Siemens gas shift should boost role of renewables

This week, German industrial giant Siemens has announced plans to spin out its gas and power operations into a standalone company, and then list the new firm in Germany in September 2020. Siemens is set to give up its majority stake in the unit, but stay a "strong anchor shareholder" by retaining a stake of less than 50% in the new company.

The reasons for the spinout are simple.

Siemens Gas & Power is the unit of Siemens that has the lowest profit margin and, according to CEO Joe Kaesar, spinning it out into its own company means it would not have to compete for resources with other Siemens units that generate higher profits. These include digital and smart infrastructure.

Kaesar said it would also help dismantle the company’s complex corporate structure – but, of course, any large restructuring like this doesn’t come without a dose of pain. Siemens has also set out plans to cut 10,000 jobs across all of its units.

This is also highly relevant for those in renewables. The new company is set to take over the 59% stake that Siemens owns in Siemens Gamesa, the turbine maker and developer that was founded two years ago when the wind operations of Siemens merged with Spain’s Gamesa. It will now be shackled once more to traditional fuel. Oh well, it was nice while it lasted.

Kaesar has argued that the split would create a “powerful pure play” firm in energy and electricity.
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“Combining our portfolio for conventional power generation with power supply from renewable energies will enable us to fully meet customer demand,” he said, adding that this would enable the firm to optimise its offerings. The new firm is set to be made up of more than 80,000 employees and have total revenue of €30bn.

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Meanwhile Lisa Davis, head of Siemens Gas & Power, said the mix of conventional and renewable technologies would put the new company in a strong position.

But what impact will it have to bunch Siemens Gamesa with traditional generation once more? Will renewables play a key role in this bigger firm? Or will they end up being diluted?

Well, a lot will depend on the final structure, but let’s assume that Siemens Gamesa will remain a separate entity to begin with. In that case, it appears to be business as usual. Siemens has held a stake in Siemens Gamesa, and it feels largely academic that this stake will in future be held by a different part of the German firm.

In fact, despite a tendency of journalists to see such moves through a negative lens, we think this shift could actually do the renewables arm some good. The strong financial performance of Siemens Gamesa compared to Siemens Gas & Power should mean that renewables plays the central part of the new company's growth, in a similar way as it has at utilities such as Enel.

When Enel Green Power was reintegrated into the main Enel business after a period away, it was because the utility saw green as key to growth. This deal looks similar, and should give Siemens Gamesa a larger balance sheet to support its plans.

Finally, the deal should open up new opportunities for sector coupling. As with other manufacturers, Siemens Gamesa has been looking closely at how it can pair its wind technology with solar and storage in hybrid projects. Putting it in a new firm with gas and transmission should help open up new opportunities and give it a greater understanding of some of the moves underway at major utilities.

It wouldn’t surprise us if some of the Siemens digital operations come into the new firm in due course.

Not everyone has chosen Enel as a comparison though. The more common talking point is about General Electric, and how splitting off the energy operations will help Siemens to avoid the fate of GE as being laden with a complicated structure. What we take from the GE comparison is how strong GE Renewable Energy has done as compared to the rest of the business. That could happen here too.

In our view, this deal should give Siemens Gamesa a bigger role within the Siemens empire – and that, for the rest of the sector, has to be a show of support.