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Schneider’s market value has grown by more than a third over the past year, to about $140 billion. It’s not the only electrical equipment manufacturer booming (see Figure 1). Japanese conglomerate Hitachi’s market capitalization has tripled since the start of 2022, thanks in part to the rapid expansion of its power equipment unit. After a difficult 2023, dogged by problems at its wind turbine unit, Siemens Energy’s shares rose 300% last year, outpacing even those of Nvidia, on rapid sales growth at the German company’s grid technology business . “Electricity is our key driver,” explains CEO Christian Bruch.
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Scott Strazik, boss of GE Vernova, the power equipment company spun off from the group last year, sees a “supercycle” taking shape. The International Energy Agency (IEA) estimates that global investment in grid infrastructure will reach nearly $400 billion in 2024, up from $300 billion in 2020, reversing a downward trend that began in 2017 due to slowing demand in China (see Figure 2). It is predicted that by 2030, annual expenditures will increase to approximately US$600 billion.
Decarbonizing power generation is one factor. Adding wind and solar power, often in remote areas, requires extending power lines and investing in hardware and software to help manage their intermittency. In the UK, the government’s ambition to achieve a net-zero grid by 2030 has prompted network operators to submit investment proposals totaling nearly $100 billion over five years. Even in a United States with an incoming president who denies climate change, investment in renewable energy is expected to continue to grow in the coming years, thanks to plummeting costs for solar and wind energy.
The rising proportion of electricity in energy consumption is the second force driving investment. The International Energy Agency predicts that demand for electricity from clean and dirty sources will grow six times faster than total energy over the next decade as electricity powers an increasing number of cars, home heating systems and industrial processes. By 2035, California alone will need $50 billion in power distribution upgrades to charge its electric vehicles (EVs). Mr. Strazik of GE Vernova believes that this transition from “molecules to electronics” has just begun.
The world’s total energy demand also continues to rise, which is the third force supporting the growing investment in power infrastructure. Economic growth and increasing use of air conditioners are driving demand in developing countries. Goldman Sachs estimates that India’s power grid will require $100 billion in investment from 2024 to 2032 as the economy grows. Energy consultancy Rystad predicts China’s annual grid investment will increase from about $100 billion in 2024 to more than $150 billion in 2030.
Spending by tech giants on artificial intelligence has also led to increased energy demand, which in turn has led to increased electricity consumption and investment. Some data centers consume as much energy as produced by nuclear power plants, requiring network operators to upgrade transformers, power lines and control equipment. To accommodate the growth of data centers, Tokyo Electric Power Company, Japan’s largest power company, plans to spend more than $3 billion on its infrastructure by 2027. The data center boom has also led to a surge in developer spending on cooling equipment and other ancillary electrical equipment.
The final force behind the surge in investment is grid strengthening. Extreme weather events, from deadly storms to raging wildfires, are becoming more common and will cause more than $100 billion in damage globally by 2023. In December last year, the U.S. Department of Energy provided a $15 billion loan guarantee to PG&E, a California power company that has been hit hard by wildfires in recent years, to help it invest and improve the resilience of the power grid. In many wealthy countries, power grids are outdated. In Europe, infrastructure is on average more than 40 years old. “Grid infrastructure is not being built for resilience, it’s for transmission,” said Siemens Energy’s Mr. Bruch.
As investment in grid infrastructure surges, supply chain bottlenecks emerge. Wood Mackenzie, another energy consultancy, estimates that the global shortage of transformers has caused prices to rise 60-80% since 2020 and waiting times to triple to five years or more. This stimulates capital expenditure and innovation among suppliers. Mr. Bruch said his company was investing record amounts of money to address a backlog that now exceeds 120 billion euros ($124 billion). GE Vernova’s electrical equipment backlog has reached $42 billion, and the company said it will invest $9 billion in capital expenditures and research and development by 2028. $3 billion.
Expanding manufacturing capacity would put these companies at risk if the power supercycle does not exist. Growth in electric car sales has slowed in many rich countries. The AI boom could still turn to bust. To reassure shareholders, Andreas Schierenbeck, head of Hitachi’s energy business, said his company has been letting large customers reserve capacity through upfront payments and is moving from customized orders to standardized ones. Designed framework contract. This all makes future revenue more reliable and capacity expansion less risky.
For now, power infrastructure spending shows no signs of letting up as grid operators grapple with rising power consumption, a changing generation mix and aging infrastructure. Mr Bruch predicts these pressures will only increase. “That’s why we’re bullish.”
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