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T&D market remains strong

27 July 2009 – After a surge in 2007 and 2008 the demand in the T&D market has overall remained strong in the first half of 2009 despite the global financial crisis and cuts in expenditure in some countries, according to a new report from ABS Energy Research.

Most companies in the T&D market have reported good revenues in the last quarter of 2008 and the first quarter of 2009, indeed several reported record achievements. This is largely because of the surge in 2007 and the first half of 2008 in transmission expenditure, notably in China, the Middle East and India. Some companies reported low orders, especially large orders, in this period, but this must be compared with the exceptionally high performances of two years ago.

The over-riding need for investment in transmission systems which have been starved of funds for years, the drive for energy efficiency and fiscal stimulus programs in many countries have so far kept the market reasonably buoyant.

It has now been recognized that large amounts of the transmission and distribution infrastructure have now reached their design lives of around 40 years of age or exceeded it and in mature countries the emphasis has shifted from new installations to maintaining and replacing the existing aging assets.

There remains the need to expand transmission capacity to cope with increased inter-country exchanges of power and wind power capacity in regions distant from load centers. In many industrialized countries there is a backlog of under-investment to make up. There was a new emphasis on refurbishment and retrofit instead of replacement. This remains the case but budgets have been made available for increased expenditure on capital replacement. There is increasing concern that while managing the assets is an efficient and cost effective way of extracting maximum value from the assets, much of the infrastructure may be reaching a “point of no return” where replacement is inevitable.

On other side of the world, for different reasons there has been a massive surge in T&D capex in China and to a lesser extent in India. This started with the realization that a Soviet style emphasis on generation to the exclusion of T&D had created wasteful imbalances in the system and has been reemphasized by the Chinese government fiscal stimulus program.

Another feature of the market is the increasing share of lifelong service contracts as opposed to one off sales of products, to maximize revenue and profit per customer. In common with other areas of industry the T&D industry is concentrating on signing customers up for repeat contracts by servicing their equipment throughout their life. The cost of acquisition of customers is now so high that it is crucial to extract the maximum value from contracts gained rather than the simple one-off sale.

The internationalization which started in Europe and the Nordic regions is now being replicated in other regions of the world. Perhaps the most notable example of this is the Med Ring which has created a circle around the Mediterranean, linking the Middle Eastern countries with North Africa, from Morocco to Spain to the western European networks and on the eastern side through Sudel to southeastern Europe. This will eventually be linked across the Sahara to the various new power pools in Central, East and West Africa, right down to South Africa.