Siemens spots a €50 billion opportunity

Siemens is not just any corporate. The German-based company, in concert with General Electric and American Bell Telephone Company, is one of the founding fathers of electrical and telecommunication engineering products that underpin our modern way of life.

The computer chips and solar panels that we marvel at rely on a process for purification of silicon that Siemens developed. It makes the best steam, gas and wind turbines for generating electricity that money can buy. Many of the trains and trams that transport millions of us to work every day were developed by Siemens. It employs 400,000 people located across all parts of the globe and generates twice the revenue of Australia's BHP-Billiton.

Siemens therefore knows a thing or two about how to innovate to create lasting economic wealth and improve customers' wellbeing. And the way it is approaching the issue of climate change couldn't stand in starker contrast to the arguments we commonly hear in Australia from some business and political interests.

Roland Busch, Siemens Global Head of Infrastructure and Cities, describes how Siemens is looking to convert climate change and other environmental challenges into an opportunity in his interview with Climate Spectator. Through provision of smarter, more efficient products, Siemens aims to profit from addressing our needs for reliable and convenient energy and transportation, with a greatly reduced impact on the environment and resources. This covers products as diverse as electronic controls for managing energy use in office buildings, traffic management systems, power generation, public transportation, and electricity grid management.

Some of the other key takeaways from this interview were:

-- Achieving a low carbon economy requires large investments in infrastructure assets with operating lives of several decades. Carbon reduction policies that only last for five years or less and can be changed at short notice are completely inadequate. The end result will be an investment freeze that doesn't serve anyone's long-term interests.

-- There is not always a conflict between a better environment and our standard of living. The rising cost of fossil fuels, increasing amounts of time wasted in traffic congestion, and the rapidly rising cost of network infrastructure mean that we could be economically better off employing technologies that also happen to reduce carbon emissions.

-- The availability of smart grid technologies means there are no technical limitations to maintaining reliable electricity supply with very large amounts of renewable energy.

Roland Busch was visiting Australia to engage with stakeholders about their Green City Index initiative to benchmark cities around the world in terms of their sustainability performance.

Please use the links below to jump to specific sections of the interview:

- About Roland Busch and Siemens' Infrastructure and Cities division

- Siemens' overall strategy

- Solutions for better cities and infrastructure

- Smart grids

- Renewable energy and government carbon reduction policy design

About Roland Busch

TE: Tell me a little bit yourself and your role in Siemens – what are the areas you are responsible for within Siemens?

RB: Okay.  Well, I'm a physicist.  I made my career in Siemens.  I was running the Siemens automotive business out of Shanghai for all Asia.  And then the last three years I spent being responsible for the strategy of Siemens globally.  And since April last year I'm responsible… I'm a board member, responsible for Asia Pacific.  And since October last year on top of that job I'm responsible for a new sector called infrastructure in cities on a global basis.  Siemens has four global sectors:  energy, industry, healthcare and infrastructure in cities.  The Infrastructure in Cities sector is seventeen billion euro.  It has eighty-seven thousand people globally.  And the product portfolio includes rolling stock, high speed trains, commuter trains, metro light rail, to traffic management systems, rail automation, tolling systems, airport logistics, airport package handling, postal automation, all products you can think of related to low and medium voltage electricity networks including a dedicated division working on smart grids, and lastly building automation technologies relating to safety, security and energy efficiency solutions … mainly in commercial buildings.

TE: So, with the commercial buildings is it largely focused on system controls for improved energy efficiency?

RB: Yes.  Yes.  We do whole building automation, energy efficiency management, security safety and that sort of thing, just to give you an idea.

Siemens' overall strategy

TE: Thinking about Siemens more generally, the overall company, how is Siemens approaching climate change …the need to reduce greenhouse gas emissions as a business opportunity?

RB: We align our strategy according to mega trends and one of those trends is environment and CO2 emissions.  We believe this is a mega trend that will be with us for the long term, it will not go away.  It will give us tailwind for the next whatever… hundred years.  And therefore we are working on what we call our green portfolio which is a portfolio which is reducing CO2 emissions by certain standards which are clearly defined.  We have an unmatched thirty billion euro environmental portfolio, green portfolio.

TE: When you say a thirty billion portfolio you mean as in revenue or…?

RB: Yes.  In revenue. And it's all euro.  We are going to build it up to forty billion euro, so it's a fast growing business because we see the demand and the demand is not only driven because people want to be more green or want to have more green businesses.  It's an economic factor at the same time because energy prices they go up.  They might fluctuate a little bit depending on whether you're sitting in a crisis or not currently, but overall this is an ever increasing trend and therefore it's a no regret move to save energy and be more cautious about the way you use resources, whether it's water or other resources. This is the reason we are gearing our whole Siemens portfolio towards green technologies.

TE: What are the other mega trends that drive and form the strategy?

RB: Urbanisation, the aging population, globalization, and as I said resources or CO2 emissions reduction or energy efficiency.  If you look at the textbooks on megatrends, you'll find others.. ten mega trends or whatever.  We picked four of them which provide a tailwind for us.  The aging population is tailwind for healthcare, but also for mobility this is something which you have to more public transportation dedicated for the elderly people.  Globalisation is tailwind for us because we are… maybe behind Coca Cola, one of the most globalised companies in the world.  We are working in a hundred and nineteen countries in the world.  We have four hundred thousand people spread around the globe.  We are employing more people in China than any other international company.

TE: Really?

RB: Yeah.  Thirty-five thousand people.  If you take the joint ventures on top, it's going to forty, forty-four.  We also employ sixty-five thousand people in the United States.  So we are well positioned for an increasingly globalised world.

TE: So, how does reducing carbon emissions affect your company… I mean maybe one of the pressures is you have to be able to provide cleaner equipment because you're going to see other markets erode, but do you see this as perhaps playing to Siemens' strengths versus all your competitors?

RB: Oh yeah, sure.  I mean it's not that we are migrating that way by chance.  It's by purpose.  It's demand driven.  You see there's an ever increasing demand in energy efficient technologies, in green technologies.  It's of course also part of our company's values.  I mean we are talking here about a society's needs… but it's also about really making a profitable business.  And one example which always comes up if people are talking about …”well investments in green technologies these cost more”.  Well city governments face tight budgets, they cannot spend money.  But they are my most beloved customers.  Many cities are managing a hundred or two hundred buildings, their own buildings.  And we have engineers, they walk in and they analyse the buildings and they come back with a proposal of how much you have to invest in this building in order to get the energy bill down.  We provide the finance to fund the investments instead of the city, and then we share in the monetary savings from the energy reduction with the building owner.  We essentially bill for the energy reduced.  And finally, since our engineers are quite experienced in finding energy savings it's a very safe bet we'll get energy reductions with payback times of two to four, five years depending on whatever you do and it's a win-win-win for the customer.  I mean even if they don't have money, they will save.  They will reduce their opex,  environmental benefit and we [Siemens] gain as well.

Solutions for better cities and infrastructure

TE: So, you mentioned your business in energy performance contracting with buildings there.  What are some of the other market opportunities that you see within cities and infrastructure?

RB: So let me start by first of all talking about business from the energy sector.  I mean that's the whole renewable pot.  I mean offshore wind, onshore wind, solar, solar panels.  But also, we believe that high efficiency turbines are part of this… if we are going to burn gas or coal then you should burn it in the most efficient way.  That's clear. 

But talking now and going now closer to the city, it's a whole… the whole traffic management for example.  I mean the worst thing that you do is driving a car and standing in a traffic jam. 

TE: You're not going anywhere and you're burning valuable resources.

RB: You're polluting, running your air conditioning and you don't go anywhere!  I mean this is the worst thing that you can do.  In turn, the best thing that you can do is riding a train. I think you get four hundred kilometres per litre of gasoline or even less or half a litre if you run a train.  Compare that to whatever other way of moving people and goods.  So, therefore this is for us one of the big drivers: not only getting rid of traffic jams and getting a solution of how you move people and goods in cities, which is an ever increasing challenge; but also making a clear contribution to CO2 reduction and energy efficiency.  And this is the reason why we are investing in trains as part of our green portfolio. And also those trams (points to trams in Melbourne's Swanston Street).

TE: Okay.  So, addressing congestion has multiple benefits in terms of saving people time and reducing pollution at the same time and perhaps creating a more liveable city.  The counter argument to that, from an Australian perspective, is,

“we've got lots of space, cars are very flexible, rolling stock is incredibly inflexible… and, you know, why do I need this?  This stuff is inefficient.  It's nothing more than really a thing to help the inner city wealthy subsidising public transport.”

 Why is this something that's worthwhile to do when we could be spending the money on roads?

RB: Up to a point where you have not only four million people living in Melbourne but maybe eight, think about without changing the system how that looks like.  People would voluntarily change to metro I tell you.

TE: But if there's no metro there?

RB: But the point is number one, you say you have a lot of space.  It's not quite true.  Australia is the most urbanised country in the world at eighty-nine per cent of your people living in cities.  So, therefore space is… it seems to be an argument, but it's not in truth.  Secondly it's a perception issue, and it very much depends also on how you manage the [public transport] system… How far do people have to walk to the next station?  What's the frequency of metro lines running?  How easy is it to change the modes from a bus to metro or maybe to a tram?  So, there are multiple elements in it and what we found out if it is properly planned, people voluntarily take public transport because it's much more convenient, it's predictable, it's faster than going by car.

TE: So, what's properly planned look like?

RB: If you want an example, then you might go to Singapore. They have a master plan.  They know exactly what to do and how to do it.  Still they have a lot of cars on the street, but they are really planning what they have to do in order to make the people change from cars to the public transportation.  Another example is London for example.  It's very bad driving in London.  It used to be even worse.  When we started off 2005, '06 working with London, we made a plan in combining running 1200 trains between London and the airport.  We equipped buses with a GPS system to run them the best way including hybrid propulsion systems.  We introduced a tolling system for the city.  And this combination of different methods in order to change the traffic helped increasing the traffic flow by thirty-seven per cent and reduced the emissions by a hundred and fifty thousand tonnes a year.  So, this is what I believe is a good plan because people now really they change their behaviour and it benefits the environment as well as for the people.

TE: Why is Siemens sponsoring a global Green City Index ?

RB: Basically, for us it's less hunting business or going for some tenders, it's really more about creating a market, creating the awareness of how you move certain technologies into life.  We know that city governments are not particularly innovative customers.  And it's just because people want to be reelected, and the worst thing they can do is something new that screws-up mobility or perhaps rolling out smart meters just before the election. But they're happy to copy others.  They benchmark against each other.

What we found out is if we have a system where we are bring all these elements of how to manage a city sustainably into a measurement scheme - space planning, mobility, energy use, quality of life - and make it comparable, then it's not just a question of which city is number one or two.  It's more about how do I compare with a comparable city and where am I better or worse. You can engage with the city government on where the deficiencies are. 

On my iPad I can use a spider to illustrate performance against the various benchmarks. So I can show the spider to the Mayor of Shanghai and he says oh where's Beijing on that area of the spider. And then it prompts the question, “Why on earth is Beijing better on mobility than I am?”  And then on my iPad you can go down a level and see what they do differently.  By the way we are comparing within a region.  We do not compare maybe Australia with European cities or with the Asian market or with China's market, but within a certain comparable benchmark. 

TE: And then you can engage with them on a conversation about how do I get better which then helps your business? 

RB: Because normally they say where can I go and see where you deployed your technology?  And they see it come to life.  And since we are one of the most global companies, I always find an example. So for that piece of technology and that size of city you go to this place or that place and this is also in the benchmarking tool which helps us a little bit to see where we can help the city.  So, it's not a tool we use for developing immediate business, rather  we are pushing and supporting the development of an entire market in which we consider ourselves to be the market leader or at least in the top league of our competitors in having the technology answers.

Smart grids

TE: You mentioned smart grids sit within your area of responsibility.  What do you see are the pressures pushing us towards the smart grid technologies… essentially using computer chips to monitor and manage our electricity system rather than passive engineering?

RB: Different drivers for different regions. 

We are coming from a system where you have a central power plant pumping energy from one end to the other end where the customer sits. If the demand goes up, power generation goes up, demand goes down, generation goes down.  I mean that was good in the past. 

Why doesn't that work anymore? 

Number one you have to design the whole system for the peak, right.  Power generation, the transmission distribution has to be designed for the highest peak in the year, even if that peak is only one hour for one year or maybe one hour for five years. You have here one of the biggest problems because your peak demand in Melbourne three to four per cent whereas your average consumption has reduced by three, so when the gap goes up and you have to invest just for the peak this is completely non economic.   

The second reason for doing that is that you have more and more fluctuating energy running into that system.  That means you cannot say that you are producing when you need it, but you produce when the sun is shining or when the wind blows and that means that it's not that power generation follows demand; it should mean also that demand should follow power generation.  That turns the whole equation around.  How do you do that without knowing who is doing what at each point in  the system? 

And the third trend which we see more and more is that the system migrates to decentralised power generation.  This includes photovoltaics which you see on the rooftops, but it is also building towers using a small gas turbine to supply power and heat for occupants.  This is the most efficient way of producing power.  Even a five hundred megawatt highest efficiency centralized power plant cannot compete with the energy-efficiency of a small combined heat and power plant.  But that means that you reverse the power flow.  At a certain point in time if the building is not consuming everything, you push it back into the grid.  That means the whole system, which used to be unidirectional, is now running power in two directions. This means you have to understand what's happening in each segment of the power system.  That is clearly triggering a need for what you normally have in many, many other types of systems which are automated. That you know exactly the status of your system, your sensors and actuators in the system are connected to communicate to each other and you have a smart system on top which is managing the whole thing.

TE: And being able to maintain the power within the specifications that are required?

RB: Exactly. 

By the way smart grid for me is it's too narrow.  You should always talk ‘smart grid, smart consumer' because these have to go together.  The easiest business model for this is commercial buildings or industry because the power bill is a big part of their business, so they are interested in installing a smart meter and adjusting demand to save money.  For residential, it's not that obvious, but if you want to change their behaviour, you have to make them aware of what they're consuming.  Or maybe even you have to talk about different pricing models and motivating them to shift. But it's very simple and you can imagine that every shift of demand within a certain small bandwidth doesn't do harm to anybody – if it's going automatically, even better – but it gives a lot of benefit to the whole system.

Renewable energy and government carbon reduction policy design

TE: We hear a bit of argument around why are we even bothering with renewable energy?  It's variable.  It's unreliable.  What's the point of doing this?  You [Siemens] are at the cutting edge with how do we manage and integrate this.  What do you think are the limits, if any, with the amount that we can integrate taking into account that weather is subject to all sorts of variation in itself?

RB: I don't think there are any limits.  The limits are basically the cost, the pricing of power.  Currently still renewables are more expensive than a coal fired power plant, but having in mind that for example the price for photovoltaics dropped by thirty per cent over the last two years or so and maybe there's still a potential of wind energy going down.  So many renewable energies are getting more and more competitive.  At the same time you have a counter effect of fossil fuels getting more and more expensive.  You have to keep in mind that if you go for oil and gas but maybe not coal, the depletion rate of oil is something like three to five per cent.  That means you have to invest for another three to five per cent more capacity each year just to maintain the level of output, not talking about increase.  Think about how much investment has to flow in.  Think about how that changes the price.  Then you have to go for more. The easy oil is out and you have to go to subsea that gives another cost add on and so on and so on.  So, it's a matter of fact … and we might want to use our resources in a different way rather than just burn it in a car inefficiently. 

Still… I mean it's a balance and we have to find a way how to migrate the whole system in the future without killing the industry. If you would switch from now to then, to a very costly renewable energy that impacts your industry. But the way you do it is very important for the politicians to find ways how to really steer the whole system such that you're sustainably moving in one direction which is laid out clearly.

TE: Okay, on that steering idea… government steering a manageable path I suppose rather than nothing and then shock, who do you see as the leader?  Siemens is a global company.  You're exposed to just about every country that buys power equipment or infrastructure.  What countries do you think are showing or demonstrating that sort of intelligently managed pathway towards a sustainable future?

RB: I mean for me the best example for long term planning is Singapore.  They make a thirty year plan. They break it down to twenty, ten as an executable plan.  And they have to.  I mean they don't have resources, they don't even have water except rain water.  As well that means for them it's just mandatory to have a plan.  And then you see good examples in many places. 

The biggest problem is that sometimes the particular interests of certain industries are overwhelming and giving a certain direction. The other part of the problem is that having a five years legislation period and then maybe another government comes.  That's not supporting the whole idea.  An investment in energy for example, that's an investment for the next thirty years.  On the other hand a long cycle time for government is five years. So you cannot plan if you don't know the path ahead. Maybe it's that the political parties can't come to one conclusion on where to drive things and to stick to that for several  years, which is mandatory, it will block investments.  When I say blocking that doesn't even mean that you're steering in the wrong direction, you just don't invest in certain technologies.  Take CO₂ separation, for example, I mean if you want to do that, you have to be pretty sure whether or not CO2 emission is costly or not, otherwise you would just vent it. To commit to invest in this you need to know now what is required many years into the future.