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Changing gear

UME looks at the current market for switchgear in the Middle East

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Switchgear demand is only likely to increase as demand for power projects around the region continues to rise.
Switchgear demand is only likely to increase as demand for power projects around the region continues to rise.

Demand for switchgear in the GCC has been quieter in recent years but healthy growth is forecast for the future. Utilities Middle East finds out where the demand is now coming from

As a central part of any electrical system, demand for switchgear is directly related to the relative liveliness of infrastructure development in the region – an obvious explanation for why switchgear suppliers have noted slower demand in recent years. Now though, with key factors such as economic recovery and the Arab Spring driving a renewed focus on infrastructure investment, demand is again beginning to pick up.

Current Market
“Switchgear, not being a self standing product, is the heart of any power plant. Since the demand for power is growing day by day, the demand for switchgear will increase likewise – hence the outlook for the market is promising.

We observed a decrease in demand in 2009, but as the regional and global economy gets back on track, the demand is back on the rise,” says Luc Van Dingensen, CEO of manufacturing and trading at Al Hassan Group – Oman’s market-leading switchgear supplier.

This view is confirmed by Frost & Sullivan’s research on the switchgear sector, with the company forecasting a compound annual growth rate in the GCC’s high voltage gas insulated switchgear (GIS) market of over 6.5%, reaching a market value of USD $1100 million by 2016.

“Increasing industrialisation has led to a rapid increase in demand from the industrial sector. We expect that planned infrastructure and construction projects, especially in Qatar and Saudi Arabia, will drive the demand of high voltage switchgears in the future,” says Frost & Sullivan’s head of Energy and Power Systems MENA, Abhay Bhargava.

In the medium voltage switchgear market too, Frost & Sullivan is forecasting growth of between 6% and 7% compound annual growth rate, with the market growing to over $1200 million by 2016. The firm says that indoor switchgear will constitute almost 80% of the total market by that time.

“Rising demand from utilities and industrial units, together with increased housing and infrastructure development, are expected to be the prominent drivers for this segment in future,” Bhargava adds.

Competition and Challenges
Dingensen suggests that the 2009 recession did not significantly impact on the number of competitors, or their production capacity, but his firm has noticed other consequent challenges.

“After the recession in the UAE, and particularly in Dubai, the biggest challenge in the Omani market is competition from foreign manufacturers who are diversifying from the UAE market and are aggressively trying to enter the Oman market.

“This strong competition has led to a price erosion over the past few years. We have consequently invested a lot in the competency of our designers and engineers. This puts us in a strong position to increase our competitiveness due to our capacity to be more flexible to ‘design to cost’,” he says.

Frost & Sullivan, in their recent Strategic Analysis of the GCC High Voltage GIS Switchgear market report, suggest that the high voltage market is dominated by three global companies – ABB, Siemens and Alstom Grid. These three firms hold almost 70% of the total market, with no local companies present in the sector. Only Korea – through Hyundai and Hyosung – has been gradually expanding its presence in the region’s high voltage GIS market.

In terms of other challenges to the sector, Bhargava says, “In the high voltage market, rising material prices and increasing lead times for procurement are two major challenges globally, which are also applicable to the region. With medium voltage, the non-uniformity of regulation and technical specifications across the GCC, together with the delayed execution of projects which increases gestation periods, are specific challenges that the industry faces in the region.”

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Differentiating suppliers
With a market dominated by a few global giants, and aggressive competition between smaller companies, how do suppliers differentiate themselves from the crowd? Dingensen says that Al Hassan has noted an obvious customer focus on cost, together with the reliability and durability of the installation.

“Depending on the client and the nature of the project, the perception of ‘cost of ownership’ may vary. The more professional the application will be, the more the customer will look beyond the initial cost of the installation. Being in the market for 20 years, we understand the customers’ needs, which are often specific to the Middle East,” he says.

Bhargava agrees that switchgear cost has been an increasingly important factor for buyers, but also says that customers looking at high voltage switchgear also focus on technical compliance, quality and services when making buying decisions.

“Similarly, in medium voltage switchgear, we have noted technical preferences revolving around safety and compliance outweighing other criteria. The local presence of the supplier is another prominent criteria that has scored over cost,” he adds.

Technology advances
Looking ahead, Al Hassan believes that demand for GIS technology will only increase due to its greater reliability and reduced maintenance requirements. As such the firm is currently actively monitoring the opportunities the technology offers and is preparing for the implementation of GIS.

“We also see integrated systems being more and more requested by clients, which can result in remote or even completely unmanned operation of switchgear products. This integration, along with the booming telecommunications opportunities, help us offer a reliable and economically viable solution for our customers,” Dingensen says.

According to Frost & Sullivan, despite the dominance of GIS technology in high voltage switchgear, there has been an increasing trend towards hybrid substations – a combination of conventional air insulated switchgear and GIS.

“Additionally, emerging development is expected to be influenced by energy efficiency trends and the emergence of smart grids. Hence, control systems, Supervisory Control and Data Acquisition (SCADA) systems and communication technologies will see an increasing association with the HV switchgear market,” Bhargava says.

In the medium voltage sector, a focus on energy efficiency is also expected to play an increasing role in the development of new switchgear, together with the challenges presented by the emergence of smart grids in the region.

“The increasing trend for enabling control, automation and communication, together with a rising use of magnetic actuators, will also drive development in the medium voltage arena,” Bhargava concludes.

Supplier Focus : Powertech Switchgears
UME talks with Arthi Srinivasan, marketing manager for Powertech Switchgear, about current prospects in the Middle East for switchgear suppliers

How do you view the current demand for switchgear here in the Middle East?
The market is gradually moving forward. We find that any demand for switchgear is directly proportional to construction activities in the region, and we see the growth sectors there as being healthcare, education and hospitality. Our current work is mainly focused on hospitality projects – either the expansion of existing sites or the development of new properties. The scope of our work covers the supply of low voltage panel boards and switchgear to these projects.

So is the market competitive?
The market is very competitive and the demand is there. Whilst the particular level of demand has varied over the last three years, bids for tenders continue for projects in Abu Dhabi, Dubai and the Northern Emirates. The main challenge we see lies in offering competitive prices whilst maintaining operational costs during project execution.

What are buyers looking for when comparing switchgear suppliers?
In the current sensitive market environment, a key driver and decision maker is of course price. However clients are particular about the brand or make of the product, and demand that quality is maintained. In terms of what buyers are particularly seeking, energy efficient and cost effective products are in demand. We collaborate mainly with ABB and are able to maintain the quality guidelines specified by clients.

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