Dr. Folker Tannenberg, vice president of Siemens Power T&D, recently met with Transmission and Distribution World Editor-in-Chief Rick Bush to share his comments on the Dpressures facing today's electric utility industry. He outlined the steps utilities and their suppliers must take to compete in the 21st century. He predicted that successful participants will embrace risks, learn new skills and partner with others on a project-by-project basis. Dr. Tannenberg also outlined the new technologies being introduced by the Power T&D Division. Joining Dr. Tannenberg in the interview was Dr. Rainer Bitsch, director of Decentralized Energy Supply at Siemens. Dr. Bitsch shared his views on the future of distributed generation in the global marketplace.

Q: Can you give us a little background on Siemens Power T&D?

Tannenberg: The Siemens Power T&D division brings in yearly sales of DM6.4 billion (US$3.8 billion) and employs 20,000 people. We operate 56 factories worldwide to produce a wide range of products for use in the transmission, conversion and distribution of electrical power. In addition, we maintain offices in over 85 countries.

Q: Do you see significant changes in the ways electricity will be distributed in the future?

Tannenberg: We developed a concept called "Power to the Point" which describes the various ways utilities will provide electricity to their customers. Of course, each customer has different needs. Some want assurances that their power supply is not interrupted. Others are more concerned about costs. Still others are looking for high quality power. Some customers will be content to accept power off the grid. Still others will install their own generation and sell back to the grid.

Q: Do energy strategies differ from country to country?

Tannenberg: In developing nations, the supply of electricity is mostly localized. In newly industrialized countries, we see the development of interconnected networks and the emergence of long distance transmission. In fully industrialized countries, there is a shift to incorporate advanced management systems to connect both central power plants and local generation to the grid while actively managing both load and demand to reduce the overall cost of electricity.

Q: Why develop global networks?

Tannenberg: Most countries believe they should maintain sufficient generation to meet their internal electricity needs. In fact, many countries go so far as to say, "I want to produce a surplus so that I can sell power outside my borders and generate revenue." Utilities are willing to invest in the development of a global network in order to assure revenue growth.

Q: Can you list some ways utilities are responding to competition?

Tannenberg: Some utilities have realized they must cut costs to remain competitive, often leading them to outsource service and stores functions. Other utilities are attempting to hold onto technical expertise by offering engineering services on the open market. Some utilities have decided to expand worldwide. Others are buying into existing companies. We have utilities in Germany who are purchasing shares of transformer plants. Each utility must find its own way. There is not just one solution. I am expecting a shake-out in all these business scenarios.

Q: Which business models do you think will be most successful?

Tannenberg: We will see a variety of successful utility models. If a utility has success in marketing excess capacity worldwide, then for that company it is the right way. Another utility that cuts capacity and partners with suppliers and has success with that, then that is the way to go. I think utilities will need maximum flexibility. In some cases we will work with utilities on projects together, particularly in research and development. But in other ventures we will be strong competitors because a different focus is needed to be successful. The highest degree of flexibility is required.

Q: Do you have that flexibility now?

Tannenberg: We are getting it more and more. I think nobody has the flexibility right now. We expect to compete and partner worldwide, often on a project by project basis.

Q: What changes do you see for utility personnel?

Tannenberg: Ten years ago when I talked to utility customers in the transformer business, we would discuss the dimensions of coil windings, insulation materials, and hot spot temperature monitoring. Today, we are discussing how to cost effectively get power from point A to point B. That is why we have developed our concept "Power to the Point." We must help utilities effectively manage the entire power-delivery system. Our discussions now focus more on business than technology. This does not mean that we are now management driven and can forget the technology. No. We need technology as a basis to stay competitive.

Q: How do you deal with customers who haven't realized the need to change?

Tannenberg: We start where our customers are. The younger generation, they want to move fast, but they are not in the position yet to make change happen. It's the same in our company. So we will change as fast as companies reorganize and place people into management positions who support change.

Q: How are your relationships with major customers changing?

Tannenberg: Ten or 15 years ago companies like ours waited for the phone to ring for utilities to give us an order. Now things are quite different. We work with customers as partners. We hold customer workshops with key utility people to develop common ideas on what the future holds and how we can partner together. We need feedback on the problems our customers are facing. We jointly try to develop products and systems that are right for the customer. Previously, utilities developed their own strategies and systems. Now that many utilities have reduced staffing, they are more willing to allow suppliers to help them plan for the future.

Q: Are you seeing major cultural differences among utilities?

Tannenberg: I have an example here in Germany. Our first customer workshops were held with German utilities. The first utility we contacted said, "We are not used to a workshop atmosphere. We are used to getting directions top-down. We are not comfortable offering our own ideas to present to our key management. So, please do not start a workshop with us until we have a chance to train ourselves to operate in a more open climate."

Another utility, as big in size as the first, had a different attitude. They said, "Yes, plan a workshop." Working jointly, we were able to come up with some good ideas. So, innovation and initiative does not depend on size. It does not depend on the country--they were both in Germany. It depends on the culture in that organization and on the culture of the people. It goes back to the people.

Q: Do you see Siemens taking on roles that were once met exclusively by utilities?

Tannenberg: Siemens is learning how to operate power systems. Otherwise, our former customers will leapfrog us by increasing their knowledge and their competence. We have to learn how to operate while maintaining a working relationship with utilities, utility subsidiaries and other suppliers. We cannot become problem solvers without knowing how to bid, install and operate turnkey solutions. It really comes down to this.

Q: Are developing countries more likely to accept turnkey system approaches?

Tannenberg: In developing markets like China, utilities want to install a western solution. They do not have to discard existing systems because they are starting fresh. We see leading technologies quickly popping up in developing countries.

Q: Will we see modular T&D systems?

Tannenberg: Yes, I'm convinced that we need modular systems not only in hardware but also in software. We need to pr vide customers with a packaged system. It is easily said but not easily done because utilities already have products and systems installed that must be maintained. In addition, utility engineers are hesitant to embrace new technology without transitioning from their old way of doing things.

Q: How committed is Siemens to performing basic research?

Tannenberg: Siemens Power T&D invests DM200 million on research and development, which is a little over 3.1% of our revenue. The actual investment in research varies according to product line. For example, we invest up to 8 or 9% in research to develop up-to-date automation systems and energy management systems. We also have a significant investment in developing superconducting high-voltage cables. We carefully focus in areas where we believe we can get a significant return on our investment. The basic research and development is performed mostly in Germany and the results are then applied by product line around the world.

Q: How is Siemens working to bring forward new technologies?

Tannenberg: We have over 44,000 people involved in research and development initiatives around the globe. Of this number, 2100 individuals are working at our R&D Research Center here in Germany. This center was previously financed with corporate dollars. Over the past five years we have developed a quite different approach. Now 60% of the cost of central research is covered by orders from the various divisions. The remaining 40% is covered by the corporation. The labs are now cost conscious on where they focus their resources. There is also a flow of people to and from operations to the research labs. We routinely loan people with field experience to the central research department for two-three years and then take them back. The technical efforts are thus more geared to take advantage of business opportunities.

Q: Have the changes in R&D brought products to market more quickly?

Tannenberg: Lets take superconductivity as an example. Years ago we just researched the phenomenon. Now, together with the central labs, we are drawing and milling our own superconducting wires. This technology is being developed for use in both superconducting cables and in fault current limiters. We decided that the material and processes were key to the success of new products. We decided we could not depend on obtaining materials from outside suppliers because then we would never have a competitive edge over the competition. So we produce all of the material at Siemens.

How have the organizational changes at Siemens R&D Center affected the people? Tannenberg: This is entirely a win-win situation. The people are happier now because they are working on a project, rather than on the phenomenon only and seeing new projects, new solutions. Plus, they do not have to stick to one topic for their entire career. When the project is done, they are assigned to another project or go back to one of the divisions.

Q: How will you roll-out your technologies?

Tannenberg: We will initially install technologies for special applications. As the systems become more price-competitive, utilities will find more opportunities to use them. One thing is sure, there will be special applications for the end user. For example, we have a river running through Berlin where there is a need to transmit power from one side to the other. There are now cables placed in tunnels dug under the river. If you want to increase the power flow across the river, you can either dig a new channel to put in additional copper cable or you can use the existing duct to put in higher capacity cables. For instances where a tunnel already exists, superconducting cable could look very financially attractive.

Q: How about energy storage?

Tannenberg: Supermagnetic energy storage (SMES) will give customers a second reserve of power for a short time as well as higher power quality. This technology is already in place. It will be used where you need short term reserves, and I am talking seconds. Large-scale devices will be installed at facilities like microchip manufacturing plants. We are talking investments of up to US$100 million and higher. Right now they are being considered in the United States.

Q: What other devices will use your superconducting technology.

Tannenberg: We have developed a superconducting fault current limiter that operates on resistive principles. The fault current limiter is really a unique product of Siemens Power T&D. This device cannot easily replace an existing breaker because the downstream equipment would be oversized. Utilities would have to re-design their network. If you are installing a new power delivery network, the fault current limiter makes more sense because the downline switchgear and transformers can be designed with reduced short circuit capacity. But the first uses will be special application situations.

Q: What future do you see for distributed generation?

Tannenberg: Less than a year ago, we ran an internal innovation workshop, putting people together who are real-change leaders in technology. These individuals included department heads at our research labs. The hand-selected participants came up with five new project areas. Decentralized energy supply emerged as one of the five new issues, which required a cross-divisional effort. Dr. Bitsch next to me here, is running this initiative.

Bitsch: And without going into the details, we detected a great opportunity. It is becoming increasingly obvious that energy suppliers will need loads that can be modified or curtailed based on price and availability. For hospitals and computer centers you need reliable energy, otherwise you cannot continue to work. Other loads only require energy for certain periods of time. This gives us the chance to balance unstable energy resources such as wind and solar with traditional sources while balancing the cost of fuels depending on the load curve. If you have excess wind energy generation due to very strong winds over a certain time, you have the chance to install an energy storage system. Now you will need a very intelligent system to stabilize these energy sources. You need a prognosis for the weather because the weather determine the source of energy, whether wind, solar or water powered.On the other side you need to evaluate the load requirements. About every 10 minutes or half-hour you compare the generation capacity to the projected load. If the load is exceeding supply, reduce the load or take energy out of storage. We see that the management of distributed power sources will be critical in the future.

Q: Why hasn't Siemens detected this need before?

Bitsch: Because renewable and fossil fuel distributed power generation didn't easily fit into any existing Siemens division. Our power generation group, for example, is not looking at plants with outputs below 40 MW. This decentralized power initiative calls for smaller power generation units. It turns out that nobody in Siemens was responsible for smaller generating plants, so we tied together experts from various groups and we created a new project group.

Q: How are you going to bring this concept to the marketplace?

Bitsch: To demonstrate the concept, we will be participating in the world exhibition in Hanover in the year 2000. We have committed to demonstrate a working model by tying together various local sources of energy including windmills, solar and biomass, as well as small gas turbines or diesel plants. Loads will include housing, small handicraft and assorted tiny industries. Siemens will provide innovative energy management to balance energy supply with the load. When we turned this project idea in to the Hanover Fair officials, it was not only accepted, it was given an award. We intend to demonstrate that we can tie a diverse power mix together and meet different load characteristics through a connected network.

Q: What distributed energy sources make the most sense?

Bitsch: It varies, depending on the cost of fuel, environmental factors and the load curve. The energy mix is crucial. You need a mix of energy sources with completely different characteristics to provide the flexibility to combine or coordinate the energy sources to meet required load.

Q: Who will ultimately have responsibility for balancing the load with available energy sources?

Tannenberg: Initially, we will partner with local distribution companies. We realize we do not presently have the skills to operate power systems and balance supply and demand. In the future, we might have projects where we will be responsible for initial operations before turning the systems over to the customer. This skill we have to learn.

Q: Any concluding comments?

Tannenberg: The 1990s have resulted in extraordinary change both in the industry and at Siemens. This period can be characterized by technology innovation and increasing international competition. But technology is not sufficient to ensure success. Restructuring and competition have changed markets worldwide. Consequently, electricity will become an internationally tradable commodity. The future will favor those equipment and systems suppliers who can best respond to changing conditions at the right price. Only companies driven by cost-effective innovation and a willingness to work hand in hand with power providers will prosper into the middle of the next century.

Dr. Folker Tannenberg received a masters and a doctorate degree from the Technical University in Berlin. In 1970, Dr. Tannenberg joined Siemens and has risen through the management ranks with assignments in Germany and the United States. Prior responsibilities include production manager, director of manufacturing and executive director of the transformer division. In 1994, Dr. Tannenberg was promoted to vice president, Power Transmission and Distribution, where he is responsible for directing Siemens' global efforts in T&D.

Dr. Rainer Bitsch is director of Decentralized Energy Supply at Siemens AG. He received the Dr.-Ing of electrical engineering in 1972, the same year he joined Siemens AG in Berlin where he worked in the switchgear factory. He has been a technical director of a Mexican-German joint venture, has been responsible for sales of the business unit high-voltage components worldwide and has been technical director of the medium voltage switch-gear factory in Frankfurt. He also headed the Central Technical Department of the Energy Transmission and Distribution Group.