India a keystone for Hitachi Energy supply chain amid global power crunch: CEO
New Delhi: India has emerged as a cornerstone of Hitachi Energy's strategy to de-risk its global supply chain, as the company looks to diversify sourcing amid geopolitical conflicts and trade tensions, chief executive officer (CEO) Andreas Schierenbeck said.
Schierenbeck said rising demand from data centres and the shift from oil and gas to electricity across industries have intensified industrial power needs in recent years, creating a mismatch between supply and demand. He cautioned that while data centres can be built in 1-3 years, planning and setting up the power generation and transmission capacity to serve them can take around 10 years.
He added that meeting demand for power equipment requires long-term framework agreements, better visibility into demand and capacity reservations. Hitachi Energy manufactures high-voltage direct current (HVDC) transmission equipment, energy storage solutions and power semiconductors, among other products.
"India is one of the biggest markets for us. We are growing, we are investing. We are investing even more with time, so it's really a keystone of our strategy for global supply chains, because the other thing what we are doing is we want to de-risk our supply chains. It means we diversify, that means we're not producing only in one area and two areas. We want to have a global footprint," Schierenbeck said in an interview.
In July, the Zurich-based company began construction of a new large power transformer (LPT) factory in Karjan, Vadodara, which will require about ₹2,000 crore investment. The new large power transformer factory will complement Hitachi Energy India's existing facilities in Gujarat that make power, dry-type distribution and traction transformers, as well as its factories producing transformer insulation and components in Mysore and Halol.
The company has 19 manufacturing units in India across eight locations. Hitachi Energy has emerged as a key supplier of transformers, high-voltage systems, and automation solutions for transmission and renewable projects. It also provides transformers for railway locomotives.
Highlighting that the company also serves the global market from its Indian facilities, Schierenbeck said: “We have a very easy strategy for India. We call it 'India for India and India for the world'. All our investments are actually directed in a way that we can fulfill the requirements of the local market, and that we can export. If it's transformer production or it's an engineering centre as in Chennai, where we just have hired 2,000 new colleagues, this is dedicated to the Indian market and to the export market.”
Speaking of the growing demand for power components, including transformers, both in India and globally, Schierenbeck said that there is a significant gap between demand and supply, and would require long-term contracts and capacity reserves to narrow the gap.
"Supply and demand are not in balance at the moment, but it will eventually be in balance, even if it'll take probably a long time because the timelines of the different areas of what we are dealing with are completely different. Adding a data centre, big consumer, or building a data centre, in India, it requires two years, adding generation, with planning in most of the parts of the world takes 10 to 15 years and building up a factory in a greenfield way, it requires three to four years," he said.
He noted that demand in the US and Europe had slowed for about 15 years, but the energy transition and growing need for next-generation components have since driven a global demand surge, worsening supply constraints.
“15 years of no growth makes everybody in the industry cautious, especially shareholders. So, it can only build if you have a bankable business case. Now, actually, it's a seller's market. You have to come to framework agreements, capacity reservations. If our customers tell us what they need in the next four, five, six, seven years, and what kind, and we can standardize it, then we can lock it in, and we can plan for that.”
According to a September report by McKinsey & Company, global transformer demand is expected to rise by around 40% by 2035 due to electrification, renewable energy expansion, data centres and rising investment in power grids. The global transformer market is entering a second phase of what it describes as a transformer “supercycle”, with demand projected to grow at about 3.5% annually through 2035. Supply, however, is expected to remain a limiting factor for several years, it said.
Transformers are a critical part of electricity infrastructure, connecting generation assets to transmission and distribution networks and helping deliver power to end users. India, with its ambitious plans to achieve 500 gigawatts of non-fossil capacity by 2030, is also a major demand centre for transformers and other power components.