Siemens Energy plans U.S. power grids push to tap into IRA boost

May 30, 2023
By Christoph Steitz

Christian Bruch, Chief Executive Officer of Siemens Energy AG attends Siemens Energy's initial public offering (IPO) at the Frankfurt Stock Exchange in Frankfurt, Germany, September 28, 2020. REUTERS/Ralph Orlowski

HAMBURG, May 26 (Reuters) - Siemens Energy (ENR1n.DE) is considering setting up production in the United States to help modernise the country's power grid, keen for a slice of what is expected to be a multitrillion-dollar market following the Inflation Reduction Act (IRA).

The deliberations are part of a broader rethink at the German power conglomerate to expand its foothold in the United States, where it makes 15% of sales, as favourable regulation is providing a boost to renewables and hydrogen capacity that requires state-of-the-art energy networks.

It also comes at a time when the United States and Europe are drawing up competing plans to make it more lucrative for industry, ranging from utilities to steelmakers, to expand businesses despite soaring energy and raw materials costs.

"What drives the U.S. market is the long-term predictability of subsidy conditions under the IRA. Any investor can fairly quickly do the maths on the back of an envelope to figure out the benefits," Chief Executive Christian Bruch said.

"This is much simpler and clearer than in Europe," he told reporters following a town-hall with staff in Hamburg.

While Bruch tried to assuage fears that a bigger presence in the United States would not come at the expense of investments in Europe, he said that the company would have to think carefully where to allocate its resources going forward.

U.S. power grids are not directly benefiting from the IRA but will require around $2 trillion in investments by 2050 to make sure that energy sources eligible for support, including renewables and hydrogen, can be integrated.

"This means that one has to invest in manufacturing capacity," Bruch said.
So far, Siemens Energy has catered for the U.S. power grid market out of Europe and Latin America, Bruch's fellow board member Tim Holt, who is in charge of Siemens Energy's U.S. business, said.

SUBSIDY RACE

But the group is now assessing whether to set up production of network equipment such as transformers, a key component of energy grids, locally, Holt said.

Depending on whether these would be greenfield sites or building on the group's existing 26 locations that include hubs in Florida, North Carolina and Texas, a factory could cost a triple-digit million euro sum.

"Customers would be willing to enter into firm off-take agreements even now if we were to build plants in the United States," Holt said.

The comments follow recent plans to restart two idled onshore wind turbine component plants and build two new offshore wind turbine production sites in the United States, provided the group is successful in local government tenders.

Building local offshore wind turbine factories was costing "substantially less" under the IRA than in Europe, Bruch said, also noting the legislation's positive impact on the hydrogen value chain, a field where Siemens Energy is active, too.

The group is currently ramping up electrolyser capacity at its Berlin plant in a joint venture with France's Air Liquide (AIRP.PA), with Bruch saying U.S. customers had already made capacity bookings.

The Hydrogen Production Tax Credit, a key component of the IRA, provides a 10-year federal tax credit of up to $3 per kilogram for clean hydrogen produced after 2022 from facilities that begin construction prior to 2033.

Bruch said the hydrogen credit was similar to a $160 subsidy on each barrel of oil, adding that while the U.S. market would be served from Berlin for the time being, the assembly of stacks could take place locally if the group wins big projects.

"The U.S. is now driving commercial projects in hydrogen that really fly for the first time."
($1 = 0.9084 euros)