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1 October 2020

Siemens Energy tries to hide dying gas business behind clean power

Siemens’s new energy spin-off, aptly named Siemens Energy, went public this week, listing on the Frankfurt Stock Exchange with an initial value of €16 billion. Since its IPO, with an opening price of €22.01 per share, the stock fell to €20.46, before rising to around €23.00 today, highlighting how difficult investors are finding it to evaluate a company with established presence in both fossil fuels and renewables.

The company has maintained an agnostic approach through its aim to manage generation and transmission infrastructure within energy systems, but while many are suggesting that it is a step away from Siemens’ business in gas turbines, it’s Vision 2020+ strategy concept may simply be a way of hiding it behind pictures of wind turbine and solar panels.

The move itself is not so much of a spin-off as a structural realignment of its existing business. The Siemens Energy brand will bring together the group’s 67% share in Siemens Gamesa and its Power and Gas segment, to create a company with annual revenues estimated in the region of €30 billion. In fact, the technology covered by the company is used in one-sixth of the world’s power generation.

The logic of this merger seems to go against that seen throughout the rest of the energy transition. Companies like Siemens, which are embedded in the fossil fuel sector have so far raced to spin-off stand-alone renewables subsidiaries, where growth has been stronger and more consistent. Siemens is trying to balance its fossil fuel legacy with its new renewables business, but while the company is still supporting its old friends in oil and gas, investors in clean energy – like those that have ploughed money into Siemens Gamesa – will be skeptical. It may be better in the long run for the new management to run this for a year, and then split it once again into two or more businesses – one strong renewables company and a just as strong transmission business, and a shriveling fossil fuel equipment vendor.

Like we saw through rival GE’s long overdue promise to leave the coal market last week, Siemens is proving similarly slow in phasing out its fossil fuel plans. Both companies will now try to flood the press with their growing clean energy businesses, without taking the sudden financial hit of giving up on gas turbines.

With companies facing the reality that the demand for commodities like oil and gas may not truly bounce back until a vaccine is released at scale for Covid-19, if at all, this move provides Siemens with some consolidation in the short term. While orders and profits are being squeezed in fossil fuels, turbine orders will remain dented, which the company will aim to offset by growth in its renewable technologies.

This can be seen in the company’s market cap of €16 billion. The fact that Siemens Energy holds 67% of Siemens Gamesa, means that more than €10 billion of the spin-off’s value lies in its wind power segment.

In terms of saving its power and gas business, one key option that Siemens has is to go hard at green hydrogen. While using hydrogen for power generation in turbines or aviation may be way down most people’s list of priorities compared to industries like heavy transport (see Rethink’s new report, “Europe goes all in on hydrogen for the transport economy”), once the world reaches a point of oversupply around 2040 and natural gas prices get driven up by carbon pricing, any leader in hydrogen turbines will shoot to the top of the tree.

Siemens has already teamed up with Engie to create a power-to-x-to-power system, using a turbine which could be shifted to operate on 100% green hydrogen, which could be essential in Siemens Energy’s future operations.

Other initial activity for Siemens Energy will also be bolstered by a backlog of €70 billion in projects, while recent deals have included supply agreements for Semco Maritimes electrical service platform for the 1.6 GW Mayflower offshore wind project in the US and the transformer substations for the 1.4 GW Viking Link transmission between the UK and Denmark. Other activity includes a long-term partnership with EnergyNest for the development of modular thermal energy storage.

The company also announced this week that it would team up with WUN H2 to develop a 6 MW green hydrogen facility in Bavaria, Germany, using Siemens’ Silyzer 300 electrolyzers from 2021.

Through the spin off, Siemens’ shareholders have taken on a 35.1% share of the company, with a further 9.9% transferred to the Siemens Pension-Trust, while the rest have been floated on the public market. Siemens has already stated intentions of significantly reducing its equity stake in the company as it grows over the next 12 to 18 months.

Once settled, Siemens Energy should be financially independent, according to Siemens, and should become “more transparent and leaner, with a clear focus on the core business of its industrial units.” Without dedicating itself to any explicit clean energy transition, this inevitably means that the company is trying to shield its value while it transitions towards a long-term future in clean power.

The listing of Siemens Energy has now completed Siemens’ separation into three independent companies – Siemens AG, which concentrates on digital transformation; Siemens Healthineers; and Siemens Energy. “The separately listed companies will be in a significantly better position to tap the individual businesses’ value-creating potential than would be possible in a conglomerate,” claims Siemens CEO Joe Kaeser.