knowledge and keeping potential profits to itsel ‘but also bearing the full risk of going too far down the wrong road? Or should it focus on acquiring smaller companies that have already made promis: ing technological advances, and help them down the path to development? Or will alliances, which allow Siemens to share both the risks and returns ‘with @ partner, provide the optimal solution? Siemens’s History From its humble beginnings as the Telegraphen- Bavanstalt von Siemens & Halske in 1847, Siemens fis grown to become the second-largest employer in Germany (behind Deutsche Post), with 427,000 employ es worldwide in 2009, The company’s 150-year history ib replete with ingenious inventions and trend-setting Alsvelopments. After Werer von Siemens built the first Bir telegraph from cigar boxes, tinplate, some iron, and insulated copper wire in 1846, he went on to improve the Wheatstone telegraph withthe help of mechanical eng Ieer and Physical Society member Johann Georg Halse. ‘The new Siemens & Halske Company internation lized quickly, as by nature the telegraph was used for cross-border communications. Then, as electricity Became more accessible and less expensive as a source fofenerzy, Siemens diversified its businesses to include vide variety of electrical-engineering applications he of the company’s earliest areas of specialty was Teavy-current engineering, or finding ways to mect he increased power requirements of the new indus: Hal machinery. Other branches included telephone, Blecric lighting, electric cable cars and locomotives, Fadios, motion picture projectors, vacuum cleaners, ind ther electrical systems, Based on its expertise in electrical engineering, Siemens next expanded is activities to include elec ftcal power g Siemens Electrical Works Wiis established in 1896 to engineer and build turnkey power plants to supply electricity. It operated numer- ts electrical power plants in Germany and across Tarope. One year later, Siemens founded The Electric Hight and Power Systems Company to provide finane- iig solutions for its new power plant contracts Collectively, these business units enabled Siemens to Ber a complete package of power plant financing, onstruction, operation, and maintenance. While many of Siemens’s initial power plants were fieled by coal, the company also invested inthe research tnd development (R&D) of alternative-energy sources almost from its very beginning.” In fact first publicly owned power plant—a small 8kW hydroelectric plant builtin the southem English town of Godalming in 1881—was connected to a Siemens alternator that provided eletrcity to a number of street lamps and shops. From this time until the Second World Wer, Siemens built many more hydroelectric energy plants, both within Germany and abroad. Like the plant in Godalming, many of these represented worl records or first-oftheir-kind applica During WWII, many of Siemens’s resources were diverted to the modernization of Nazi Germany's war technologies.” The company renewed its focus on alternative energy exploration after the war ended, ‘and by 1955 had started theoretical preparations for the development of nuclear reactors. In 1961, Siemens received an order for a 57-MW multipurpose research reactor in Karlsruhe, Germany, which was fueled by natural uranium. Soon afterward, Siemens contracted the 1,200-MW Biblis, a nuclear power plant that had the largest single-shaft turbine generator in the world at that time, Siemens diversified its efforts in alternative energy even further starting in the mid-1980s, expanding into wind energy. In 1987, Sicmens’s 3-MW wind energy converter Mod-SB began operations in Hawaii In 1991 and 1992, two 500-kW photovoltaic systems started t0 supply electricity for the public grids in Mont Soleil, Switzerland, and Kerman, California, respectively. Alterative-energy generation technologies remain ‘major priority within Siemens, with a primary empha- sis on wind and solar applications, Siemens also contin ues to conduct research in nuclear power, even though the German government made a controversial decision to withdraw from nuclear energy in the late 1990s. At the same time, Siemens’s R&D efforts target mul- tiple complementary technologies such i gas turbines, thermal waste recycling, combined cycle technology, superconducting generators, electric power aids, high-efficieney power transmission technology and exhaust gas catalysts and treatment. steam Siemens’s Corporate Structure Siemens underwent a major reorganization in 2008, consolidating the number of sectors from more than ‘one dozen down to just three—Industry, Energ Health care. ‘These three main sectors were further divided into 15 divisions (strategic business units SBUs [2s presented in Exhibit 2)). Together, theyEXHIBIT 2 FormerGrowe Industry Automation Drive Technologies = Osram + Industry Solutions Building Technologies + Mobility * Automation and Drives (4&0) * Industrial Solutions and Services (1&8) + Siemens Building + Technologies ($87) + Osram + Transportation Systoms (TS) Oi & Gas Fossil Power Generation Renewable Energy + Energy Service + Powar Transmission + Power Distribution + Powor Generation (P6) + Power Transmission and Distribution (PTD) + Industral Solutions and Services (18S OGM) ‘+ Imaging & 7 + Workflow & Solutions + Diagnosties * Medical Solution Med) comprise approximately 95 percent of company rev. cenies and profits (see Exhibits 3 and 4), Tn 200, the Siemens Energy sector earned 26 billion ‘euros in revenues, and more than 3 billion euros in prof its. This amounted to roughly 33 percent of the overall ‘company revenues, but 42 percent ofthe profits. Siemens Energy claimed to b supports customers with ie only company worldwide that | efficient products, solu- tions, and know-how along the entire chain of energy conversion from the production of oil and gas to power eneration and the transmission and distribution of elec- ® Exhibit 5 shows a conceptual depiction ‘of Siemens's energy supply chain. The Energy sector was subdivided into five divi- sions, including Fossil Power Generation, Renewable Energy, Oil & Gas, Power Transmission, and Power Distribution, Exhibit 6 shows the 2009 revenues gener ated by the different divisions within the Energy sector, ‘and Exhibit 7 depicts the 2009 profits. Together, Fossil tical energy Power Generation and Oil & Gas rented 54 perl the revenues, but just 39 percent of the sector’ ml In contrast, renewable energy generated just 11 pat cof the revenues, but nearly 21 percent of the profits The Global Energy Market The global energy market consists of tdi carbon-based fuels and newer alternative energies CARBON-BASED FUELS. Carbon-based fuels as oll, coal, and natural gas make up some 84 pee of the world’s energy sources. These fuels are bas the fossilized remains of living organisms that Beg ‘apart of the earth millions of years ago and them transformed under extreme pressure and beat. Off three, ol is most easily extracted, converted an in a Tiquid phase. Thus, it has become the pri energy source for vehicles.hers (IT, Financial, excluding equity investments) — a Health Care 15.4% Industry : Total Rovenues 209 45.2% 75651 bln euro XHIBIT 4 8 Siomons Business Sector P ots hers (IT, Financial, excluding equity investments) 5.0% 18.4% clan, Total Profit 2009 7.863 billion euro* Beene Although oil is relatively cheap, it comes with significant externalities. The that are not reflected in the price of the com modity but rather are borne by the public, For example, the burning of fossil fuels releases carbon dioxide (CO;) into the atmosphere, which has been linked to global warming. The CO; concentration in the earth's atmosphere Temained at about 280 ppm (parts per million by volume) for the last several thousand years prior to the Industrial Revolution. In 2007, CO; levels in the atmosphere reached about 384 parts per million by volume, and seemed to be increasing at a rate of approximately 2 parts per million per year (see Exhibit 8)."" In addi- tion, many cities fe become contaminated by smog, and people are suffering health problems caused by increased pollution, While experts debate the magnitude of the remaining carbon- based fuel supply, the reality is that fossil fuels are finite; supplies will eventually run out—itis just a matter of when. Ever since humans began using fossil fuels, the amount of fuel needed has grown exponentially to accommodate ever-increasing living standards and populations. Accelerated industrilization has led to a spike in the demand for energy over the past 20 years (see tricity consumption in Exhibit 9). Currently rapidly developing Asian ‘countries such as India and China are the main energy consumers, contributing almost 40 percent to global CO; emissions (see Exhibit 10 for CO, emissions by world region) Yet despite the large volume of CO; generated, India’s and China's per capita consumption of energy is stil quite low, For 2010, the U.S. Department of Energy projected Per capita CO; emissions of 5.3 and 1.1 metric tons per person for China and India respectively In comparison, the projection for the continental United States was 18.6 metric tons per person.!? Taking into account that both China and India have populations of more than one-billion each and together account for roughly one quarter of the world population, itis obvious that a per capita energy consumption rate similar to Western coun tries isnot sustainable. Meanvchile, the continued industrialization of developing countries. com: bined with rising populations will require more and more energ,Renewable J f Power Generation osc 4 a T 6 EXHIBE distribution 12% : Fossil power generation 38% Power transmission B% Total revenues sector 2008 ergy 28,69 bilion euro Oil & gas 16% ALTERNATIVE ENERGIES. Under ‘energy is the principle of using natural resources such, {ing alternative as wind, water, solar radiation, or heat to create energy Natural en infinite, atleast as far as it can be assumed instead of carbon-based fuels. is garde hat the sun and wind will not cease to exist within a time frame significant for humanity ned renewable energy, the biggest advantage of such nat ural energy sources is that they are carbon dioxide (CO;) neutral, Unfortunately, most alternative-eneray creation methods also have one major drawhack: They snerate energy only in places where nature pro- ides the required energy input. For example, wind does not blow steadily and strongly enough everywhere Also tet problems in the 2 Power Foal on EXHIBIT 7 Fossil power generation 20.8% Oil & gas 18.6% ‘on the planet, Fluctuations in the natu need to be taken into account, and any natural en ccaptured must be tr This has spurred immense R&D efforts to find ot Ways not just to capture but also to store and distil ‘energy generated from natur Alternative energy is increasi ported to wherever a panacea for the world’s economic as ‘mental concerns, Companies no longer see invest ‘green technologies as a burden, but as a basil ‘opportunity. For example, in 2005, GE laundl multibillion dollar ecomagination initiative tle its wi technological capabilities t al een-energy arena. PolitiEnergy Sector Jenergy supply natural energy. Politicians are EXHIBIT 8 aba! CO, Emissions (historic and projected) 45,000 200, 55,000 sajon0 25,000 ‘000 rs 19901885 200020057010 «2015 aD 25 = Yer 2.000 9900 000 $6909 1900 1862 1904 196 T9E8 1990 1952 1804 1995 1868 2000 2002 2004 206 oar egion around Frankfur/Oder also jumping on the bandwagon, partly because they The race for global believe that millions of new green jobs may help to leadership in alternative energy is on. reduce high unemployment rates. In the United States, this could be especially true in Midwestern states that rely heavily on industrial manufacturing. In Germany, the federal government is supporting a geographic S Siemens and Alternative Energies ‘xhibit I for the current distribution of the global ‘luster in the alternative energy industry in its eastem production of alternative energy sources.ND ENERGY. Modern windmills are high-tech devices capable of pro- ucing several megawatts of en each, enough for one turbine to supply electricity to an entire small village. The technol turbines has been noteworthy, From 1980 to 2008, the average effective power output capacity for a wind tur bine generator increased by a factor of 200." Wind power is deemed to have immense upward potential for at least the next two decades, Wind turbines have their disad- vantages as well. Despite advances in material engineering, the size of ‘wind turbines is not infinitely seal- able due to technological constraints To increase capacity, multiple wind turbines therefore must be spread out over large distances from one another, so cach has full exposure to the wind, Densely populated urban areas do not have adequate space to house wind pparks, and rural areas have expressed annoyance with the sound made by the turbines as well as their interference with wildlife migratory patterns and agricultural productivity. In addition, ‘wind turbines possess limited effi- cieney. Physical conditions determine that the maximum energy that can be extracted from the wind is around 59 percent (Betz’s law), a theoreti- cal value that so far cannot actually be achieved. Take into account the losses that occur due to the conver: sion of rotational to electrical energy id electronic conditioning, and the efficiency of wind turbines falls to a range of 40 to 45 percent. This is com parable to the efficiency of a good die sel engine, leading critics to argue that wind turbines are not an economical progress of wind alternative. Proxlucing turbines requires lar industial-seale wind and highly spe cialized assembly facilites. The entry: Tevel barriers are high, and up-front investments are extensive. The turbine EXHIBIT 10 2010 Global co missions by Wor OECD North America OECD. ae OECD Asia 1 Non-OECD Asia Central and South America Non-oecD —— Europe and Eurasia | Atica— — L-midate East EXHIBIT 11 2008 Global Energy Production by Type (in billions of btu Geothermal Natural Gas Plant Liquids — Solar/P¥ Dry Natural Gas.blades must be able to withstand high centrifugal forces, Vibrations, varying weather conditions, radiation, and foreign-object impacts (e.g, birds), while at the same fime they need to be lightweight. To achieve these requirements, blades are currently made from glass and teirbon fiber-base materials, which require special labor intensive manufacturing techniques. The towers are usu ally made of reinforced spun concrete, a manufactur, process that becomes quite complex for tall structures. Transportation and installation also pose challeny Turbine blades, sometimes longer than 60 meters (180. fee), and towers, sometimes as tall as 135 meters (400 foc), nood to be transported to the final site, a task that involves huge logistical efforts. In many eases, bridges must be elevated and/or reinforced, and roads straight- ened out to transport these lage industrial components, SIEMENS AND WIND ENERGY. Despite its disad Santages, wind energy is the fastest-growing alterna tive-energy sector, a trend that is predicted to continue. Siemens has therefore staked a strong presence in the Wwind-turbine business, winning several large contracts for installing both on- and offshore wind turbines."*"° “Siemens claimed to be the fifth-largest insaller of wind-turbine power in 2009 (with 8.8 GW installed), and aims to become number 3 by 2012.'*"7 The company’s portfolio includes all stages of wind- lurbine development, including component and system design, R&D, manufacturing, installation, and mainte- ance. These combined activities earned the company revenues of nearly 19 billion curos in fiscal year 2008, accounting for roughly a quarter of total revenues, One of the unit’s most recent accomplishments was the introduction of a new 3.6-megawatt wind turbine 120-meter diameter rotor equipped with §8.5-meter-long rotor blades. Siemens has developed a particularly strong focus fon offshore wind turbines, with some large-scale proj es recently ther with the Norwegian fnerey company StatoilHydro, Siemens was instru mental in developing the first-ever floating wind tur Dine off the coast of Norway in late 2009." This new fechnology is being tested to evaluate whether a wind furbine installation in deep-sea water is feasible, asthe wind there blows stronger and more consistently than along the coast. The main concerns are the durability and maintenance of the equipment against aggressive environmental conditions at sea. The majority of Siemens’s wind-energy opera- tions are centralized in Europe. Since transportation squired.!°T Of the increasingly large turbine blades is difficult feven on land, international expansion often means. the company must install production seas. (Even a C-5 cargo aircraft is not lar ‘and cargo ships are not designed to transport wind turbines.) Siemens operates a wind-turbine blade factory in Fort Madison, Towa, which was visited by President Obama in April 2010, receiving important political recognition. Siemens also recently took the first steps in building a production facility in China, taking into account that “China could soon become the largest wind-energy market in the world.” Some have even suggested that wind power alone might be able to cover all of China's future electricity demands.*!?? Due {0 the technological complexity of the wind: turbine business, Siemens has relatively few com petitors. Notable European players include Enercon (Germany) and Vestas (Denmark), while its: major USS. rival is General Electric (GE), which installed 15 GW of new wind-power capacity globally in 2008. However, since the market has high future poten- tial, other players are entering the competition, most rotably from China. Mitsubishi Heavy Industries Japan) also poses a future challenge since the com- pany possesses the industrial capabilities and finances to become a major global player, and has recently ramped up its development and installations of new wind-turbine capacities. One of the attractions of ‘wind power is that, once installed, the turbines need constant maintenance, which means lucrative long: term service contracts for the original maker and installer of the equipment SOLAR ENERGY. Solar is the second most-established renewable energy technology. The amount of solar radiation that reaches earth at any given moment is far more energy than humans consume during that same amount of time. This means that solar energy alone could easily meet all of the energy needs on the planet Sunlight can be converted into electricity in various ways. One way is direct conversion through semicon- ductors (i.e., photovoltaics). Alternatively, solar power may be used to heat up a medium such as water, com vert it to steam, and propel a turbine that in turn gem crates energy, The advantage of these methods is that they tequire few moving parts, and therefore minimal maintenance. Solar panels are also easily installed in deserts and other remote areas exposed to high levelsof solar radiation, Solar cells are used to successfully recharge batteries and propel cars. Toyota even offers the option of powering the Prius’s ait conditioning through photovoltaic panels on the car's roof The disadvantages of solar energy are neverthe- less considerable. Like wind energy, solar power must, be extracted where it occurs naturally. Many of the best places to harvest solar energy are actually over the oceans. To produce significant quantities of solar y, panels must be installed over large areas, which increases their exposure to adverse weather condi- tions. In addition, solar panels have a low efficiency reaching only about 25 percent under optimal labora {ory conditions; mass-produced panels achieve rates of only 18 0 20 percent. Moreover, these efficiencies can only be accomplished when sunl cls unobstructed at an optimum an clear weather, clean air, and clean panel surfaces. The reaches the pan- Which requires panels also must be actively adjusted to follow the sunlight throughout the day. Finally, the semicondue- tors upon which the materials are based require excep: tional degrees of purity, and can only be manufactured. in special (and costly) production facilities that are hermetically shielded from the The solar industry is segmer ries, On one side of the spectrum isthe produetion and manufacturing of solar panels. In recent years, China hhas become the leading manufacturer and’ global exporter of low-cost solar panels due to a combination of cheap labor and available industrial infrastructure, The New York Times reported that China drove pric down by almost 50 percent from 2008 to 2009." Since it is now possible to mass-produce solar panels with a cost of less than $I per kW, this is a well-developed commodity market, with a readily available technol: and minimal R&D expenses. The only up-front cost is for manufacturing equipment and plants, Rivalry within this market is strong and almost per feetly competitive. In the center are the solur-technology installation nd service industries. These businesses take hardware like solar panels and install them for the customer, mak= ing them casi nd more cost-effective than traditional energy sources. While it is not necessary, installation and service providers benefit greatly from having the support of the manufacturer of the basic t Depending on their capabilities, many have expanded into the development of complementary products such as switchboards and distributors for solar pan: els. For example, the US. firm SolarCity® offe system design, installations financing, and leasing for ‘commercial and residential customers, Co-founded ia 2006 by serial entrepreneur Elon Musk (who also runs Tesla Motors and SpaceX), SolarCity had grown to be one of the biggest solar system installers in the United States by 2007.2° On the other side of the spectrum lies the commis. sion of turnkey high-tech solar plants and installa tions. Examples of these technologies included CSP. (Concentrated Solar Power) and ISCCS (Integrated Solar Combined Cycle System) plants.”” both om the Siemens product list. In general, these plants consist of large arrays of mirrors that reflect and concentrate sunlight onto receivers, The receivers collect the solar energy and convert it to heat, which is then used 1 produce electricity via a steam turbine or heat en driving a generator. One advantage of this technolog is that it allows for limited storage of the heat pro duced in a transfer medium (often oil or molten salt) Turnkey solar plants require large amounts of expe: rience and infrastructure for buildi resulting in an oligopolistic market with only a few .nd operation ‘major competitors. SIEMENS AND SOLAR ENERGY. Sicmens is the ‘market leader in turnkey CSP plants, an area where the ‘company in power-plant development, and reliability as along term service provider. Part of the attractiveness ofthis sector is that turbines and generators require long-term: (and often lucrative) service contracts, long after plant construction is completed. In March 2009, Siemens expanded its solar pres ence by acquiring a 24 percent stake in the Halian solarthermal specialist Archimede Solar En (ASE), Siemens’s new business unit received its fist photovoltaic order from Statkraft in June 2009. Ret Umilauft, CEO of the Renewable Energy Division at Siemens Ener, that this contract “proves that we are . . . on the right track with the expansion of cour solar business” and that “in the coming months we are anticipating further orders for projects in the Mediterranean region.” Also in June 2009, Siemens took its efforts in solar and wind to the next level by leading the Desertec initiative, This transcontinental | effectively leverage its size, experience project aims to generate solar power in North Africa here it is most abundant, and then transport it Europe. The project fits particularly well with Siemens because it requires not only experience in the primary Wind and solar technologies but also in complementary Un the duc and 4 stro inel 201 lai ston int uel perc Gert wast safe the t relea In Germ Germ spawt ‘might the e¢asing for vunded in also runs own to be, be United, | installa ided CSP integrated th on the is consist neentrate: the solar bused t0) at engine chnology peat pro= n salt) 28 of expe. peration, ly a few sis the here the perience sa long- s of this ng-term er plant ar pres Italian Energy its first 9, René ision at yes that sion of months. in the jemens evel by imental Attica, it 10 iemens rimary jenlary technologies such as power grids and switchboards, ich have traditionally been strong business fields forthe company. NUCLEAR ENERGY. Nuclear power is an infinitely renewable energy that creates a controlled nuclear reaction of special radioactive material, usually Uranium-235 or Plutonium-239. The energy from the chain reaction is used to heat up water to pro: duce steam, which in tun propels steam turbines and generators to produce electricity. In 2007, about d power.” Nuclear reactors are the 14 percent of electricity worldwide was produ strongest power plants possible and the most eco- nomically feasible. Yet nuclear power has serious limitations. Issues include potential nuclear accidents (e.g., Chernobyl in the Ukraine and the Fukishima reactor after the 2011 tsunami in Japan) and how to store nuclear Waste products. The U.S. Department of Energy claims that its Waste Isolation Pilot Plant,’! a salt mine in the southern New Mexico desert, can safely store all of the nuclear waste humans ean create in the next 10,000 years, However, disposing of nuclear waste in old caves and salt mines is not 100 percent safe, as shown by a recent incident in Asse Germany. Nuclear waste that had been stored at a Waste dump salt mine leaked out of its allegedly safe storage containers, after the salt mine flooded at a much higher rate than assumed. In addi- tion, there have been reports of increased le kemia Tates in areas close to nuclear reactors, changes in the microclimate due to the vast amounts of steam ed into the atmosphere, and con: ing nuclear terrorism. Nuclear energy is also not entirely CO,-neutral In countries such as France, where nuclear reactors cover 80 percent of the national electricity produced, more liberal stance is taken toward these questions. Germany, meanwhile, has vowed to stop all its nuclear reactors one by one. Given the need to address global ‘warming and create sustained economic growth, how ever, Germany is reconsidering this decision, The German parliamentary election in September 2009 Spawned new hopes that the German nuclear industry might be revitalized. The newly elected center-right government (CDU and FDP coalition) believes that the country’s energy demands might not be met by renewable resources alone, and is considering building new reactors while keeping the existing nuclear power relew ems regard- cam plants running. Not surprisingly, stocks of German nuclear companies jumped alter the election results were announced." SIEMENS AND NUCLEAR ENERGY, Siemens has been involved in nuclear research since 1955 However, these efforts were put on hold in the 1990s ‘when the German government passed a law that would adually withdraw the country from nuclear-power generation, During that time, Siemens’s primary activ ity in the nuclear sector was upei plants. Recently, Siemens has ta activities anew and is expanding to become involved in international deemed to be a market for dozens of new reactors in the near future, with Siemens be ner for many of these projects.” China also looks to its exists 1 up its nuclear greements.”” Russia alone has been ing 2 potential par. be very active, with plans to have 100 new reactors in ‘operation or under construction by 2020.” Many other countries that have planned or built nuclear power plants, such as the United Kingdom, Finland, Japan, ‘Taiwan, South Korea, and India, are difficult markets toenter because they possess ther own technology and production capabilities. Also, due to national security issues, many countries strongly prefer or even require domestic suppliers. In the United States, licenses for 35 new nuclear power units are in progress.” Some of the dominant players in the U.S. nuclear market are Westinghous. GE Energy, Hitachi America, Bechtel Corporation, and Souther Company. The U.S. Department of Energy recently announced $40 million in fund- ing to support design and planning work for the Next Generation Nuclear Plant (NGNP),*" and also pledged to support basic uni sity research in nuclear en HYDROPOWER. There are many different -means of establishing hydropower generators, which utilize turbines to extract energy from water current flows. The most obvious are dams built along rivers. Dams provide significant amounts of energy and have the lowest CO; emissions of any energy source:** Dams are also unique in that they can store excess available ‘energy by pumping water uphill back into a re which can then be used during peak demand times Since energy stor is one of the main challenges in ies, this property makes, dams especially attractive. On the n require hu the use of alternative ene tive side, dams icant up-front investments, poserisks regarding potential failure, have a limited service life due to silt and sediment accumulation, and require severe modifications of the natural environment, For example, building the Three Gorges Dam in China resulted in the flooding of dozens of small villages and required the relocation of tens of thousands of people who lived in the river plain; a manmade lake of consid erable size now stands in their place, Although there are more than 45,000 la around the world, only a limited number of hydro dam projects are active worldwide, and many of these face problems due 10 environmental or financial issues." Other methods of hydropower generation with lesser environmental impact include river and tide tur- bines and wave power. River turbines are small hydro turbines that are installed in rivers without a dam being required, frequently at support posts for bridges, River turbines extract a small but consistent power supply from the natural water flow, and are best suited for local energy needs. Theoretically, tide turbines can also provide a reliable power source, as tides change twice a day and can be very strong in certain areas. Due to significant engineering challenges, however, only a few mass-produced tide turbines are currently in service. For the technology to work, the seashore needs to be flat with only a slight slope, and requires long stretches of littoral waters. Also, tide turbines are restricted to uninhabited beaches, since moving parts, under the water surface can create hazards for swim- ‘mers, water sports, and coastal ships. Lastly, harness= ing the power of ocean waves has attracted significant attention since oceans cover some 71 percent of the mh’s surface. Some drawbacks to wave power include the efficiency of current applications, necessary resis- tance against hostile environments (e.g., storms and salt water corrosion), cost of electricity (including transport to shore), possible impacts on marine life, and hazards to shipping. As with tidal power, sev- eral different technologies (e.g., the Pelamis Wave Energy Converter) are vying to emerge as the industry standard, SIEMENS AND HYDROPOWER. Siemens has been a strong player in hydroelectric power dams since 1881, More recently, Siemens acquired a contract for complementary high-voltage gas-insulated trans- mission line technologies for China's second largest hydropower plant."” Otherwise, Siemens has no stake in any of the other alternative hydropower technolo- es described earlier. Opportunities to expand more fully into hyo power do exist. In 2007, the U.S. Department of Energy (DOE) established the Hydropower Progra designed to “conduct research and development that Iwill] improve the technical, societal, and environ ‘mental benefits of hydropower and provide cos competitive technologies that enable the developmeat of new and incremental hydropower capacity, adding diversity to the nation’s energy supply.“® & tou of 5.677 sites with an undeveloped capacity of about 30,000 MW were identified across the country: In 2008, only 24 percent ofthe overall energy consump, tion in the United States was covered by hydrosles trie power generation. This is, however, sill much ‘more than that covered by either solar or wind energy alternatives. GEOTHERMAL POWER. Geothermal power is yet another form of renewable energy. The idea here is to drill two shafts deep into the earth, pumpi down one of the shafts and extracting energy fom the steam that comes out the other shaft, as the water is hheated under the earth’s surface, This technology has the major advantage that it can be installed wherever ‘energy is actually needed. Geothermal plants require minimal freshwater and external fuel supplies, and due to their layout are highly scalable Yet the effort of drilling two shafts into the earth creates significant up-front costs as well as engini ing and safety issues. Drilling affects the stability of the surrounding soil, resulting in subsidence and pos- sible local earthquakes. As a result, geothermal plants can be installed only in areas with low seismic acti ity. In addition, this technology is limited to lowlands, since the geothermal heat necessary to create steamt is located too deep in the ground in mountainous regions. Another problem is that the fluids conveyed from the earth carry a mixture of gases, notably cat bon dioxide (CO;) and hydrogen sulfide (HS,). While these pollutants do contribute to global warming, thermal emissions make up only a minor frac those generated by conventional fossil-fuel plant Lastly, the temperature achievable from this technol ‘ogy might not be enough to heat water sufficiently for use in a steam turbine, This limits the use of geother: ‘mal energy to heating and possibly air conditioning, but not power generation SIEMENS AND GEOTHERMAL POWER. Siemens ‘currently has no stakes in geothermal technologies Distri A. maj they are supplied it is nee investm eal equi ‘grid wh nologies power o Cons branch rid.” § sibly se Internet using th bution v with pe: both tra mon po arid tee impact to behig future ds Havis the sma get ther tion set as part as well cant es these sta have ms lion, res planet Cisco, expects will be Google feasible softwareDistributing Alternative Energy A major disadvantage of most renewable energy and hydropower) is that they are stationary. They produce energy where it is Supplied by nature, which is not necessarily where itis needed most. Connecting the dots requires larg investments in power storage and distribution, often feross national and international borders, The electri «al equipment for doing so is a very low-tech power grid whose development has not kept pace with tech: nological advances in power-generation methods. The furrent grid does not possess any correction mecha nisms, elying instead on customers to tell if there is power outage, Consequently ‘complementary industry Branch has developed around the concept of a “smart grid” Smart grids include self-monitoring and pos- Sibly self-repairing capabilities, smart sensors and meters, and a communications network similar to the Internet. This will help avoid power outages, make the grid more reliable, reduc and save enemy. It will also be expandable with furure technol- fogies, such as connecting electric cars to the grid and Wsing their batteries for storage capacity. Smart distri ution will also greatly reduce the current problems With peak power demand, and can serve to integrate oth traditional and alternative energies into a com= mon power supply and distribution network. Smart: gid technology is therefore likely to have a strong Jinpact on future pricing strategies, which ean turn out {obe highly beneficial to alternative energies and their fture development.°? Having seen the importance and market potential of the smart grid, industries and politicians are eager 10 fgetheir share of the business, The Obama administra Tion set aside funding to build smart-grid technologies 2 part of its recent economic stimulus plan, Startups 2 well as established companies are investing signiti- in research and development. Two of these startups, GridPoint and Silver Spring Networks, fave managed to raise $220 million and $170 mil- Tion respectively. One major part of IBM's “smarter Planet” vision is smart-grid technology. Meanwhile Cisco, the world’s biggest maker of networking gear, fapects that the underlying communications network pill be “100 or 1,000 times larger than the Internet Boogle and Microsott likewise have started to identify Feasible business areas, in the hope of providing the oftware that will control the grid.-** Sources (ie., wind, solar ant resour SIEMENS AND SMART GRIDS. Smartgrid tech- nologies seem to be a natural business opportunity for Siemens, based on the company's long history with electronic technologies and products. The company recently established a partnership with L (a leading provider of integrated ener solutions for energy companies) to develop smart meters, a technology that enables the tracking of Power requirements and the ability t0 adapt wher energy is generated and distributed,** The market vol- lume for smart meters was expected to be about one billion euros in fiseal year 2009, and Siemens hopes to acquire orders worth more than six billion curos for intelligent-power networks through 2014. Wolfgang Dehen believes that the matket for smart grids will have “increasingly dynamic growth fueled by climate change and economic stimulus programs” and that Siemens will “grow twice as fast as the overall mar- et” within this sector Siomens’s Competition Jobal energy market is a capital-intensive busi ness in a regulated environment. AS a consequence, there are only a few major players in this industry Financial data for the main global energy compa nies are shown in Exhibit 12 (Siemens), Exhibit 13 (ABB), Exhibit 14 (General Electric), and Exhibit 15 (Alstom), respectively. There are, however, numerous small and highly innovative companies that focus on R&D in specialized areas of the renewable-enerey supply chain. The vast majority of these are privately owned technology startups. Siemens’s technological accomplishments have | made it the world's second-largest industrial con- | slomerate, next to General Electric (GE), its major ‘competitor. Exhibits 3 and 16 show 2009 sector rev cenues for Siemens and GE, respectively. Exhibits 4 and 17 show 2009 sector profits for Siemens and GE, respectively, Like Siemens, GE is also active worldwide. Exhibits 18 and 19 compare the major ‘world markets for Siemens and GE, respectively. GE, Energy is involved in all the major energy fields that Siemens covers, including wind, solar, and nuclear This also includes complementary nents (such as gas turbines), and services and main- tenance. GE has the “home advantage” in the very important U.S. market, while Siemens has a long his- tory of service in the European Union. Both increas- ingly have to put up with third-party competitors, ystems, compo-€b LIgiHxXa 28 8 L cz cl 5 ise r : ese aes'e8 cay00 veos 1 aisiHxa6296 oA ooo'eze uy 4939, on0'tut o00'zat oov'v08 abesane cay! uaz Bugunoage a0jaq so SUL ows tee carol eee is soz 900 9 “eg waueRES 1h LISIHXardYear ended March 31 2009 2007 a) tr) 163) 8)EXHIBIT 16 7008 2a — Consumer & industrial ey] 6% a188 (10 86) i j nergy (405) infrastructure (s98) 24% | Total revenues 209 155.69 bilion$ j nec a Universal > 10% 5 c 95) a " 2) a EXHIBIT 18 88 Siemens 7009 Global Is , "Asia, Australia, Near Middle East 16% Total revenues 2008 7651 bilion euro Europe, Africa, CIS 57% | EXHIBIT 17 | —— Consumer & industiat : 2% Capital finance” 12% Energy “ene pated | Universal 35% 12% loots 08 18383tiions | 4 EXHIBIT 19 ther global Mite East & Afica 3% 6% Americas ah | Pacific Besin Toslrevenues20%: ys 13% ssssvitins | 46%such as Chinese manufacturers of wind-technology products, Siemens was recently plagued by a bribery scandal that reached high into the management and director- ate ranks, placing it at a temporary disadvantage com- pared to GE. Investigators alleged that Siemens spent, more than $1 billion bribing governments in at least, 10 countries, including Greece, Italy, and Nigeria, in an effort to obtain Tuerative contracts.** Although, Greece and Italy have official laws against stich busi ness conduct, countries like Nigeria have lower eth: ies standards and tend not to provide any contracts without sufficient “grease money.” In fact, bribery is commonplace in countries such as Nigeria, China, and Russia. However, because both the United States, and the European Union have laws that make such business practices illegal, Siemens was sentenced to more than $1.6 billion in fines by the German and USS. authorities in 2008, and it had to forgo bidding. oon any World Bank contracts for two year. Decision Time—What to Do? Where to Invest? Wolfgang Dehen believes it is time for Siemens Eneray to place some significant bets, as disruptive innovations in alternative energies are clearly coming Hf Siemens bets badly, the company risks being rele {gated t0 the sidelines as newer, more innovative firms squeeze slowermoving incumbents out of the mar: ket, Investing in the right areas, though, could ensure ‘Siemens and athers a stake in the future of the energy industry, allowing them to leverage their immense assets and keep new entrants at bay. Siemens appears weakened due to the bribery scandal, but in many ways is experiencing a resurgence under its new man- agement and structure. ®° Could Siemens hamess that ‘momentum to capture a leading rale in the new energy nom? The answer to that question depends on the decisions made by Dehen's strategic planning team aver the upcoming months. Currently, Siemens's primary focus in alternative ‘energy is wind-based technologies. Here, the company ‘operates as a one-stop shop, providing its customers. with comprehensive wind-energy solutions that do ot need thiré-party components or outside ser contracts. As the leading supplier of offshore wind tur bines, Siemens's market share in the wind sector is rong and growing" One option is for Siemens to uti- ize its size, competency, and cutting-edge technology to further increase its market share and global footprint in wind energy. Demand for wind turbines is not likely to fallin the near future. What is not so clear, however, is whether wind energy will urn out to be the lead: ing alternative technology, and if it does, whether wind technologies alone can generate enaugh profit to keep Siemens aloft The company’s other main alternative-energy emphasis is solar power, whose future is equally in question. Hore, initial investments have been made, and several projects of significant magnitude have recently been acquired. These represent good first steps into the solar field, but are they enough? Or is Siemens's entry too late to allow it to establish 3 stronghold in this relatively mature industry? Siemens currently must rely on thicd-party suppliers for com plete solar plants, end this dependency makes the firm wuinerable. Nevertheless, solar technology seams 10 have a bright future, with steadily increasing demand, Suggesting there might be enough capacity to support both new and established competitor. Then there is the question of whether—and how much—to invest in other alternative energies, such as nuclear and hydroelectric power. Is it worth feengaging in nuclear technology, not knowing how long the currently pro-nuclear German legisl ture will remain in charge? Can nuclear technology be improved enough to reduce concerns regarding waste byproducts, the risk of accidents, and env mental terrorism? Siemens has a rich history in hydroelectric dam projects as well, but itis not cleer whether this is a strength or weakness in the cue rent climate, Fewer and fewer dams are being com missioned as these projects grow increasingly more expensive and controversial. Dehen is not sure itis wise to stake Siemons's reputation as a green energy provider on a technology that causes so much env ronmental damage, In addition, Siemens has made limited invest ments in the development of hydrogen-based fuel cells. which hold great promise if significant logis tical issues in hydrogen storage and distribution oan bbe overcome. Siemens also has yet to explore muh tiple other potential technologies, such as geothermal eneray or biofuels. Many high-profile researchers, including Craig Venter, a key figure in the decoding of the human genome, actually view algae as the most promising path. These microscopic plant cells are present in an infinite supply and can generate energy Quickly, effectively, and in an environmentally friendly grou upe is to sust globe supp itwo forge relatpotnrint st likaly 0 lead ox wind! to koop) energy’ yally in made, e have) od first gh? Or lish @ ne frm) ems to) emand, support and orgies, t worth) nowing) legislan nology’ garding) d envie tory int ot clear y more ro it is energy, h envi invest. ed fuel It logis ion can) thermal archers, xing of e most ls are energy friendly manner, if scientists can figure out how to capture it gest effectively Its also possible that the next great, Breakthrough in renewable energy technology has not Yet oven been discovered, Ater deciding how many and nergy fields to pursue, ns's strategic leaders fill have to figure out how to compete in the chosen. Sectors. Historically, Siemens tends to bridge a middle igound between being a first mover and merely taking lpexisting technologies and capitalizing on them (as a Second o later mover}. Its preferred mode of operation jg 0 monitor market trends and stay on the lookout for smalier companies with innovative technologies in promising market segments. If the new technology is. Getermined to be a sustainable business opportunity Semens will quite the target company and integrate ito its portfolio, While this means that initial gains on Ihe technolagy may not be reali fame, i does ensure that the investment pays off in long run It also means that Siemens does not have invest much in basic RED of uncertain tachnologies, but instead should spend its R&D budget continuing fad enhancing acquired innovations 40% ¥ is full of examp feny creates a first mover advantage by capitalizing on fnew cisruptive technology and setting the standard Jer everyone else to follow. Popular examples include Henry Ford's introduction of the conveyor belt in manu: Fertring, or the online auction platform at eBay By Pot investing more in primary R&D, Siemens risks 9 placed at a sdvantage in the area bfeternative energies, In many ways, innovation is like manent dis Ipmuscle that grow stronger with repeated workouts, Kens when you stop using Having just returned from Davos, Mr. Dehen also Tnds himself wondering whether Siemens is taking q all the benefits that alliances have p ofr. If ma ions could come together Under the leaders! onomie Forum to Hiscuss issues and obstacles in the development of Eistainable energy sources, could they not colaborate Inder other circumstances es well? Cimate change fad renewable energy are, after all, problems on {jobal scale. Perhaps itis not even realistic to expect Bsingle corporation, no matter how Bnd develop the next big energy breakthrough without Support from other interested parties. Yet he suspects itwould be difficult for previously fierce competitors to forget their past and build @ trust-based, collabo isationshi, large, to discover 301 Mr, Dehen’s head is spinning with these thous! as he heads to his car for the drive home. The strate: anning group will certainly have much to discuss tomorrow, not to mention in the days and months to Endnotes 1. www.weforumorg/ptivenerey/Enerey Vision pdate2010 pl 2. OPEC isthe acronym for Organization of dhe Petroleum Exporting Countries, and has 12 member: Algeria, Angol, nador, Ian, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arh Emirates, and Venezuela, 3, wu meforum.orgipdipenerey/Enerey VisionUpdate2010 put 4. www.neforum org/piprenergyEnensy VisioaUpdate2010 pa . www.seforumorpldocumentsiniiativesICEOStatemet Pap. 6, “The winds blow for clean ene July 9, 2008 The WallStreet Journal 2. Siemens: "Progress ‘honicle of PowerPlant Engin ‘material, Siemens publication our tration; Peter von Siemens, nens, promotions 8, hupefen. wikipedia org/wikiElectsical_power indus 9, “150 yeu of Siemens, the company from 1847 to 1997, promotional material, Siemens publication 10, swwwenergy:siomens comfenty 31213565 Powersi20Generation 1. Friedman, T,L. (2008), Hor, Fla, and Crowded: Why We ced a Green Revolsion-And How lt Can Renew America, Ist cd. (New York: Fara, Straus, and Girous). 12 ww. eia doe gov/oiatfiea/pttablet7 pd 1. fpf. handesbla.comyShowlmage 24965098, with data from: Bundesverband V,, Germany 14, ww reer comartclssEnergyNews! FdUSL618914120000308. 1 Siemens Power Generations pres release website 16. woww reuters. conatclridKLDE62B00D20100312, 17, www release/2009fenewable-eneryyfere 200912024 ham. 18, sw: posergeneration siemens.com/pressress-rleases net)/2000ERE2O04035 hm, 19, syww-powergeneration semens.comypressipress release /2O19/ERE2009K6064 mn 20, «www. powergeneration semens.comypressprese-rleases renewabe-energ)/2000/ERE20090S053 hn 21, McElroy, M.B., et, (2009), “Potential for wind- netted electricity in China” Science, September 1378-1380, 22, www.chinadily.com.w/bizchina/2009.0911 1) content 8680407. him, renewable-ene