Introduction to Siemens' global presence in the wind power industry
Siemens AG is considered to be a global powerhouse of technology which is well known for its innovation, quality internationality, engineering excellence, reliability as well as quality for the past 165 years. The company already has its presence in more than 200 nations over the world and mainly focuses on various areas like automation, digitalization, along with electrification. That is why Siemen’s has emerged as number one in wind turbine constructions that are offshore and is a major provider of transmission solutions. It has always made the most of wind energy in order to create a sustainable future. That is why the Wind Power division of Siemens caters to the needs of both business as well as environment by providing highly cost efficient as well as reliable wind turbines. With more than 35,000 megawatts of wind power being installed it is capable of delivering wind power solutions that provide clean along with renewable energy from both offshore and onshore installations across the world (Siemens, 2017).
The Growth/ Share Matrix which is also known as BCG Matrix will help Siemens to analyse their wind power unit as well as help in allocation of resources. The two controlling aspects are the relative market share and market growth.
Star is the products or services that have high growth as well as higher market share. In case of power transmission and distribution there has been phenomenal growth seen at Siemens as it has expanded to various countries like India , US, China and Russia. Considering the market share also it ranks first or second worldwide. Wind Power occupied the fifth position globally in 2016 as it installed less number of new capacity both onshore as well as offshore wind turbines as compared to the year 2015. However it still dominated the offshore wind power sector mainly in the countries like Netherlands and Germany. Siemens was able to add 30 percent lesser capacity in onshore sector as compared to 2015 because it was not able to capitalize on growth in the major four markets of onshore. Some of its biggest onshore markets include the US, the UK and Turkey (Spanish Wind Energy Association, 2017).
These are products or services that show lower growth and at the same time have higher market share. Power generation which occurs through wind as well as solar power both in case of Siemens has shown higher growth as there is seen increasing demand for wind power but the amount of investment is little. On the other hand this is a bit expensive form of energy wind power being expensive. The market share for wind power is 75percent of the total sales but it still has limited future as there is still presence of pessimism for fossil power.
Using the Growth/Share Matrix to analyze Siemens' market position
The global investments trends in renewable energy has touched the record mark of $285.9 billion in the year 2015 and according to industry analysts a continuous growth has been forecasted in renewable energy in the coming years. Amongst all the renewable energy sources solar and wind power are considered to be the major drivers of renewable energy market with 56 percent and 38 percent of global renewable investment (RSM International, 2016).
Climate change is considered to be quite real and the root cause of climate change is global warming. There are several studies that show that the earth temperatures are rising. There are several cities in the Persian Gulf that might turn into unliveable zones because of global warming by the end of the century. The simplest answer to climate changes is to create a future that is powered by renewable energy and wind power can play very crucial role in it. Renewable energy and that too wind and solar energy has been a game-changer in case of most of the nations (Goswami, 2017).
AS per the calculations of IEA the global subsidy bill in case of fossil fuel was approximately $490 billion in the year 2014. The subsidies in order to support the deployment of renewable energy technologies were $112 billion in the year 2014 along with an additional spending of $23 billion to support biofuels. Many developed nations are improving and raising their financial backing in order to expand their green energy supplies. China has stood out as one of the leading nations as it spends billions of dollars every year to subsidise the production as well as consumption of both renewable as well as fossil fuels (Kavanagh, 2016).
195 nations created a history worldwide by agreeing to the most ambitious pact towards putting a limit to carbon emissions. The Paris Agreement has been named so because it is in Paris the COP21 meeting of these 195 countries was held in December 2015. This was a landmark accord that set the entire world on track and kept the world temperatures form increasing 1.5 Degree Celsius above the mark they were before the Industrial Revolution (Harrington & Gould, 2017). A framework has been laid followed by every nation so that to adopts clean energy along with phasing out fossil fuel. The US withdrew under Obama Government but withdrew under Trump Government.
Feed in Tariff (FiT) in case of wind is considered to be the major component of the total value which is generated in renewable energy. Feed-in Tariff is being paid per Kilowatt-hour (kWh) of electricity being generated whether it is being exported or being consumed onsite (Renewables First, 2017).
Potential of wind power in creating a sustainable future
Non-renewable sources of energy are considered to be finite in existence and the main sources of non-renewable energy are oil, coal, uranium and natural gas. Coal, natural gas and oil are such substances that do regenerate by undergoing same geological processes that have created the resources which we are using now. But the stakes millions of years and thus is not of any use to societal needs (Xaxx, 2017).
Carbon Credit is a major concept that has been developed by the European Union and it is applicable to all the nations belonging to the category of least developed nations. The demand for carbon credits can be seen rising amongst the organizations. Environmentally benign systems as well as processes need to be implemented. It is evident that one carbon credit is equivalent to one tonne carbon dioxide being mitigated and it really makes sense that the organizations should not carry on business as usual rather they should put in holistic policies related to tax in place and tax measures can be one of the policies (Sengupta, 2017).
Since 2015 , there is seen a growing trend in the automotive sector and thus announcements have been made by forward looking automakers , that they will stop manufacturing cars that are powered by internal combustion engines by the commencement of 2030. Almost all of the electric vehicle manufacturing top ten companies have been planning to expand their offerings in some or the other form for example BMW along with Volkswagen is aiming that their electric vehicles that also includes hybrid ones to account for around 20 percent to 25 percent of total sales of 2025 respectively (Topping, 2017).
UK will have just electric vehicles on road by 2040. According to a report form National Grid, the major demand for electricity will add to approximately 30 gigawatts to the current high amount of 61 GW which is almost an increase of 50 percent. Thus more number of wind farms will be required in order to fulfil the ambitions of government and there is no other alternative to embracing the new technology. There is a manifesto from the government that there will be no more diesel or petrol vehicles on UK roads by 2050 (Swinford, 2017).
The current strategy for both offshore as well as onshore wind power plant is very crucial for bringing down the costs incurred in wind power. It has been able to boost its efficiency by making innovations in generator technology along with creative blade designs (Siemens, 2013). On the other hand systematic modularization helps Siemens to streamline the entire manufacturing as well as installation process. In the offshore wind power currently Siemens is the highly experienced organization in the entire industry. Rather Siemens gets the credit to establish the industry by developing the world’s first offshore wind power plant in the year 1991 in Denmark. With the current decades industrialization , Siemens has worked very hard and broken all the records by becoming world’s largest offshore wind power plants , that is currently held by the 630 MW London Array project that features 175 Siemens 3.6 megawatt wind turbines.
Global investments and trends in renewable energy
Siemens can adopt a Strategic entry method into developing BRICS nations. BRICS nations namely Brazil Russia India China and South Africa offers immense potential for expansions. Especially the Company can outsource its manufacturing processes to fast developing countries that offer cheap labour rates namely China and India. Setting up factories in these countries can help the Company gain considerable access to potentially cheap resources with which it can lower its prices to compete across developed economies. With sourcing of products from costs effective nations, the Company can easily expand into UK and also worldwide with its various functionalities.
On the other hand Siemens also occupies the topmost position in the onshore wind power sector as well and that is why it has also been awarded the single most largest onshore order till date across the world which is a 1,050 MW order that it received from MidAmerican Energy in USA for a series of wind power plants that are onshore in Iowa (Siemens, 2013).
Siemens has always been at the forefront of renewable wind power technology and is a swell known and very well trusted organization across the world. It has its presence across many countries in the world. Being a strong organisation, it has developed great synergy with various other divisions of Siemens.
Should Siemens’ go offshore is very crucial question and at such a rapid speed in order to bring down the costs as well as to reap the macroeconomic benefits. Or it should just remain focused on the cheapest technologies and work on controlling the rise in electricity prices. Offshore wind is considered to be the crucial stone in the energy supply required in future. Thus considering the opportunities as well as challenges while moving ahead by Siemens , offshore wind energy is considered to be quite young as well as pioneering industry which will help in extensive job creations, will decrease fossil fuel imports and at the same time will offer Europe better export opportunities in becoming the world leader in this sector (Hannibal, 2013).
Wind energy being technologically more complex and just have very few key players it makes the sector logically less complex and easier to make entry into.
Onshore is considered to be less demanding as well as less sophisticated in terms of technology. On top of that onshore is quite fragmented and saturated market and there are several players, thus giving rise to tough competition. Moreover onshore wind power will bring in lower energy costs and having onshore wind power will be helping in preventing 975million tons of CO2 emissions per annum by the year 2020. The industry is becoming quite mature, along with that there will be more innovation-led reductions in cost. Over a period of time onshore wind power is emerging as the most favoured solution and has emerged as one of the most valuable energy resources across the globe.
Role of wind power in combating climate change
Onshore wind power makes major contributions towards the economies along with creating jobs and there are projects that include highly diverse range of interest groups ranging from large corporations to private individuals. Due to huge demands in the market on regular basis, there have been technological advances. That’s why onshore wind power is emerging as highly competitive as well as cost effective renewable energy source. Onshore wind power is considered to be very well established and reliable source of energy through which sustainable as well as clean power to various nations worldwide. Asia has found to have largest number of onshore wind power installations followed by America and Europe.
It has been predicted that renewable energy will be the biggest and only source of electricity over the coming five years which will be driven by falling costs along with aggressive expansion in the emerging economies. Renewable energy as suggested by IEA in its annual reports holds great promises for affordable handling the climatic changes as well as in improving the energy security. This report indicates that the portion of renewable energy in power generation globally will increase by over 26 percent by 2020 from 22 percent in 2013. Thus by the year 2020 the global energy generation that comes from just renewable energy will be more than the total electricity demand of Brazil , India as well as China. Moreover the developing economies along with emerging economies will be the ones that will make-up around two-third of renewable electricity expansion by 2020.
Because of sustainable progress in technology the renewable electricity generation costs have reduced in several parts of the globe. On top of that improved financing conditions combined with expansion of the deployment in newer markets combined with better resources will also be of great help. In several parts of the world mainly the emerging economies like the Middle East, Brazil, the United States, India and South Africa, they have the potential to advance and achieve a development paradigm which will be based on renewable power that is quite affordable. Thus it can be said that affordable renewables are all set and will dominate the emerging power systems across the globe (International Energy AGency, 2015).
Some of the possible threat of competitions for Siemens winds power the major barriers are economies of scale and higher capital requirements. Since the wind power sector largely depends on large-scale R&D, thus economies of scale are a major entry barrier. Moreover the wind power sector can be seen moving with the logic provided by the automotive sector (Backwell, 2014) . Furthermore, the automotive sector is again subjected to economies of scale which is another entry barrier for competitors. Then there is another threat of higher capital requirements because wind power generation requires wind turbines which are very expensive as well as complex product. The cost of onshore turbine of Vestas is approximately 1 million Euros per installed megawatt whereas the Siemens wind power offshore turbine costs around 1-2 million Euros per installed megawatt (Smith, 2015) .Switching cost is not a major barrier.
Carbon credits and their significance
The rivalry between the existing competitors is supposed to be very intensive in case the following features are applied: numerous equally balanced competitors, slower growth of industry, higher fixed storage costs, lack of switching costs or differentiation, diverse competitors, higher strategic stakes, higher exit barriers. The wind power sector is not just dominated by single or few companies there are lot many companies that compete in this industry. There is presence of several equally balanced competitors. The industry growth is also not at slower pace rather this sector is except to grow at very fast pace. There are no high fixed storage costs as the sector is totally based on horizontally integrated business model. There are diverse range of competitors like there are many organizations in the market that just concentrate on wind power for example Enercon , Vestas as well as there are wind turbine producers which are part of large groups like GE or Siemens. Thus for multinationals like Siemens wind power is just a minor part of their huge business products. But, there are few companies which exclusively specialise just in wind power like Enercon and Vestas (Backwell, 2014) .
Solar energy can be considered as the direct substitute, but mainly onshore wind power will be providing lowest cost per MW installed power. Solar panels along with wind turbines have been built as combined power plants, thus the two technologies complement each other. IN non-OECD nations LNG and shale gas can also be competitor as wind power installations are not being directed through policies of government. This is not a direct substitute. Thus it can be said that there is not much pressure from substitute products natural gas and solar panels can be called as compliments for wind power not substitutes.
The buyer group is supposed to be much stronger if the following circumstances are true: The wind power is concentrated or purchased in large volumes in comparison to the seller sales, during the growth phase the wind power company like Siemens might juts have one or two customers. In case of wind power the products it buys from the industry indicate a significant fraction of the buyer’s cost of the purchasing done. The main assets of utilities that work in wind turbine division are wind turbines. The products that are being bought from the sector are either undifferentiated or standard and in this case the production output in case of Utilities Company like Siemens is a commodity. Siemens faces a little bit of switching costs, the reason being the utility companies possess a mixed range of wind turbines.
Future of the automotive industry and the need for sustainable energy
The suppliers in this case do not have much power rather they just have little power in wind turbines sector the reason being the supplier groups in case of most of the turbines inputs are found not to be concentrated. Rather the sector acts as very important customer for the supplier groups. The supplier’s product is considered to be important input for the buyers business and moreover the suppliers’ group products are differentiated and have a switching cost as well.
Joint Venture will prove to be a very successful strategy for Siemens to enter new markets as then it can utilise the local knowledge and expertise of the partner to gain a wider customer base in the new markets and profits will be shared.
Low Cost Strategy if adopted by Siemens Wind Power will act as defensive factor amongst all the five forces and this will place the company in quite a favourable position as compared to its substitutes like solar panel or natural gas relative to the competitors in the industry. In order to achieve a lower cost position in total often needs a higher market share or a favourable access to the raw materials. Thus the company like Siemens needs to focus more on volume. Thus it might require on the part of Siemens to design products for ease in manufacturing along with maintenance of wide line of various related-products in order to spread the costs while catering to all the major customer groups so that it can build volume. For this it might require huge capital investments in order to build state-of-art inventory along with aggressive pricing. This once achieved will help in gaining higher margins (Porter, 1980). It can opt for standardization strategy or localisation strategy in which either it can apply similar standards for its products globally or adapt to local standards of the country in which it is conducting its business. This methodology will allow the Company to set up product variants to meet customer demands. Sometimes it might vary while at other it might be kept constant. For example, it can adapt high levels of product standards in developed countries and provide localised products in developing countries.
Differentiation Strategy is the one in which something new is created which is considered to be unique across the entire industry. Uniqueness and differentiation can be in several forms like technology, brand image or features etc. By adopting differentiation strategy Siemens will be able to insulate itself from competitive rivalry as there will be brand loyalty through costs that will result automatically in lower sensitivity towards price. This will also help in enhancing the margins thus avoiding the requirement to achieve low cost position. AS per Porter’s Five Forces Theory differentiation helps in achieving bigger margins that helps in handling the supplier power as well as helps in mitigating buyer power. It can adapt to transnational strategy or international strategy, by which either it can have branches of the Company operating globally or set up offices throughout the world. In case of transnational strategy all operations and management will be done form head offices whereas in internationalisation it will be conducted according to international office’s needs and demands.
Offshore and onshore wind power technology
The above analysis indicates that direct drive technology will be much more reliable as well as robust for wind turbine design as compared to traditional geared design. Innovations done in direct drive wind turbine technology will help Siemens in getting competitive advantage over the other competitors. Where most of the organizations are focusing on offshore wind turbine technologies, the best trade-off for Siemens would be that it positions itself in onshore. Although there is huge focus on the offshore sector, but still the onshore sector has been predicted to be at least 10 rimes bigger. Moreover, onshore wind power is still the cheapest technology that will help Siemens to add new capacities to its grid. The main focus of market penetration strategy is to gain technological advantage along with enhanced efficiency. The onshore wind turbines still cover the major markets worldwide.
- Use Labour Saving Drones by Cutting Offshore Maintenance
Siemens can collaborate with other technology firms like Skyspecs to deploy new kind of drones which make a use of combination of 3D Technology along with digital data capture in order to reduce both the labour costs as well as downtimes. This will help in competing against various other energy generation types by seeking new ways for lowering operation as well as maintenance costs. According to the UK Government’s ORE Catapult Research Centre O&M (operations and management) costs come up to 25% of the levelled cost of energy (LCOE) in case of offshore wind farms. Siemens Wind power can develop drone technology for offshore turbine inspections (Logist, 2017).
- Push Strategy on Offshore
The attention is more on the offshore wind power technologies because the wind resources are available at larger scale as compared to onshore. More powerful wind turbine models need to be developed for offshore use. This will help in increasing the power scalability along with competitiveness along with various other electricity generating technologies.
- Pull Strategy on Onshore
But along with rising offshore trend there are companies that focus on differentiation oriented strategies for example Enercon which works on onshore turbines by making use of a robust direct drive turbine technology as it makes the machines much more reliable as compared to the traditional geared wind turbines.
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