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Siemens announced massive cuts last week that would eliminate 2 percent of the industrial giant's workforce. Nearly all of the layoffs will come from its Power and Gas division, reducing labor on its power plant turbine business.
“Renewables are putting other forms of power generation under increasing pressure,” Siemens management board member Lisa Davis told Reuters.
In a call to reporters, Janina Kugel, another board member, put it in starker terms: “The market is burning to the ground.”
The decision from Siemens is just the latest in a line of corporate come-to-Jesus moments on renewables, where a company, somewhat belatedly, recognizes the renewable energy transition isn't slowing and must make a sharp pivot to keep up.
Similar struggles have befallen companies such as General Electric, which also just announced a restructuring that will focus more on renewables, and Westinghouse Electric Company, whose bankruptcy has upended what little remained of the largescale U.S. nuclear industry.
The International Energy Agency, in its 2017 Energy Outlook titled “A world in transformation,” reported that two-thirds of power plant investments through 2040 will go to renewables. By that same year, renewables will account for 40 percent of total power generation, with solar leading.
In the shorter-term, IEA says clean energy will account for a third of power generation, or 8,000 terawatt-hours, by 2022. In a recent report DNV GL wrote that by 2050, “the electricity system, its culture and its personnel will be unrecognizable.”
With the energy transformation already underway, Siemens, too, may look entirely different.
While turbine producers including Siemens have the capacity to build 400 gas turbines a year of 100 megawatts or more, demand for turbines of that size now sits around 110 a year. The completion of a $9 billion turbine order in Egypt has Siemens staring down its future.
In recent years, both GE and Siemens have attempted to maintain an edge in the turbine market, competing over an acquisition of third largest producer, Alstom, and buying up smaller businesses. But now that demand is decreasing, neither company wants to be left holding the bag if profits plummet. According to The Wall Street Journal, orders from Siemens Power and Gas division fell by 31 percent in the last fiscal year.
Though consistent with market trends, the changes are not without controversy. The fallout from Westinghouse’s bankruptcy is now being picked apart in Georgia and South Carolina courts and commission rooms. GE's shares dropped over 7 percent after its restructuring announcement. And in Germany, where Siemens will carry out about half its layoffs, thousands of workers took to the streets to protest on Friday.
After the backlash, Siemens’ human resources chief said the company could reconsider its plans. But that may just delay the inevitable.
"If this business is going to have a future, then we have to react,” said Siemens CEO Joe Kaeser. “Even if that means painful cuts.”