14MW giant shows the way for Siemens spin-off

German giant Siemens is pressing ahead with the spin-off of its power and gas operations despite the economic impacts of the Covid-19 pandemic.

What happened?

On Tuesday, Siemens set out details of its plan to move its operations in wind and other energy sources into a standalone company.

The spin-off has been a long time coming.

Siemens started talking about a spin-off for its power and gas assets in May 2019. It followed this in October when it revealed the management team and the unapologetically obvious Siemens Energy name. And this week it set out details of the plan for shareholders to vote on, which is due on 9th July.

Siemens shareholders are set to hold 55% of Siemens Energy, with Siemens AG initially owning 35.1% and the other 9.9% held by the Siemens pension trust.

However, Siemens has committed to cut its stake over 12-18 months, including with an initial public offering of new shares on 28th September, and also said it would not exercise a controlling influence over Siemens Energy. This means the new company will operate independent of its parent group.

Siemens Energy is set to start with 91,000 employees worldwide split in areas including wind turbines, through its 67% stake in Siemens Gamesa, as well as combined-cycle turbines, compressors, generators and turbines.

Joe Kaesar, president and CEO of Siemens AG, said this follows the model of standalone companies it uses in areas such as health. He called this a "major milestone" in preparing Siemens for "massive technological transformations".

Why does it matter?

We wrote about the planned spin-off in an analysis piece last May, and the reasons we identified in favour of the deal then are even stronger now. The current crisis has underlined the importance of renewables in the 2020s.

This spin-off should give Siemens Gamesa a crucial role in the broader Siemens energy operations, and open up new opportunities to pair wind turbines with other technologies.

We see the importance of Siemens Gamesa in new figures this week.

The order book of the divisions that will be part of Siemens Energy was worth €77bn in September 2019, of which €25.5bn – or 33% – was from Siemens Gamesa. The global growth of offshore wind will be vital for the new firm.

And Siemens Gamesa has made big strides over the last nine days. Last week, it revealed plans for a 14MW direct-drive offshore turbine that would be the biggest announced in the industry so far, and is set to play an important role in driving down offshore costs. On Tuesday it announced the first orders.

First, it revealed that Northland Power and Yushan Energy have committed to use the 14MW giant at their 300MW Hai Long 2 offshore wind farm in Taiwan, and were considering using it at the entire 1GW Hai Long complex.

Second, it said that Dominion Energy was set to use the 14MW platform at a 2.6GW offshore wind farm off the US east coast. Both of these deals show how important these larger turbines and emerging offshore wind markets will be for Siemens Energy. That offshore wind prowess will be crucial.

In addition, the appetite for pairing wind turbines with technologies such as energy storage and green hydrogen has been growing this year.

This was happening before the Covid-19 crisis, but the punishing impacts of the downturn on oil, gas and coal has pushed sector coupling even further up the industry’s agenda. The popularity of green hydrogen is a case in point.

It feels like a good move for Siemens Energy to seek to break down these walls in its organisation, and better harness its offshore capabilities. And yes, it may be launching into a bad economy, but its mission echoes the calls for those demanding a 'green recovery'. It should be in the right place at the right time.

The bottom line

If the shareholders approve the spin-off on 9th July then the energy industry will get a heavy-hitting new player that has renewables at its core.

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