'We all just missed it': Hitachi Energy's CEO says everyone's playing grid catch-up

The brightest brains in the energy industry's biggest companies were still not smart enough to foresee the grid capacity crunch threatening to derail Europe’s clean power targets, according to the head of Hitachi Energy.

“The grid was overlooked for such a long time. We were focused on building more and more renewables, but we neglected the grid,” says Andreas Schierenbeck, CEO of Hitachi Energy, the world’s leading supplier of transformers as well as other key grid components, including HVDC technologies.

Schierenbeck, a former head of German energy and chemicals giant Uniper, admits that he and a host of others were guilty of underestimating the challenges that renewables bring to the market, not least in terms of grid capacity.

Schierenbeck picks out Germany where, he says, grid congestion issues were becoming apparent even before the pivot toward renewables, and the UK, where he noted a growing chorus of complaints about the need to pay developers for not producing wind during periods of grid-enforced curtailment.

“As soon as I took over as head of Hitachi Energy, I asked myself the question: why did nobody see this coming? Normally, in any industry, you have those who see a boom coming, and others who think we are going bust, but there was no such spectrum here. We all just missed it,” he says.

With governments and companies now scrambling to catch up, transformers are emerging as one of the key pinch points for offshore wind expansion.

Demand in this market is already nudging $50bn and consultancy firm Rystad Energy reckons it will reach $67bn by 2030.

As the former head of a big German utility, Schierenbeck recalls that ordering a transformer was until quite recently “a relatively easy matter”.

“You'd get the specifications together on what you wanted, go into procurement mode, gather your offers and haggle it down,” he recalls. “You’d have your transformer eight to 12 months later.”

Today, as supplier rather than customer, he admits that the situation is starkly different. “If you don't have the capacity reservations, I would say it's three to four years waiting time.”

Clean energy targets and data centres for generative artificial intelligence explain the uplift in demand, but Schierenbeck reckons that there are older, structural dimensions to the problem, going back to the liberalising of energy markets and the backward-looking mechanisms for building in reserve capacity.

“We neglected to see that this would eventually run out,” he says, arguing that overlooking the problems of volatility and distance posed by renewables merely exacerbated this.

As little as two years ago, Schierenbeck reckons most grid businesses outside of China were orientated toward saving taxpayers money and building only those projects with the most glaring demand requirements.

“Shareholders, investors and industry organisations are emerging from a period where they were cost-cutting, closing facilities and reducing capacity, so it is normal for everyone to ask, how long it will last?

“Before investing in a factory which takes you three or four years to build and costs a couple of hundred million dollars, you have to be sure that you are not building overcapacity and taking risks.”

From projects to programmes

This mood of caution is now giving way to an expansionist cycle and, while catching up at the required pace is difficult it is “not impossible from a technical point of view”, Schierenbeck says.

One of the first places to look is standardisation, he says.

“There is no reason that transformers have to be different in one region of Europe or another. Standardisation cuts lead times and reduces costs, especially in the production process. The same applies to capacity reservations and framework agreements. We call it shifting from projects to programmes.”

These objectives can be achieved more easily if the relationship between suppliers and customers is closer. “If I have visibility going forward, I can convince my shareholders,” Schierenbeck says.

Biggest investment drive 'for a very long time'

Hitachi Energy’s current investments include $1.5bn to expand its transformer manufacturing worldwide, but there is already backlog for the new capacity.

The company's wider investment programme, including other businesses, stands at around $9bn.

The company expects its revenues to hit $30bn by 2030, more than double what they were in 2024.

While acknowledging that such demand makes it “a great time to be in the grid business”, Schierenbeck has plenty more suggestions on how to build grid capacity in line with European ambitions.

Planning priorities

The Hitachi Energy chief argues that the starting point is good decision-making, based on “good technical information and a clear view of priorities”.

Similar debates are now raging in the UK, where there is strong grass-root opposition to the proposed construction of transmission lines in eastern England.

The UK's electricity network companies have said they plan to invest up to £77bn ($95bn) between 2026 and 2032 and there is a corresponding requirement for converters and subsea transmission cables to bring the electricity to shore.

So far at least, the UK government seems determined to take a robust approach to planning, while attempting new forms of community consenting incentives.

Schierenbeck focuses on permitting delays as arguably the biggest obstacle to progress on grids, as these procedures typically account for more than half of the time spent on a modern European project.

“That’s four or five years out of a total seven or eight that it takes at present. We could build much faster, but the permitting process is holding us back and costing money,” he says.

Returning to the SouthLink project, he describes how the 770km project was split into 15 segments of 30-40km, causing permitting paperwork to proliferate.

“Imagine how much waste and cost was created. If you want to do it faster, let’s work on the regulations,” he says, arguing that neither planning or permitting are yet in shape to handle the average growth rates of 15% that the European grid expansion seems to require.

Ukraine invasion spurs action

In Germany, Schierenbeck also saw how red tape can be slashed when energy projects gained urgent status in the wake of Russia's invasion of Ukraine.

He was referring to the remarkably rapid construction and deployment of new import terminals for floating terminals to receive, process and store liquified natural gas (LNG) from new non-Russian suppliers.

In some cases, a project that would have taken seven years to conclude permitting and building and construction was executed in less than a year.

“I don't want to be seen as criticising the regulatory system, which is there for a reason, but this shows that you can act fast if you want to,” he says.

Schierenbeck also urges regulatory support for the suppliers, including facilitation of capacity reservations and recognising activities such as retrofitting transformers as Capex and broadening the asset base, rather than mere Opex.

Growth engine

Hitachi Energy, a Japanese company, has its corporate headquarters in Switzerland and a strong industrial footprint in Sweden.

Europe became a growth engine for Japanese group following a 2020 takeover of Swiss-based ABB Power Grids.

Since then, the company has been a preferred vendor on several of the biggest offshore grid expansion projects in Europe, winning billions of dollars worth of contracts from transmission system operators such as Tennet and Amprion.

Worldwide, the company has been expanding its workforce at a rate of more than 5,000 per year, and expects to add 15,000 over the next three years.

The company now sees Europe as one of its top two markets, alongside North America.

“I believe always in diversified manufacturing, something like a network. It doesn't make sense to try to be always on the cheapest location," Schierenbeck says.