Dietmar Siersdorfer talks to UME about business in the region
Dietmar Siersdorfer, CEO of the energy sector cluster for Siemens in the Middle East, talks to Utilities Middle East about business in the region.
Siemens employees in the region can harbour unusual ambitions. Apart from dealing with pesky journalists, members of the company’s communications department are busy searching Saudi Arabia for a seventy year old oil-fired generator.
The first piece of power generation equipment to be sold by Siemens in the Middle East, the machine is – as the PR team proudly points out - apparently still in operation. The time has now come to repurchase this veteran of its trade and retire it to a museum, they feel.
The ageing generator serves as not only to produce power, but also to testify to the length of Siemens’ presence in the region: the company has been active here for over 100 of its 160 years in existence.
As CEO of the energy sector cluster in the Middle East, Dietmar Siersdorfer does thus not only have his fair share of responsibility to deal with, he is also part of a long tradition.
Perhaps unsurprisingly, Siersdorfer firmly believes in the benefits of a long term approach in a part of a world where a high emphasis is placed on trust.
“We have a long term presence here, and that also entails long term relations with the leaders of companies and with governments in the region,” he says.
“I think that’s a key essential in order to move forward with the business, because a lot is based on trust. Of course you must have the right price, and yes, you have to have the right technology but you must also have good relationships with people, otherwise you don’t get the business.”
Through constant dialogue, customers are informed about the latest technologies, educated as to their uses, and given a heads up as to future developments. Faced with the need to rapidly expand their power generation capacities, governments and utilities appreciate being kept in the loop about new technologies.
“We tell them about things that are far ahead of us today, about the technological developments that will happen in the next three to four years, to guide their nation in the right direction.”
A helping hand
Siemens can count on political help in forming good relationships. Governments worldwide have woken up to the fact that the Middle East, and the GCC in particular, is an area of massive economic growth.
As the regions leaders are pushing for industrial development, and the need for power is increasing, opportunities abound for suppliers and contractors from across the globe. The consequence is a steady stream of visiting heads of states.
The French president Nicolas Sarkozy has been the most notable advocate on the power generation side, having visited the UAE, Saudi Arabia and Kuwait in a bid to profit from the emerging enthusiasm for nuclear power.
France, a major player in the nuclear industry, nevertheless failed to secure the first nuclear deal in the GCC, a US$20 billion contract to built four nuclear reactors in the UAE.
He has since managed to secure a memorandum of understanding with Kuwait to develop the emirate’s nuclear sector. Siersdorfer feels that his company is now well represented by its government. But this has not always been the case.
“Germany has improved a lot. There is frequent support from politics not only for Siemens but for the German industry as whole. When [chancellor] Angela Merkel was here she was accompanied by delegations from German companies.
I believe it is essential that we are getting political support, as more and more governments from the whole world are visiting this region. So Germany needs to do that, and that’s what Germany is doing. It could always be more, that’s clear, but we are happy with the progress.”
The government itself needed to be lobbied before it sprung into action.
“It was observed by companies that the region has a lot of potential. Company leaders like [Siemens CEO]Peter Löscher had been talking to politicians, and convinced them that the region has huge potential and that its necessary to also work together on a governmental level, and I think that’s what been happening in the last few years.”
If establishing durable relationships with customers is important, providing a good service is crucial. “In the past, companies have come from Germany and sold something here, and then the service was not good. Siemens is building the presence and has built the presence in the region for providing services,” says Siersdorfer.
To attain the highest possible level of customer satisfaction, Siemens has a service presence in 16 countries in the Middle East, and are still expanding their regional bases, according to the CEO. The energy cluster offers support to its clients via those bases.
Siersdorfer believes that the company’s service business has been benefiting from a trend in the region towards independent power projects (IPPs).
Around a third of current power generation in the GCC stems from public private partnerships, according to a study by consultants Booz & Co. (see news analysis on pages 11-13) This shift towards private investment has provided a huge boost to maintenance, repair and operations (MRO) providers, thinks Siersdorfer.
“The operating requirements of an independent power project are different to those of government owned utilities. The financing model differs for two reasons.
Firstly, independent power projects fund their projects through lenders, who expect operators to outsource the MRO with fixed contracts to have a better cost overview and secondly, insurers insist on reliable MRO through competent service providers to manage minimize their risk exposure.”
While IPPs are providing a boost to the MRO market, they also ensure that original equipment manufacturers (OEMs) such as Siemens are capturing the biggest share of the market.
The owners of those power plants are required by their money men to go into long term service agreements (LTSA) with OEMs, according to Siersdorfer, who thinks that long term agreements also provide the best return on investment: “LTSA agreements provide long term planning and financing security for funding of big projects for around 15 to 20 years.
Given this, banks and other funders of IPPs, as well as insurers in general demand LTSA for a project. With the privatisation of the energy markets, lifecycle costs and return on investment have become a major criteria in assessing service business.”
Straddling the energy value chain
Siemens is keen to point out that it is the only company in the world that provides products and services across the entire energy value chain, ranging from the oil and gas sector to power generation, transmission and distribution, as well as including automation and controls.
Brought together in the energy cluster, the combination of the different divisions creates a significant amount of knock-on business, says Siersdorfer.
“We formed these sectors three years ago, and we then brought all the businesses together that are related to energy. We are now clearly seeing that this is paying off, and it will pay off even more in the future, as we are now getting more and more business across the different divisions.
That means that if we sell a power plant we also sell the transmission equipment with it, if we sell an oil and gas solution we can include the automation equipment. So there are clearly combinations which we are now selling together, whereas in the past we sold them as individual units.”
Another advantage of this wide portfolio is that, due to economics of scale, Siemens can lower the price it charges customers, asserts the chief executive officer.
In terms of regional sales, the divisions performing most strongly are power generation and transmission. Not only is demand for power growing, but now plants are often built in remote areas,
a trend that Siersdorfer believes will continue.
“At the moment generation and transmission is driving our business. This is because some power plants are in remote areas, which is something you will see more of in future, as they will build the power plants in places where the primary energy source is available, and then transmit the energy.”
The energy mix
To meet rising demand, countries in the Middle East are resorting to multiple sources of energy, which will lead to an increasing use of alternative energies, of renewables and nuclear energy. Nevertheless, fossil fuels will remain the dominant source of power, thinks Siersdorfer, as demand levels cannot be met otherwise.
“We are now in a range of 80 to 85 percent fossil energy,” he says of feedstock use. “According to our internal projections, this will be reduced to maybe 70 to 75 percent over the next 10 to 15 years. Renewables will gain a share of roughly 20 percent, and the rest will be nuclear power and other energy sources that are available.”
Siersdorfer is positive that the region’s leaders are serious about promoting renewable energy, pointing to Abu Dhabi, Egypt and Oman in particular. The problem is that the price of renewable energy still vastly outstrips that of energy generated from fossil fuels.
And, while countries across the globe have resorted to feed-in tariffs, a form of subsidy in which the excess cost is borne collectively by end users, in the Middle East only Abu Dhabi has resorted to a similar scheme.
The alternatives are initial state subsidies and investment in renewables generation, a model that would be in line with the dominant policy in the region of providing subsidised electricity.
Again, Abu Dhabi serves as an example here, with Masdar, the government owned cleantech organisation, launching projects such as Shams I, a 100MW parabolic trough solar plant.
Overall, there is cause for optimism, asserts the CEO. “Renewable energy will come down in price further down the line, when more plants have been built there will be more experience and the economics of scale will come into play.”
Siemens are ready to cater for a renewables boom, and are in discussions about prospective business. “We are active. We have a list of all the projects and we are in talks with all the customers,” says Siersdorfer, who reveals that the company is currently bidding for a wind farm project: “We are looking at a certain wind power project in the region where we have offerings out, we are in negotiations.”
Even more than renewables, nuclear power is a hot topic in the Middle East at the moment.
The fuelling of Iran’s Bushehr plant, which is based on a Siemens reactor the company did not complete after the revolution in 1979, was preceded by Abu Dhabi’s nuclear power plant contract, awarded to South Korea’s Kepco in 2009, and a string of declarations of intent from countries keen to pursue the nuclear path. Most recently, Kuwait announced its intention to build four reactors.
While Siemens offers nuclear technology, Siersdorfer confirms that the company is currently not bidding for projects in the region.
Another key piece in the energy puzzle in the Middle East is making efficient use of resources.
While this is generally associated with energy saving measures on the consumption side, Siersdorfer explains that power generation, too, contains plenty of potential. Fuel gasification technology, previously deployed to turn coal into gas, has evolved, and can now be used to turn residuals from refineries and petrochemical production into feedstock.
“You can take them and gasify them and use that gas to fire into modern gas turbines and to produce energy. This way, you make use of everything you have in your oil and gas value chain, and you don’t have waste anymore.”
What is more, the technology separates the carbon emissions from the newly created feedstock. The C02 can then be pumped down oil wells to boost the output of oil fields. This is an exciting new technology, as becomes clear when one considers the potential of this becoming an effective way of storing carbon emissions.
Siersdorfer sees this technology taking off in the region in future. “I believe the region has all the ingredients. We have the power demand, we have the CO2 that we can capture, and we have a use for the CO2, as we can use it to get more oil and gas out of the fields. You reduce the depletion, you get maybe more than 50 to 60 percent out of the oil well, where previously you would only get maybe 50 percent without any storage.”
Interest should in future be heightened by the growth of the petrochemical sector. As the region is industrialising, it is taking advantage of its oil and gas wealth by growing its petrochemical industry, so increasing the scope for carbon capture.
As of yet, Siemens has not sold this technology. But Siersdorfer asserts that regional sales will be brisk once the technology has been commercially tested. In the Middle East, clients typically like to buy tried and tested solutions.
“I can’t tell you when the first sale will happen, I guess it is an issue of convincing the customer. It’s a new, not a mature technology. But the customers are very interested, I can tell you that.”
Expanding the Grid
Changes are not only afoot in the power generation side, though. The completion of the first stage of the GCC Interconnection Grid in 2009 is the most dramatic development in the transmission and distribution sector in the region to date.
As it allows for the shifting of power between individual countries, it has the potential to ease the burden of peak loads witnessed in the hot summer months, as well as opening up the prospect of a regional energy market.
Siersdorfer is cautious about overstating the potential of the grid to blunt the edge of prime consumption times. (“the peak load is still the peak load,” he says) He believes that only increased power generation capacity can make the crucial difference. But he is sure that an energy market will develop.
“I think it will come, it’s a natural thing that happens when you have such a grid, we have seen it in other regions. When you have surplus, why not sell it?”
Making predictions as to the timing is difficult. “Two years ago we had a big worldwide crisis, which also affected the region, and that has constrained on it, so it’s difficult to say whether it will take one, five or 10 years.”
The other grid related topic on everyone’s agenda is that of smart grids. Intelligent grids are vital in facilitating the introduction of large scale renewable energy production, as they can coordinate the production of power between the various sources, which ensures a steady energy supply despite the inherent instability of wind and solar.
“Renewable energy per se is not energy that you always have available,” says Siersdorfer. A photovoltaic plant will have output interrupted if weather conditions are unfavourable, for example, in which case production at other plants needs to be ramped up at short notice, necessitating a spinning reserve in the grid.
Thus the increasing interconnection of the various generation facilities is driving the development of the smart grid, with renewables becoming a key driver.
“It’s something that we see in other parts of the world where we always sell transmission and the smart grid equipment with wind power plants, for example. So we really have a connection amongst distribution and transmission and the generation capacity.
In order to do that you need special stations to connect into the grid in order to be intelligent enough to react. This is already a reality elsewhere and will become a reality in this region as renewable energy production grows.”
Business as usual?
As a global company, Siemens are well positioned to give an assessment of the impact of the recession that hit markets worldwide.
Siersdorfer is free to admit that business in the Middle East declined as a consequence. But he asserts that the decline was less pronounced than in other parts of the world.
In addition, the company went into the recession with a bulging order book, so while the number of new contracts declined, there was a healthy backlog to work off.
“There has been a lot of investment in the past, so we had a full order book and we had time to work on these projects and get the bulk of these done,” says Siersdorfer. “We didn’t have the best order intake, but this year, and in forthcoming years, I guess, business is looking better.”
He predicts a recovery on all fronts. “We are seeing new projects coming into the market in power generation, transmission and also distribution, and there is a lot of activity in oil and gas. Its time to go into growth mode again.”
In spite of the upward trajectory, business is still some way off pre-crisis levels. “Our projections are definitely on more than a couple of years. Let’s see, maybe we will be there in the next four to five years.”
But, as Siersdorfer likes to point out, Siemens aim to be in the region “when times are good and when times are bad”. And while the recovery might be prolonged, it’s fair to assume that the company will be around to reap the benefits of a few more boom times in future.
Dietmar Siersdorfer in profile
Siersdorfer has been CEO of the energy cluster in the Middle East since June 2008. As such he is responsible for Siemens’ energy business in 16 countries in the region.
He oversees the company’s activities in those countries across the entire energy conversion chain, from oil and gas, fossil power generation, power transmission and generation, renewable energy as well as the service business.
Siersdorfer joined Siemens in 1987 as a qualified electrical engineer, and has previously worked as executive senior vice president for fossil power generation for EMEA and India.
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