Hitachi ABB: aiming to transform power grids

Above: Hitachi ABB Power Grids HVDC converter station

“It’s a very good fit”, says Bruno Melles, speaking of ABB’s recently completed divestment of its Power Grids business to Hitachi and the formation of a new force to be reckoned with in the T&D business: Hitachi ABB Power Grids.

Bruno is a member of the new entity’s executive team and managing director of its transformer business unit. “We have very
few areas of overlap”, he says, “while the complementarity is outstanding. We are going to focus on areas where we complement each other and then step-by-step gain an understanding of how any areas of overlap can be leveraged. I have always believed that areas of overlap bring something positive to both parties in an acquisition” – a view based
on his 25 year career with ABB, which has included senior management positions in low voltage and medium voltage products, as well as transformers.

He sees the divestment to Hitachi in the context of ABB’s overall strategic realignment announced back in 2016. At the end of 2016, Power Grids embarked on the Power Up transformation programme, which focused on sharpening its portfolio and business models to deliver sustainable growth. This was headed-up by Bruno Melles, who was also, appropriately enough, MD of ABB’s transformer business.

Other initiatives included sale of the cable and solar inverter businesses, and a strategy of de-risking. The latter meant “stepping out” of the turnkey EPC role in areas such offshore wind converter platforms and AC substations, and instead forming specialist JV alliances with the likes of Aibel, Fluor and SNC Lavalin.

The beginning of a close connection with Hitachi can be traced back to 2014, notes Bruno, and the announcement at the end of that year of an agreement to set up a joint venture to implement HVDC projects in Japan, with Power Grids providing cutting edge HVDC technology and Hitachi acting as prime contractor and drawing on its project management and quality assurance expertise. It was described, presciently, as “the first step of a strategic partnership between Hitachi and Power Grids to contribute to the evolution of Japan’s power network.”

At this time, Japan’s power sector was in the throes of major change and reform, with a strong push to renewables, recognition of the need to strengthen and better integrate the different electrical systems across the country, and a realisation, according to Bruno, that increased deployment of HVDC for regional interconnections and offshore wind applications and in particular VSC (voltage source converter) based HVDC technology would lead to more efficient power transmission in the country as well as enhanced power quality. ABB’s Power Grids business pioneered HVDC (putting into operation the first commercial installation, the Gotland link, in 1954) and also was also the first company to offer VSC technology, with the development of HVDC Light in the 1990s.

Hitachi has participated in all Japan’s HVDC projects to date, going back to 1970 – with a total of 2800 MW installed capacity at six sites – but these have all used line commutated converter technology.

Bruno Melles believes the HVDC joint venture, which commenced operations in November 2015, “helped create a very strong relationship and deep understanding between Power Grids and Hitachi and an appreciation of the potential” and thinks that “probably this is where Hitachi started to fully perceive the strong position that Power Grids had, and still has, in the market – a market that Hitachi needed to embrace to fulfil what it sees as a fundamental part of its mission, having a major impact on sustainable energy” – in line with its slogan ‘Powering Good’ and sharing similar aspirations to those of ABB.

“Slowly but steadily we developed a relationship with Hitachi as a strong partner and the JV led to the realisation that we had far more points in common than we believed at the beginning”, explains Bruno. “So, when Hitachi came with a proposal to acquire a majority shareholding in the ABB power grids division, I think that everybody, within ABB, within the power grids division, and within Hitachi thought immediately that it was very good fit. And that’s why when, at the end of 2018, we announced the agreement to divest the power grid business to Hitachi we received a very positive reaction, from within the businesses as well as from customers, which helped us manage the task of preparing for the birth of the new venture. A very nice journey that started with a very solid plan and recognition of the need for de-risking and transforming.”

Despite the challenges posed by Covid-19, Hitachi’s acquisition of ABB’s Power Grids business was completed on schedule, with the new Zurich-based entity, Hitachi ABB Power Grids – which will have an annual business volume of $10 billion and about 36 000 employees – open for business on 1 July 2020. ABB will retain a 19.9% interest (with the option of exiting after three years).

For ABB, the divestment is seen as a “significant milestone in the company’s transformation towards a decentralised global technology company”, with a focus on markets such as “electrification of transport and industry, automated manufacturing, digital solutions.”

For Hitachi, the new entity is seen as an opportunity to merge its “leading digital technologies” (notably its Lumada IoT platform) with “world-class power grid solutions”, perceiving significant market opportunities in such areas as mobility, smart cities, industry, energy storage and data centres. Hitachi is also expected to provide “the financial muscle to support ambitious projects”, as well as access to Japan, the third largest economy in the world. “We can be a major energy player in Japan, which we haven’t been so far”, says Bruno Melles, “as well as actively supporting the global energy transition and decarbonisation of energy systems.”