ABB event in Visby/Gotland, Sweden, May 5 and 6, 2004 Peter Smits Member of ABB Group Executive Committee, Head of Power Technologies Division ABB s pioneering HVDC - key to reliable power grids ABB Power Technologies All rights reserved. - 1-4/29/2004
World s No. 1 in Power Technologies High-Voltage Products Medium-Voltage Products Transformers Utility Automation Systems Power Systems ABB Power Technologies- 2- Our offering Comprehensive portfolio of products, systems and services Global presence 39,000 employees ~150 focused factories, engineering and service centers In more than 70 countries Our markets Electric, gas and water utilities, industrial and commercial customers and channel partners Engineering, procurement and construction firms (EPCs) Original equipment manufacturers (OEMs) Wholesalers, distributors
Market share and competitor overview ABB Siemens Areva VA Tech Hitachi High-Voltage Products 7 7 3 2 18 ABB Schneider Siemens Areva Cutler-Hammer Medium-Voltage Products 16 10 9 7 4 ABB Areva Siemens Waukesha VA Tech Howard Schneider Transformers 9 5 5 4 4 4 18 World Market Size 6.4 BUSD World Market Size 8.5 BUSD World Market Size 12.1 BUSD Utility Automation Systems Power Systems ABB 18 ABB 14 Siemens 13 Siemens 12 ABB Power Technologies- 3- Areva 7 Areva Invensys 5 VA Tech Emerson 3 Japanese World Market Size 8.2 BUSD Goulden Reports 2003, ARC 2002, ABS Report 2002, NEMA 2002, ZVEI 2002, COTREL 2001, ABB estimates 8 5 4 World Market Size 14 BUSD
2003 FY summary Power Technologies $ millions FY 2003 FY 2002 Change Nominal Change Local Orders 7,708 6,753 14% 4% Revenues 7,680 6,963 10% 0% EBIT 563 433 30% EBIT margin 7.3% 6.2% Restructuring (64) (59) EBIT margin (excl. restructuring) 8.2% 7.1% Cash flow from operations 616 335 84% ABB Power Technologies- 4- EBIT up 30% driven by operational improvements Local growth 3% on comparable scope: Divestments and closures Cash flow from operations up by 84% Net working capital down from 15% to 14% of revenues
50 years of HVDC ABB s pioneering spirit 1954 2004 In between ABB Power Technologies- 5- The Gotland HVDC transmission link comes into service 20 MW 100 kv 54 projects completed 60% global market share Continuous technology leaps Benefits to utilities, industries, power consumers The Three Gorges - Guangdong HVDC transmission link scheduled for June 3,000 MW 500 kv
HVDC technology today ABB Power Technologies- 6- High-end transmission technology: Reliable power supply Voltage stability No overloading Cost-effective bulk power transmission Environmentally-friendly transmission Low losses HVDC technology received special attention after 2003 blackouts Invisible underground or subsea transmission with HVDC Light
Blackouts a worldwide challenge ABB Power Technologies- 7-2003 incidents: July 22, Mallorca August 14, North America August 28, Central London September 1, Kuala Lumpur September 4, north London September 5, Birmingham September 23, Malmö/Copenhagen September 28: all Italy as well as shortages and brown outs in western and northern Europe
Facts to remember from 2003 blackouts ABB Power Technologies- 8- Characteristics Did not happen during high load conditions Started with local disturbance, ended with voltage collapse Involved cascade tripping of transmission lines Long time to restore power even when local generation was available Lessons learned Insufficient transmission grid has reduced security margins Lack of coordination between system operators in different regions needs attention Failure to control power flow caused voltage collapse and cascade tripping Insufficient interconnection capability reduced ability to mitigate disturbance
The case for grid interconnections Why interconnections? Increased and effective security of energy supply Allows full market integration and energy trading Limited environmental impact Enable integration and full use of power generated by renewable energy sources ABB Power Technologies- 9-
Power outages: global opportunities North America Transmission expenditure expected to double ABB in leading position in North American T&D market Europe Similar opportunities evolving 20 ABB Power Technologies- 10-16 12 8 4 0 Planned increase in interconnections (as % of installed generation capacity) 1950 1960 1970 1980 1990 2000 2010 Source: EU Directorate General for Energy and Transport, 2000 EU target for 2010 cross-border interconnection capacity is 20% Today s average is only 7%
Regional markets and their priorities ABB Power Technologies- 11- Annual investment in transmission in 2002 $2 bn $12 bn $2 bn North America Interconnect asynchronus regional power grids to increase grid reliability Cope with ageing infrastructure average equipment age is 35 years old: boost existing power grids China Ensure secure power supply in boomtowns Allow bulk power transmission from remote power sources to consumers Europe Ensure triple goal of power supply security, costeffectiveness and sustainability Interconnect country grids Allow power trading and integration of renewables
Identified bottlenecks in Europe, 2001 European bottlenecks are mainly cross-border and cross-sea ABB Power Technologies- 12 - Only a few of these projects have been built! Source: Report KOM (2001) to EC Parliament
Identified bottlenecks in the U.S. Pacific DC Intertie NWPA Transmission Constraints in the Contiguous U.S. CA/OR Interface WY/ID Interface MAPP NYISO Southwest MI East NY Northeast of Boston ISO-NE Central IA ECAR SW CT Interface PJM CA/MX Central CA East KS/MO Interface RMPA SPP MAIN West VA/PJM Interface Southeast PA Central MO Southeast West VA Southern CA AZ/NM/SNV Northeast AZ SERC ABB Power Technologies- 13- Source: FERC report December 13, 2001 US$ 12 billion transmission investment is FRCC needed just to relieve major bottlenecks
Value of HVDC Light interconnection in the U.S. ABB Power Technologies- 14- Cross Sound Cable connects Long Island with large North Eastern generation pool Customer: TransÉnergie, a subsidiary of Hydro Quebec 330 MW, 150 kv HVDC Light system with voltage control and black start capability ABB delivered the system in 23 months (normal 30 months) Due to political obstacles, the cable wasn t energized for one year In the emergency after the U.S. outage, ABB commissioned the cable overnight! Kessel, LIPA chairman: This is a national symbol of how we need to enhance our infrastructure.
Murraylink, Australia: longest underground link Customer needs Electricity trading in Australia s deregulating power market between South Australia and Victoria ABB s response Turnkey 200 MW HVDC Light transmission system At 170 km, longest HV underground cable in the world ABB Power Technologies- 15- Customer benefits Murraylink can deliver power from South Australia, Victoria, NSW and Snowy River generation to either South Australia or Victoria
Murraylink, Australia cable laying Cable laying in only 4-meter corridor World s best practice Project won awards for environmental performance and engineering ABB Power Technologies- 16-
Speed is an issue HVDC links in China Three Gorges-Shanghai 500 kv, 3000 MW HVDC, 42 months-july 2003 Heilongjiang Three Gorges-Guandong 500 kv, 3000 MW HVDC, 32 Jilin months-june 2004* Xinjiang Gansu Nei Mongolia Beijing Tianjin Hebei Liaoning *completed 2 months ahead of schedule Ningxia Shanxi Shandong ABB Power Technologies- 17- Qinghai Three Gorges-Guangdong Xizang 975 km Sichuan Yunnan Guizhou Shaanxi Guangxi Hunan Hainan Henan Hubei Jiangxi Anhui Jiangsu Guangdong Fujian Shanghai Three Gorges-Changzhou 890 km Zhejiang Taiwan New world record with max. power level of 3,300 MW
Challenges for power transmission Reinforcement of power grid is key ABB Power Technologies- 18- Existing grid built for regulated market and not adapted to needs in free market Deregulated markets in Europe suffer from underinvestment in power transmission Interconnections could solve many problems but regulatory uncertainty slows investment Tomorrow s security of supply requires investment decisions today What deregulated markets need Regulatory framework and rules to enforce grid reliability Incentives to invest in transmission and distribution grids Faster approval procedures
The grid is key for development of wind power Easy wind power integration with HVDC Light Weak European power grid is economic factor limiting exploitation of Europe s wind resources Distribution systems were designed to distribute power to consumers and not to collect it HVDC can solve power quality problems through voltage and power flow ABB Power Technologies- 19-
More technologies to prevent outages FACTS (Flexible AC Transmission Systems) Boosts existing power lines Market grew 50% in last 3 years FACTS market share ABB 70% Wide Area Monitoring System ABB real-time grid control recognized by Massachusetts Institute of Technology (MIT) Pilot project for Switzerland-Italy power corridor ABB Power Technologies- 20- Phase shifting transformers Can increase interconnection capacity in synchronized AC power grids ABB just delivered phase shifters to Italy
Conclusion ABB Power Technologies- 21- ABB Power Technologies is a world leader and delivers sustainable value With HVDC, ABB s pioneering spirit has produced a power technology for: reliable power supply cost-effective bulk power transmission Environmentally-friendly transmission ABB s cutting edge HVDC is an example of our technology leadership