Natural Gas to Hydrogen: Decarbonization with Siemens Energy Canada
This week, our guest is Arne Wohlschlegel, Managing Director at Siemens Energy Canada. Siemens Energy Canada provides a range of energy technologies, including natural gas turbines, grid equipment and digital solutions, wind turbines, and hydrogen electrolyzers.
Peter and Jackie asked Arne about the power equipment business, including how the potential new tariffs could impact the business and new manufacturing investments. They also discuss technologies for generating electricity from natural gas and efficiency rates. Other questions include: To decarbonize natural gas power generation, is it better to blend clean hydrogen into the feedstock or capture the carbon dioxide from the exhaust? What is the backlog for ordering new natural gas power plants and the waiting time for other key electrical components, such as large transformers? What digital technologies can increase the use of existing grid infrastructure? What are your expectations for offshore and onshore wind generation projects in Canada? Hydrogen development in Canada has been slower than initially expected back in 2022; why the delays, and what are your future expectations?
Content referenced in this podcast:
- Siemens Energy Canada
- PETRONAS International Energy Speaker Series, Pulitzer Prize winner Anne Applebaum will be in Calgary on February 6, 2025. Early Bird tickets are on sale until January 10.
- The Ezra Klien Show, podcast with Anne Applebaum “Trump Kicks Down the Guardrails”
- ‘Hype’ meets reality as Canada’s plans to export hydrogen to Germany stall (October 6, 2024)
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Episode 264 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back.
Well, Jackie, it is panel discussion, lunches and dinner season. I don’t know how many I’ve been to in the past couple weeks talking about all sorts of things. That is going to ramp down as we head into Christmas party season now, and then we’re into the new year as the calendar flips. So I know you’re itching over there to do an infomercial on a pretty big panel discussion that you’re going to be hosting, so tell us about it. I think it’s in February, right?
Jackie Forrest:
Yeah, February 6th, which actually February seems to be a very busy conference time.
Peter Tertzakian:
Yeah.
Jackie Forrest:
But February 6th, here in Calgary we’re having Anne Applebaum, Pulitzer prize-winning author, historian and expert on global affairs and I’ll be moderating a session with her here in Calgary.
Peter Tertzakian:
Wow.
Jackie Forrest:
And this is being put on by Petronas International Speaker Series, Haskayne School of Business at the University of Calgary and it’s perfect time to hear from her. She just wrote a book called Autocracy Inc., which is basically looking at authoritarian regimes in the playbook and also looking at how democracy is being eroded by some of these groups who are actually working together, some of these countries working to get their ideological ideas into the west. So I think it’s perfect timing.
Peter Tertzakian:
So what are her thoughts do you know? Have you been in contact? What are her current thoughts on the situation, especially relating to the global situation, the election of Donald Trump, et cetera?
Jackie Forrest:
Yeah. Well, you know what, she was just on a podcast actually, which I will put a link to in the show notes. It was Ezra Klein, he’s that New York Times reporter, he has a great podcast, but she was on it talking about Trump’s plans and picks and the red flags she’s watching for about the weakening of democracy. There’s so much, I just suggest people listen to it. I think she coming to Calgary is a great opportunity for us to get a review.
Peter Tertzakian:
Yeah, she’s a big name,, Anne Applebaum. So we’ll post not only the podcast that you mentioned, but also post where people can buy tickets and go.
Jackie Forrest:
Yes. Yeah. And early-bird pricing till January 10th. I think this one’s going to sell out.
Peter Tertzakian:
Yeah, yeah. Good. Okay. Well, thanks for that. Well, as I said, I’ve been going to countless of these dinners and panel discussions and so on, and almost every single one of them talks about the topic du jour. No, it’s not necessarily Donald Trump, it continues to be AI, the impact of AI on society, the impact of data centers on power demand and so on. So I think we need to talk more about that as well. And so we have gone out to talk about how we’re going to power the grid, which is necessarily, it seems going to be done by natural gas and therefore, natural gas turbines. So who better to talk about generating power from natural gas than our special guest today who I want to introduce is Arne Wohlschlegel from Siemens Energy, Canada. He’s the President and Managing Director.
Welcome, Arne.
Arne Wohlschlegel:
Yeah. Hello, nice to be on your podcast, Peter and Jackie.
Jackie Forrest:
Great. Well, first of all, tell us a bit about Siemens in Canada and yourself like what type of products broadly. We’re going to get into all the details, but at a high level, do you supply and tell us a bit just about the breadth of your Canadian business?
Arne Wohlschlegel:
Sure. So Siemens Energy Canada, Siemens Energy is a technology company, an energy technology company. So we design, manufacture key technology that we use in energy systems and that’s all across the energy sector. So when I get asked by people what do you do, I often tell them that we build power plants. Of course, that’s not everything we do. Energy is so broad and we actually build technology for all kinds of energy systems and that goes into not just the generation site with gas turbines and steam turbines or wind turbines, we also are present on the transmission side. So when you think about AC or high-voltage DC systems, transporting electrons from generation sites to load centers, we build the technology that’s deployed in those systems and this is just one piece of it. Of course, we are also active on the molecule side, so compression equipment, producing hydrogen through our electrolyzers, that’s some other parts of our portfolio. I can get more into it maybe in this podcast.
Peter Tertzakian:
Yeah, for sure. Well, Siemens is one of those companies that has been around, I don’t know, since the mid-1800s and it’s been accredited with the commercialization of the dynamo or what we call today, the electrical generator. So one of those few companies. You know there’s General Electric. Most companies don’t last for a century and a half or more and keep their name. They either get acquired or they change or they go under. But it’s just great to have you because it’s such a long legacy. Surely the history also instills some sense of change because the company has seen so much change over the decades.
Arne Wohlschlegel:
Yeah, that’s right, Peter. 1847 is actually when Werner von Siemens founded the company and we are present in Canada since 1912. The company was first established in Montreal. So you’re right, we started out with some of the electrical generators, but over the century and a half, we have grown the portfolio to be a lot more relevant.
Jackie Forrest:
Okay. Well, we’re going to get into maybe some of the applications of your technology in Canada today, but first of all, you’re an international company and the word of the week or the last two weeks has been tariff. So very curious in terms of your thinking around tariffs. First of all, we may have tariffs on our products that go into the US. I don’t know if you manufacture here and how that makes you think about your manufacturing organization here. Second thing is there is talk that maybe Canada’s going to have to impose similar tariffs on our border to avoid tariffs from the Americans, and how will that affect you if some of the equipment that comes in from the rest of the world into Canada has to be tariffed? So just your thoughts on the long-term implications if these sorts of actions are taken.
Arne Wohlschlegel:
Yeah, Siemens Energy, we are a global company and represented in over 90 countries and we manufacture products really in many of those countries, including Canada. So when I hear about tariffs, it makes things more complicated when you think about buying product and delivering it to our customers globally. So at the end, someone has to pay for that and that makes our products more expensive. We could become more uncompetitive and eventually also electricity prices that the end consumer pays are going up. So in Canada, we have two factories. Actually, we produce aeroderivative gas turbines in Montreal, and that’s exported, that goes into the global market, including the US. And we also produce distribution transformers in our factory in Trois-Rivières, Quebec. And these are the transformers that you see on those poles.
Jackie Forrest:
Like those garbage cans that sit on the electrical poles?
Arne Wohlschlegel:
Exactly, so those garbage cans, but also pad-mounted transformers, they are oil filled. So we produce those and we deliver them to the Canadian market, but also the US market. So when we hear about tariffs, it becomes a bit of a discussion.
Jackie Forrest:
Do you remember when we had Stephen Poloz on the podcast earlier this year? And he talked about how in 2016, 17 or 18 or whenever that was when Trump imposed the threat of tariffs on us the first time as we led up to the trade negotiation, he talked about that how a lot of businesses that were manufacturing in Canada started to worry about that and you know the next manufacturing plant, it’s going in the US. I’m really worried about, even if there are no tariffs levied over this event, that it will cause companies like yours to think about maybe the next plant goes into the US to avoid this because after all that is where the big market is. It’s not here in Canada. Arne, if you can think about how that makes you think about where your next plant will be built?
Arne Wohlschlegel:
We do a lot of scenario planning when it comes to tariffs. of course, our goal is to make sure we can deploy product affordably and be competitive in the market. So when we hear about tariffs and maybe the possibility that we cannot import from a certain country any longer, then we have to find alternatives. And typically, we look at our manufacturing network and go to other factories, but that is not that simple, especially during these times when the demand for products is so high, factories are fully loaded and the lead times are already very long. So what it means is the remaining factory network scrambles. maybe there’s opportunity to shift some of that load from one factory to another and certain factories that are limited with tariffs can supply to other regions, but that’s not guaranteed.
We find that every time there is an announcement or let’s say a policy consideration, it kind of shocks the market and it shocks investment as well. And can you imagine you’re in the middle of a project development and you’re getting ready for a final investment decision, investors often pause at that time, and that doesn’t help us. That slows down project development and project execution.
Peter Tertzakian:
Yeah, yeah. Well, it’s interesting you’re confirming what we suspect that the factories for any kind of electrical power systems are overloaded given the incremental demand that we’re seeing and we are expected to see. And I think just to cap off this conversation on tariffs, what it also does is for, I believe, companies like yours and others is if they’re going to build a factory, they’re not going to build it in a country that has tariffs slapped on it. We talked about that, Jackie, with Stephen Poloz earlier this year, and that factories were just set up in the United States instead of incrementally setting up a factory that is beneficial to us here in Canada.
But let’s move on because I want to talk about what I said at the beginning of the national gas turbines. We’ve had a lot of guests on our program to talk about solar farms and solar panels and wind and so on, but we really haven’t spent a lot of time on natural gas turbines. And it’s so important because it’s really a base load power that can deliver constant and reliable power. It looks like it is the emerging, well, it’s not emerging at all, it’s been around forever, but it is sort of like the leading base load supplier going forward. Maybe we can, Arne, talk about the different types of natural gas turbines that are out there, how they’ve evolved, what their performance is in terms of efficiency, in terms of environmental emissions and so on and so forth.
Arne Wohlschlegel:
Yeah, natural gas turbines have been around for a long time, like you said, Peter. We have a portfolio that ranges from, let’s call it, single-digit megawatt power outputs all the way up to a few hundred megawatts in power output. So most people know they burn natural gas. Compressed air is mixed with natural gas. There’s a combustion process and that drives a power turbine that spins a generator, which sits on the same shaft. So that’s how electricity is generated. The benefit of natural gas-fired power plants today is they can be built relatively quickly. Historically, lead times have been in the range of 12 to 15 months for manufacturing, and then it takes about two years to two and a half years to actually complete a power plant. We’ve been deploying natural gas turbines in Canada in various regions, and it’s still a tool that complements or is very important, it’s a very important technology pathway for power generation.
Jackie Forrest:
So you talked about the ones where the turbine is actually turned by the exhaust of burning natural gas, but there’s also the ones that you steam. Maybe just explain those ’cause I think they’re quite a bit more efficient. And just at a high level, I know it varies by the one, but maybe compare the efficiency of these combined cycle ones with the steam to the standard one that you just described.
Arne Wohlschlegel:
Yeah. The simple cycle is just a gas turbine. Basically, air goes in on one end, it’s combusted and there’s hot air coming out on the other side. And if you take that steam, that hot air that comes out and you run it through a combined cycle process where you basically boil water into steam and run the steam through a steam turbine, you have the ability to generate even more power through the steam turbine without burning any more fuel. So that increases the efficiency. Typically, we see efficiency rates and the record right now stands at 64%, so that means 64% of the fuel is converted into electricity, compared to a simple cycle where you don’t have a steam cycle and you are more in the 40% range. So there’s pros and cons.
The simple cycle is something that you can deploy relatively fast. They’re also very flexible in operation. They’re used as peaking applications to, for instance, offset some of the renewable or the intermittent generation and the combined cycle power plants, they need a little bit longer to get to base load, et cetera, but they are highly efficient and they can be used as a base load tool almost.
Peter Tertzakian:
But the majority of what’s sold, what’s built today is combined cycle because of the higher efficiencies. And you spoke a few minutes ago about the backlog. Can you give us a sense of how long the backlog is? If I were to go and order one today, what’s my expected delivery date?
Arne Wohlschlegel:
Yeah, historically it has been 12 to 15 months to manufacture a gas turbine, but if you order an F-class or an H-class, so these are multiple hundred-megawatt turbines today, they would be delivered in 2028. So there’s a good four to five-year lead time right now that we see for gas turbines.
Jackie Forrest:
And why is that? Is that just because there’s so much demand or less capacity to make them or what?
Arne Wohlschlegel:
Yeah, the demand has really increased over the last few years, really in the last two years. When you compare it to the demand that we had about 10 years ago, it was slowly declining and there’s only so many OEMs in the market that manufacture these gas turbines. Over time, I think what we’ve seen with slow demand is that the manufacturing capacity has really contracted. So there was a lot of consolidation of manufacturing footprint and now with an increased demand, we just have to build it up again, and that affects also the supply chain. So for instance, into a gas turbine there’s a lot of blades and vanes that need to be manufactured for and other components, and that supply chain has slowed down and has to be increased again.
Peter Tertzakian:
Yeah. And where is the surge in demand? Is there one specific spot globally that it’s coming from, or is it broad-based from China to Europe to the US or where is it?
Arne Wohlschlegel:
I think all regions right now have a higher demand, and that’s really driven by, let’s call it, energy transition. I think at some point people had talked about replacing natural gas turbines over time or completely, and I think some realities have kicked in that this is an important tool that cannot be ignored. So the demand really has come back up over the last two years.
Jackie Forrest:
Right. And it may be even coming up more. Do you think that that could be a constraint to some of these very high growth rates that are being projected for electricity that there just won’t be turbines?
Peter Tertzakian:
Data centers, as we talked about earlier.
Jackie Forrest:
Yeah.
Arne Wohlschlegel:
Yeah, and that’s really some of the realities we are thinking are kicking in right now. So the demand forecast is high, especially driven by AI and data centers, and we’re seeing that companies come and they show interest in the technology, they want to buy transformers or gas turbines and realize those long lead times and are struggling with that because their ambitions to build a data center are much, much faster. I heard a data center can be built in 18 months, but if a transformer or a gas turbine takes years to deliver, then that would of course slow down the growth of data center.
Peter Tertzakian:
Yeah. You know what, I don’t want to geek out on the engineering of these things, but I will for a moment here. Is there a critical path item in the specialized materials that are in these gas turbines that are holding things up? I know the turbine blades have to be made with exceeding specifications, really high tolerance, that are often coated with very exotic materials. Then, you have the magnets and the generators and so on. Is there one particular area, these turbines that’s really supply chain dependent?
Arne Wohlschlegel:
Yeah, I think there’s some areas. The blades and vanes, like you described, Peter, are probably the most critical items. They go through various steps during the manufacturing process, right from casting it to machining it to coating it. And this is where we experience the bottlenecks or shortages. So you need a certain amount of blades and vanes to be installed in these turbines. The assembly, of course, we have assembly stands in the factories. They’re also occupied and we work around-the-clock to assemble these machines, but the bottleneck really is our blades and vanes.
Jackie Forrest:
Okay. Well, and is that something where that capacity can be added easily to reduce this, this wait time?
Arne Wohlschlegel:
Not easily, I would say. Of course, it’s a consideration and that’s what we all do. We are expanding the manufacturing footprint to increase the number of turbines that we can manufacture per year. And that really has been the focus right now. So we’ve seen an increased order backlog for turbines and of course, now it’s our task to build out supply chain and our own manufacturing capabilities to deliver on that backlog.
Jackie Forrest:
And I’m sure all these tariff talks aren’t making it easier to make those decisions about where to make those investments. Question, you talked about the fact that there was some lost capacity because for many years people didn’t want to invest in new natural gas generation because of the emissions associated with it. So I wanted to just touch on what you’re doing to reduce the emissions. I noticed on your website, and we will put a link to it, the Atura Power plant in Ontario plans to blend in some hydrogen as a feedstock into their power plant that they just built in the future. Just tell us a little bit about what you’re doing in hydrogen that way, but I was curious, would it be better just to do carbon capture and storage on the exhaust or why are you thinking that going for hydrogen in the feedstock is the way to deal with the emissions?
Arne Wohlschlegel:
Okay, let’s start with Atura Power because I think that’s a really exciting project. So mixing hydrogen into natural gas and burning that mixture in gas turbines reduces the carbon emissions. I think that was the task, that’s the objective. So what we’re doing there is exactly that. We’re installing the blending skid to blend in that hydrogen and combust it in the turbine. The challenge with burning hydrogen, of course, is hydrogen is a different molecule. It has different properties and it requires some adjustments to the system, to the gas turbine itself, to the control system, et cetera. So hydrogen is more flammable, it burns at hotter temperatures, the flame speeds are higher. So there’s a lot of things that need to be adjusted to make sure we can actually do that. And we find that we’ve done actually very successful tasks already. Our goal is to get our entire portfolio to be a hundred percent capable of burning hydrogen.
And one of the successful tests that we conducted was on a 14 megawatt, so I call it a smaller gas turbine. And that was a project in France where we actually ran hundred percent hydrogen in a gas turbine, and that was a huge achievement. And now, we are trying to also do that with other frames. So now back to your question on what’s better, is it the hydrogen pathway or is it the carbon capture pathway. It’s very difficult to say. I think both pathways are technically feasible. I noticed that regions have maybe a preference for one over the other. In Alberta, we talk a lot about carbon capture as the possible pathway over hydrogen blending. And in Europe, we talk more about blending hydrogen into gas turbines and getting a fleet ready for hundred percent hydrogen combustion. The question is always the timeframe. Is it commercially feasible? And we noticed that if you look at the prices right now and what’s possible today, where natural gas prices sit, it is currently not feasible. This is a pathway that we think will make sense in the future.
We also believe that combustion of hydrogen and gas turbine is not the first pathway to choose. We think the chemical feedstock has a lot more value creating hydrogen and using it as a building block to decarbonize maybe the chemical sector that comes first.
Peter Tertzakian:
But it’s interesting that if the goal is to make electricity and you’re able to achieve 64% efficiency with a combined cycle natural gas, and let’s just say for the sake of argument, you can achieve similar kinds of efficiencies with burning hydrogen in the stream, that level of efficiency is actually pretty good. And I haven’t done the back-of-the-envelope math here, but to put hydrogen into a fuel cell and everything else to generate electricity, I don’t think is a lot better. And so electrolyzer to generate hydrogen, then take the hydrogen, put it in a fuel cell, make electricity, seems like a circuitous process that’s less efficient than just taking it and burning it in a turbine.
Arne Wohlschlegel:
That’s a the question, Peter, right?
Peter Tertzakian:
That’s just an observation.
Arne Wohlschlegel:
And this is really where lots of people look at it and say, and probably shake their head too, it’s like, “Does that make sense?”
Peter Tertzakian:
The short answer from me is no, it doesn’t because the efficiency is poor. Right?
Arne Wohlschlegel:
That’s right. In the beginning, the task was to look how we decarbonize the energy sector and hydrogen was chosen as one of the pathways. And actually at Siemens Energy, we also talked about using hydrogen as a building block to really help decarbonize other sectors. Right now, with 64% efficiency in gas turbine combined cycles, I agree with you, it’s highly efficient and that cannot be trumped by burning hydrogen right now. So from an affordability point of view, it doesn’t make sense. So the question is should we ignore hydrogen right now or is that something we should keep following for the future or developing it for maybe other pathways? So I know Europe is still very keen on creating that green chemical feedstock, green ammonia, green methanol, decarbonize, for instance, the transport sector and shipping and also for airplanes, airplane fuel. Those pathways are still being explored and I think we will see progress there.
Peter Tertzakian:
Yeah, I think we’ll see progress. I just feel like the efficiency that we’re describing here is tough to beat. The poor efficiency of these other pathways basically make them far more expensive and I’m not sure they’re ever going to be as affordable.
Jackie Forrest:
But they don’t have emissions, so that’s the thing, right? You still have emissions, it’s 64%, but a lot of CO₂ where-
Peter Tertzakian:
Fair enough, yeah.
Jackie Forrest:
… Hydrogen doesn’t have that.
Peter Tertzakian:
Yeah, fair enough. But I think the other thing is maybe you can comment, Arne, is that the hotter the turbine can run with even more exotic coatings on the blades, the more efficient it can become, as I understand it. And so what is the limit to efficiency? I mean is 64% the limit, the physics limit, or can we go even higher?
Arne Wohlschlegel:
Yeah, I think we’re breaking the record every year, but it goes up in small steps, like a percentage point is huge when you think about the fuel savings and also the emissions. To me, 1% point can save hundreds of thousands of tons of emissions, of CO₂ emissions a year and these are things we need to celebrate and we cannot forget about it. I think for us it’s important to make sure that we understand that gas turbines are also sustainable investment options, especially with the pathway to hydrogen in maybe the future decade when they’re hydrogen-ready and we can deploy them and we can blend in more hydrogen to reduce the emissions even further.
Jackie Forrest:
Yeah. One point, Peter, about the hydrogen. It’s very expensive today, but there are people that believe, for green hydrogen for instance, that there’s going to be this major change in costs over the next 10 years and the subsidies in the US, which may stay around, and we hope they do, are going to drive that. And therefore, even though it’s inefficient, it’ll still be more economic than it is today, right?
Peter Tertzakian:
Sure. But in the here and the now and the pursuit of reducing emissions ASAP and basically also the virtuous pursuit of using less primary energy sources, whatever they are upfront, because all of them have a cost, whether it’s natural gas, wind, solar, there’s a cost to all these things, this pursuit of efficiency is just amazing. And I think, as Arne said, we have to think about the trajectory of these sorts of things as we make our decisions today. And yes, hydrogen has potential, but a lot of people have been saying for quite a while, it’s the next decade story and beyond. In the here and now, the big gains, as he said, even 1% is big news.
Jackie Forrest:
Right, yeah. You’re still using natural gas, but you’re using less natural gas for the same output. Okay. Well, let’s move from generating to moving these electrons in the grid because I’m curious about your grid technologies. Maybe just talk a little bit about them and then we could get into some of the real bottlenecks in the grid space. We hear it’s the biggest bottleneck in the energy transition, maybe worse than generators.
Arne Wohlschlegel:
Yeah, that’s right. So maybe I explain what we do on that side first. So grid technologies, it’s really focusing on transmitting the electrons from generation sites to the customers. And the biggest bottleneck, one of the components is the power transformer. So you have to step up voltage when you generate to transport it high voltage, and then you step it down when you get into the distribution space. So power transformers are, you’ve heard it, the lead times have also gone up significantly. I think on average it’s around three to five years. There’s certain factories that have even lead times beyond that and that’s not great. When you think about it, it takes years to develop the project and you procure, you make the decision to buy a power transformer, you have to wait five or more years, it just puts our goals and ambitions really in question. Can we really achieve de-carbonization, reducing emissions by 2035? So these are very big challenges.
We also have other technologies. So when you think about the switchgear technology, so everything in the high voltage space, these are giant breakers. We have high-voltage AC and DC systems. So these are different forms of transporting the electricity, and these are tools to help with controlling frequency, the voltage and the current. And maybe what’s exciting about this space is also the digital technology that plays a role now. So you may have heard about dynamic line rating. So historically, a transmission line has a static line rating, there’s only so much power you can transmit through a line. But with the help of digital models, we have an ability to actually increase that line rating and generate a lot more flow through the power lines. And I find that very interesting.
So we call this technology grid pulse, and we also have scanning technology now that we use. So imagine a big scanner that’s attached to a drone or a helicopter that can fly along a transmission line, scan the line and create a digital image of the line. And with that data, you can create a digital clone or a model that helps you really with the analysis to see how much power you can transmit through the lines. When I think about that, that is a huge saving. We always have to build out new lines and add more transmission capacity, but just a digital step here can help get more out of the existing infrastructure.
Peter Tertzakian:
Yeah, it’s amazing that the other thing that’s been improving is the amount of power, as you say, the rate of how fast energy is delivered, power through power lines. The amount of power goes up substantially with the increase in voltage. And whereas AC lines, I think, are something like 70,000 volts or 100,000 volts. But now with these high-voltage DC lines, I think is it in China or somewhere, they’re getting up to a million volts and the ability to push the energy through these lines at a far greater rate is just improving dramatically.
Arne Wohlschlegel:
Yeah, Peter, that’s right. There’s different levels of voltage. We have projects that start somewhere, I think, around 69 kilovolt. It goes up to thousands of MVA, like you said in China, for instance. So the projects get bigger and bigger and of course, with that, you need bigger and bigger transformers as well. And when you look at the manufacturing footprint for transformers, we have factories, for instance, in all parts of the world, in Europe and in countries like Germany and Austria, but also in Croatia, in South America, in China and the lead times really have gone up in many of those factories. I think the best or the fastest production we can still get from China today. But again, with the tariff discussions that we had earlier, that bears a big question mark. So let’s say, in China the lead time is currently still between 12 to 15 months, they are still able to meet that, but the ability to really deliver in the future is dependent on those tariff discussions.
Jackie Forrest:
Right. You’re kind of painting a picture to me. You said 2035 may be people’s targets, actually a lot of people have targets like massive growth in electricity demand by 2030. I get that we can get more out of our equipment with digital technology, but I know that these are a lot of regulated systems and they’re not very fast to adopt, some of these digital technologies. And it’s interesting, this high-voltage line, Peter, you talk about it’s in China. I wonder if it’s in the west because our regulators are probably still studying it. So to me, this seems like a real barrier for us to get to some of these goals in terms of the electricity demand growth that people are projecting over the next five or six years. You’re telling me it’s all five years to get a transformer, forget about growing your power demand.
Arne Wohlschlegel:
Yeah. So that’s just a product, right? If you think about a solution, an HVDC solution that takes also years in engineering and the lead times to build something like this could be also up to seven years. So it bears a question on the ability to really expand the grid as fast as we need to. So in my view, in our view, the digital solutions are something that become really, really important. We need to make sure we understand the capability, we use data and analytics to make sure we get more out of the systems and be smarter with demand management and also around maintenance, just thinking about the maintenance concept of anything we do in the energy industry. Often we have scheduled maintenance intervals where we go and check equipment out every one or two years. But now with the availability of data, you can really see the picture, the data tell you when to do what. You really go into that condition-based maintenance model and I’m excited about that because that will increase capacity, availability of assets, and it will probably also mitigate and save on cost.
Jackie Forrest:
Right. Well, let’s hope that when all of these very slow-to-act utilities and electrical system operators start to see this demand pull, that they’re more open to some of these new innovative solutions that are out there. So it’s good to hear that you’re evolving them. I wanted to quickly just touch on, you do have a wind turbine business, so just some thoughts on that. I know that that’s been a difficult business and over the last several years, we’ve seen these wind turbine manufacturers saying they’re not making any money. So has that changed and just what your thoughts are on any opportunity for wind, onshore and offshore, in Canada?
Arne Wohlschlegel:
Yeah, okay. The wind business had a very fast growth rate, and I think the issues that are related to some of the technical, let’s call it, evolution, were probably tied to that huge demand that we had in the past. So yes, we did experience some issues, like in 2023 we actually bought out the remaining shares from Siemens Gamesa and it’s now fully owned by Siemens Energy. We learned about those issues and we took a big ride down in 2023. However, we went through the tough work, working on the solutions to implement the fixes and that’s going on. This is a process that probably takes some time and we’re in the middle of it. But when I look at the growth potential for wind and why it’s so important to have the wind turbine technology in our portfolio, it is a tool to meet the energy demand in the future.
So the growth in the global market for wind turbines is still there, the demand is there. And despite a small pause that we took to fix some of the issues, we’re excited about the growth and we’re looking forward to get back into the Canadian market here in 2025. We are actually building a few projects right now in Alberta. We also installed a lot of turbines in Ontario. I think Siemens Energy has the greatest market share actually for wind turbines in Canada.
Peter Tertzakian:
How about offshore? Are we doing anything in Canada? We’ve got a lot of coastline.
Arne Wohlschlegel:
In Canada, we don’t have any offshore turbines deployed yet. I think the regulation just got issued or received royal assent about a month or two months ago for the eastern provinces. So that market or that development of the offshore market is just about to start. So you can imagine, that will take a few years before projects will see FID and then get constructed. We did see the opportunity coupled with the green hydrogen production in Atlantic Canada. I don’t know if you want to talk about these projects, but we see the momentum, therefore the development has slowed down a bit.
Jackie Forrest:
We do want to talk about those projects. So yes, you supply hydrogen electrolyzers as well. You do it all here, so much to cover. But we were thinking back to 2022 when we were preparing for this podcast when Canada and Germany signed that memorandum of understanding. And we had our Prime Minister, Justin Trudeau and the German Chancellor at the time sign this agreement and I think it was talked about that they would be shipping green hydrogen maybe in 2025. And I don’t know if you caught it, but there was a Globe and Mail article, we’ll put a link to it in October, which was titled Hype Meets Reality as Canada’s Plans to Export Hydrogen to Germany Stall. Didn’t surprise me much, Peter, ’cause we did have a green hydrogen developer on the podcast. I think it was Pattern Energy and it’s just very complicated projects.
But in a statement, the Natural Resources Canada spokesperson, Michael MacDonald said that the 2025 goal was ambitious, but the first shipments will be close to the original 2025 target. I’m thinking they’re not going to be that close, but I’d just like to get a sense. You’ve been in this market for a while. Why has it slowed down? What are your expectations going forward?
Arne Wohlschlegel:
Yeah, I read the article also in The Globe and Mail, and I would agree that these projects are complicated. I think we learned a lot with these projects, with the development of these projects. We were actually in Stephenville when the Prime Minister and the chancellor met and when that MOU was signed. So this was actually a big moment and there was a lot of excitement there for the development of green hydrogen projects. So you had all the developers there and interested parties and investors, so it was good energy. But I think we went through the hard work of developing these projects and that includes feed studies, learning about how this will work, wind to green hydrogen to ammonia, and also what does it take to secure the investment, what the cost of the product ends up to be, and can you find enough takers and so on.
So lots of challenges around something that is new, and I think this is the case for everything. You start from scratch. So this was a new market that had to be established. I don’t want to give up completely. I think we learned a lot from all the activities through feed engineering, modeling the business cases, discussing the off-take needs, et cetera. But the question is now how much has it shifted? I can’t speak to the timelines. I think the developers are much better spaced to talk about it. I can tell you that we at Siemens Energy, we are focusing on the electrolyzer, the manufacturing of the electrolyzer, and we actually made an investment, a significant investment last year into building a production line for these PEM electrolyzers. And we certainly hope that we will see a market there.
Right now, we have probably sold electrolyzers to, what I call, more of the, I don’t want to say smaller proof point projects because some of them are quite significant in size already, and we will learn a lot from those projects. And that can be for the production of pre-ammonia or pre-methanol, sometimes it’s for hydrogen directly. And I think we will learn more over the next few years.
Peter Tertzakian:
Yeah, one of the things about hydrogen, I know we’ve talked about this on the podcast before, Jackie, but we talk as if hydrogen is the primary fuel. It’s not. The primary fuel is water. And the electrolyzer, in my view, is just like a refinery. It takes the water in, which is the primary source of energy, splits it apart, H2O into hydrogen and oxygen, and then we take the hydrogen and feed it into other processes, whether you combust it in a turbine or put it in a fuel cell or make ammonia or whatever. But we should not lose sight of the fact that the primary fuel is another valuable natural resource, which is water.
Jackie Forrest:
Well, and electricity. It uses-
Peter Tertzakian:
And it uses electricity-
Jackie Forrest:
… uses a lot of electricity from something, right?
Peter Tertzakian:
… The electrolyzer does. So I know that the water that goes into an electrolyzer also has to be very pure. You need to pure H2O to produce this process without clogging it up with other mineral impurities and so on. So does Siemens also make the water purifiers upfront and can you talk about the whole balance of plant that’s required around an electrolyzer, which really is what makes this whole thing so expensive?
Arne Wohlschlegel:
Yeah, that’s right. So we need about 10 liters of water to produce 1 kilogram of hydrogen. We don’t make the purifier. It’s the same for many of the components or auxiliary systems in a plant. So we work with a supplier. It might be part of our design, but we would procure those components or those auxiliary systems from our supplier base.
Jackie Forrest:
All right. Well, hey, as we wrap up, you think back to 2022, I’m sure your phone was ringing off the hook with developers of hydrogen projects. I remember there was like, “There won’t be enough electrolyzers out there because there isn’t enough manufacturing capacity.” When you sit here today, is your phone ringing off the hook with these AI data centers? And do you think that two years from now, we’ll look back and be like, “Eh, it was a little more complicated than we thought and not as many of them went forward?” Is it a bit of a hype cycle that we saw in 2022 for hydrogen for AI today?
Arne Wohlschlegel:
It’s hard to say. Of course, we’re getting a lot of interest for understanding the AI and data center market and data center customers that would like to have power solutions or understand the energy side that will power up the power transformer. So we have a lot of interest in that. I would say even more in the US than in Canada. I think some of the utilities or IPPs in Canada, they’re investigating this right now and they’re talking to the data center companies directly. We are more of a, let’s call it, OEM or supply chain. I think data centers would not directly decide to build their own power plant. I think there was some learning there. This is not as simple as buying a generator from Amazon, building a power plant is more complicated. So the IPPs and the utility companies, they see more of that discussion with the data center companies.
But the question really out there is, is the demand as big as they say or will it slow down? Will there be efficiencies in the chip technology that would maybe lower the future demand or will supply chain challenges slow down the demand? Where will these data centers be built? I think there’s a lot of questions that still need to be answered, but we are excited and of course, we are making investments to increase our production capacity. And the goal is to help our customers get these lead times down and keep the product affordable.
Peter Tertzakian:
Yeah. Well, I think one thing we know for sure is that the world is necessarily going to need more energy, certainly more electricity and the only question is how much more. And that will unfold as we get a better sense of the things like data centers, electric vehicles, and many things we haven’t talked about. But it’s been delightful to have you. It’s been super educational. Thank you very much, Arne Wohlschlegel, President and Managing Director at Siemens Energy Canada.
Arne Wohlschlegel:
Thank you.
Jackie Forrest:
Thank you. And thanks for letting us geek out and learn about all these cool technologies today.
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