Technology to power the futureDecember 11, 2017
Javier Pastorino, CEO of Siemens in Argentina and Uruguay, talks to TOGY about the company’s global strategy, the potential it sees in Argentina, the evolution of the power sector and how much further the industry needs to develop, as well as Argentina’s competitiveness. Siemens has been operating in Argentina for more than a century and has been involved in about 80% of the combined-cycle plants installed in the country in the past 10 years.
Siemens has been operating in Argentina since its first project in 1857, when it installed a telegraph system. The company is present in several sectors of the oil and gas industry including natural gas, power generation and distribution and renewable energy, as well as non-energy-related fields such as healthcare and transport.
Siemens accounts for 80% of the power generation capacity installed in the country within the past decade, and half of the 500-kV power stations installed in the past 10 years contain Siemens technology. The company’s technology is used to generate and distribute more than one-third of the energy consumed by the country. Siemens will be involved in 1.5 GW worth of thermal power projects granted in the 2016 thermal power bidding rounds. For that work, the company will install more than 20 high-efficiency gas turbines.
• On the local power sector: “The conditions are already being created so that the sector strongly invests in power generation. Another important thing about this is that it is 100% private investment.”
• On the need for upgrades: “Today Argentina has around 35 GW of power generation capacity installed, 25 GW of which is available. The country aims to install 21 GW more by 2025, almost doubling what is currently available. All this cannot be connected unless there is an upgrade of the network, both in terms of quantity and quality.”
Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Javier Pastorino below.
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How is Siemens’ strategy developing at the global level?
Today at a global level, Siemens is orienting its strategy in accordance with a concept that we call “business-to-society,” because we believe that companies only really succeed if they fulfil the needs of the society they work in. Business has a responsibility for economic and social development, and companies must add lasting value to the countries and communities they work in.
There are 17 sustainable development goals that have been defined by the UN. Siemens has six strategic pillars that cover all 17 of these goals: strengthening the economy, developing local jobs and skills, driving innovation, sustaining the environment, improving quality of life and shaping societal transformation. The whole Siemens strategic plan for its portfolio and divisions are shaped by these six pillars.
Siemens contributes USD 250 billion in GDP creation across the globe. This includes its own turnover, plus the impact of businesses related to Siemens on the rest of the society.
In 2016, Siemens signed a landmark agreement with the Argentinian government, both for financing and investment. Why did Siemens decide to make these commitments in Argentina?
Guided by the business-to-society concept, asking ourselves how we could contribute to societal development and given the change of administration, we realised that we clearly had to continue promoting the development of Argentine society. This is why we immediately put together a strategic plan.
The signing of this agreement was our way of showing what our contribution would be in several areas. One area is strictly technological and involves energy, transport, smart cities, financing and education. We are going to support all that has to do with knowledge transfer and education, especially technical education, to back the creation of jobs that all these projects will generate.
Our idea is to develop this plan over the next five years and we are focusing on energy, by which I mean the areas of oil and gas, thermoelectric generation and renewable energies. I also mean a modernisation of the whole transmission and distribution network, including transmission lines of 500 kV and 132 kV.
We are also focusing on mobility, expanding and modernising railways, railroad cars, railway equipment, and the electrification of the system, as well as modernisation in terms of signalling and digitalisation.
A third focus is on the modernisation of the industrial sector, including automation, digitalisation and energy efficiency concepts, all aligned with the need to improve competitiveness.
Lastly, there is the concept of smart cities, and with the city of Buenos Aires, we have already begun analysing energy consumption and seeking energy efficiency opportunities. According to our knowledge and expertise at a global level, with the application of technology, one can save 15-20% of consumed energy for a city such as Buenos Aires.
How is the domestic power generation sector evolving?
Focusing strictly on generation, we are very optimistic, as things are already occurring. There was a first tender for thermal energies in 2016. The government was thinking about awarding 1 GW and received offers for approximately 6 GW. It ended up awarding about 3 GW in generation projects. This first tender was a complete success and we did very well in it as a technology supplier. Today, Siemens is installing around 1.5 GW of power generation projects corresponding to the first thermal power tender. This involves the instalment of more than 20 high-efficiency gas turbines, many of them being financed by our company.
A first renewable energies tender was also very successful. The government had 1 GW in mind and received offers for 6.6 GW. It awarded about 3 GW, too.
Today, a new tender for thermal energy is open, which on one hand has projects involving the closing of combined cycles, many of which are cycles from that first tender, plus the closing of other cycles that were open, as well as co-generation. This has also been a very successful tender. There were offers for about 3 GW and in September 2017, the government awarded 506 MW of cogeneration projects. The remaining projects had until October 6 to improve the price of the energy they offered. On top of this, new tenders are expected for renewable energies and for greenfield combined cycles.
I would say that the conditions are already being created so that the sector strongly invests in power generation. Another important thing about this is that it is 100% private investment.
What is the potential for renewables in Argentina?
The government’s goal is to install 21 GW by 2025, 10 GW of which should be in renewable energies. I think Argentina’s objective to raise the contribution of renewables from 2% in 2016 to 20% in 2025 is challenging, but doable.
We have the world’s best winds for this activity. In Germany, the capacity factor of these projects is 20-25%, in the North Sea it is 30-35% and in Patagonia we have winds that can reach 50%, and in some cases, even more. The wind resource available in Patagonia is by far the best in the world.
The solar radiation level in San Juan, San Luis, La Rioja or Catamarca is the same as what you can find in the Sahara Desert, which is considered the best radiation region in the world. Therefore, regarding renewable energies, Argentina has solar in the northwest and wind in the south, and both are resources of exceptional quality. Hence, it is realistic to think about installing these 10 GW, and both the public and private sectors are already doing their part.
What role will gas-based generation technology have in Argentina’s upcoming projects?
Siemens is leader in terms of technological development in natural gas-based power generation. There are new technologies based on the development of the already existing gas turbines that lead to efficiency levels superior than those known today. The application of these new technologies for combined cycles is what we are considering for some of our next projects in Argentina. The fact is that gas-based generation will still play an important role in the local matrix.
How well developed is the country’s electricity transmission and distribution segment?
Today Argentina has around 35 GW of power generation capacity installed, 25 GW of which is available. The country aims to install 21 GW more by 2025, almost doubling what is currently available. All this cannot be connected unless there is an upgrade of the network, both in terms of quantity and quality.
On one hand, there is a high-voltage transmission network in 500-kV lines, and what is called the sub-transmission network, in 132-kV lines. New substations are required to incorporate all the new power that will be generated.
On the other hand, it has been proven that, for transmission over very large distances, it is much more efficient to do so using direct current. Thus, for large hydraulic projects that might be in the northwest or hydraulic and wind power projects in the south, for example, we see the potential to install HVDC [high-voltage, direct current] transmission lines. We then see a modernisation in the 500-kV and 132-kV transmission and distribution segment of the present network, as well as an upgrade of the network in all that refers to direct current for transmission over large distances.
When we talk about modernisation, the smart grid concept is also included as a key element. Thus, the distribution and transmission areas are also a very important focus in Siemens’ business strategy.
Many feel that a developing country such as Argentina cannot afford to support renewable energies when it still has plentiful natural gas resources. What is your take on this debate?
I think they are completely complementary. We must make use of the renewable sources we have. We also have gas resources such as Vaca Muerta, which is the second-largest unconventional gas reservoir in the world. Therefore, this is also a resource we can make use of. Renewable power has intermittences. Gas, in the thermal power segment, is the most efficient and cleanest feedstock and can be used as a backup for the intermittences.
What is Siemens’ agreement with Grupo Albanesi based on and how does it play into Siemens’ strategy in the country?
We try to build a relationship with our customers in terms of partnerships, and not only to position ourselves as a technological supplier. In this sense, we have a strategic alliance with Grupo Albanesi, with which we have been working with for many years. We have a value proposition concerning generation that is not restricted merely to technology provision, but that involves project execution. We carry out projects, not only delivering turbines, but also with what we call extended scope, which in many cases leads to a turn-key scope. We also support these projects with financing.
This allows Grupo Albanesi to submit power generation value propositions that are extremely competitive. Thus, this is a win-win situation, where we work closely together and this is a virtuous alliance.
Can you elaborate on Siemens’ role in financing?
We have a value proposition that is generally based on specific projects, and this is strongly client oriented. In this client orientation, we try to find out what the client really needs and if he needs certain financial support. Whatever it may be, we try to provide it. Of course, this has its corresponding risk analyses, but we support our clients, not only with a technological execution strategy, but also with an extended value proposition that includes financing models.
How technologically and industrially capable are Argentine companies and workers?
We have very good and trained human resources and I think that is one of the differentiating factors that exists in Argentina. On the other hand, all the previously mentioned challenges regarding the need to improve – for example, in infrastructure, transport and energy efficiency – will require a big demand in training.
This is why Siemens is not only focusing on providing technology. We are also creating initiatives for training and qualifications, to contribute to projects and society. This is being done under several models, such as German dual education which has been implemented in Argentina to achieve high technical qualifications.
How competitive is Argentina compared to other markets?
Argentina is very well positioned because of the resource it has. If the market conditions continue consolidating a sustainable investment environment, plus the natural resource Argentina has, then Argentina is very promising.
Other countries in the region also have good energy resources, which is why I think that these countries will advance in complementary strategies in the medium term. Today we have complementarity with Paraguay, Brazil, Chile, Bolivia and Uruguay. I see a future atmosphere of more energy collaboration and integration at a regional level, and this will even improve individual and regional competitiveness.
Where would you like Siemens to be positioned in 2022?
Today, our strategy is based on the six business-to-society pillars and the way this strategy is materialised in our portfolio, which focuses on electrification, automation and digitalisation.
Regarding electrification, we are working very hard and successfully. All the modernisation of the transmission and distribution network has to do with electrification of society and in five years, this will continue to play a very important role, and we will be present there as a market leader.
We are also very strong in the automation segment, in multiple markets such as oil and gas, power generation, the industrial sector and mobility. Here we see many opportunities with the ongoing recovery of the economy.
Finally, there is digitalisation, which means making the real world digital and applying intelligence to discover new value. I foresee exponential growth in the digitalisation area, and we are today working on concrete digitalisation projects with many customers in different market segments.
In conclusion, in these 160-year presence in Argentina, obviously the country and our company have changed substantially, but what we have maintained and believe has been essential for our company to remain successful over time is our long-term vision, innovative capacity and focus on bringing value to society, our employees and shareholders.
Within the framework of this strategy, we not only ensure an effective contribution to society, but also orient our portfolio to meet the needs of the country and, at the same time, generate motivation and pride in our employees, feeling that our purpose as a company is to generate a positive impact and leave a lasting legacy. This vision will continue to guide our actions in the country towards the future.
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