FRANKFURT Germany's nuclear exit and power shortages in China may help boost demand for switchgears and transformers, benefiting European power transmission suppliers such as Siemens and ABB.
Germany's parliament began debating its new energy bill on Thursday, clearing the way for the shutdown of 17 nuclear reactors from 2015.
Analysts say the nuclear capacity gap could be replaced mostly by renewables, which are volatile sources of energy and so trigger a need to invest in grid transmission infrastructure. The nuclear capacity to be phased out represents around 21 GW of Germany's installed capacity.
Arnaud Brossard of Exane BNP Paribas said this meant a potential boost of 6 GW, or 15-20 percent of the annual generation investment in Europe from 2013/14 onward.
"The news is... positive for Alstom, Siemens and even ABB," he said, adding Europe generation and transmission is 40 percent of Alstom's value, and 10 percent of Siemens's and ABB's.
"Even though we would expect Siemens to grab a bigger share of the next European investment cycle due to its current strength in on/offshore wind, Alstom would be relatively more positively impacted by an investment cycle recovery in generation or transmission in Europe," Brossard said.
Unicredit analyst James Stettler said apart from "the Big Three" -- Siemens, ABB and Alstom, French suppliers Schneider Electricand Legrand also stand to benefit.
"The urgency created by the planned nuclear exit could prove to be the catalyst," for companies that supply equipment in power transmission and distribution (T&D), Stettler said.
T&D suppliers are now grappling with weak prices, particularly in the large power transformers sector in China, as utilities struggling from overcapacity rein in capital spending.
GERMAN NUCLEAR FLEET
Stettler said investments to boost baseload capacity and strengthen power grids could spur demand not only for switchgear and transformers, but also for grid management solutions, high-voltage direct current (HVDC) interconnections, and technology to boost output on existing alternating current (AC) lines, to handle changing flows.
Simon Smith of Credit Suisse said the energy plans aim to boost renewable power generation from 17 percent to 35 percent and he believed the gap will be addressed by wind, which accounted for 6 percent of electricity generation in Germany at the4 last count.
"The scale of the capacity additions and the requirement for higher levels of availability suggest there will be disproportionate demand for offshore wind," Smith said.
As offshore wind and other renewables are generated in remote locations, there is a further need to build new connection lines to make grids more reliable.
Another major driver for European grid equipment suppliers is China, which looks set to see its worst power shortages since 2006, as fast growth in demand outpaces power generation and transmission capacity.
China's National Development and Reform Commission has urged power generating firms to maintain normal operations and reduce unplanned outages and called on grid operators to speed up building transmission capacity.
Daniel Cunliffe, analyst at the Royal Bank of Scotland, said apart from China and Germany, plans by U.S. utilities to expand capital expenditure underpin the bank's assumptions of a 15 percent T&D volume growth at Siemens and ABB's Power units for 2012-2013.
"Our 15 percent volume growth expectation for ABB's Power units in FY 12 is driven by our belief that this period marks the beginning of multi-year growth in the global T&D market up until 2015," Cunliffe said.
As a result of its conclusion of a 35 percent global power transmission growth in 2011-2013, RBS raised its EPS 2012 for ABB by 7 percent this week.
(Editing by David Cowell)