industries. Our strengths lie in Europe and America which is attractive to Chinese manufacturers so this puts us in a great spot to interact with them and share that knowledge. In terms of our research we heavily rely on the information we can get from prime sources in T&D and building that communication is very important to us. First sources are always the best to talk to and this trade fair is an excellent opportunity for that. So getting our research out to the right people and building that research in the first place from receiving information from people in this industry.