European transformer market slumps

The European electric transformer market has slumped under the weight of uncertainty over restructuring of the power market, according to Frost & Sullivan, San Jose. But the consulting firm forecasts in the long-term the need for reinvestment by European utilities will help the market emerge from the doldrums.


The European electric transformer market has slumped under the weight of uncertainty over restructuring of the power market, according to Frost & Sullivan, San Jose. But the consulting firm forecasts in the long-term the need for reinvestment by European utilities will help the market emerge from the doldrums.

Revenue growth in the overall transformer market has been adversely affected by falling average prices and depressed investment in the large equipment sectors such as power transformers, says Frost & Sullivan. The drop in prices is a direct result of production over capacity, a decline in orders, fiercer competition, and greater utility buying power in some regions.

Overall, Frost & Sullivan identifies a modest recovery in market revenues, with sales rising to $2 billion in 2006 from $1.7 billion in 1999. The firm forecasts the recovery will be lead by the industrial and the distribution markets.

However, as the rules become clearer, investment decisions will be made leading to an increase in new orders, especially from incumbent and newly formed utilities, says Frost & Sullivan. The market will also benefit from growth in on site cogeneration as well as the renewable energy sector.

In the long term, Frost & Sullivan's study observes purchasing patterns will change in a more commercially oriented climate. End users will place greater emphasis on safety, efficiency, and environmental issues resulting in a requirement for further innovation in what is already a saturated market, the authors predict.

The European transformer market is dominated by a few large project-engineering concerns that also have interests in the transmission and distribution market. Among the leading players are ABB Group, Alstom ESCA Corp., Schneider Electric, and Siemens AG.

Smaller manufacturers continue to capitalize on the buoyancy of some sectors of the transformer market, which historically benefited from purchases made by national and regional utility companies, says Frost & Sullivan. However, a number of national markets are undergoing change, and largely due to the recent pressure on revenues and prices, the majority of market players are finding conditions increasingly inhospitable.

The ongoing need for replacement equipment is expected to power growth in the transformer segment, said Frost & Sullivan. Replacement orders received directly from utility customers, or through contractors and project engineering companies account for an increasing share of overall purchases.

The firm projects an anticipated upgrading of a number of national distribution networks and rising interest in the installation of safer units will further encourage growth.

Germany is currently the leader in sales in the European transformer market. However, Frost & Sullivan says Germany's share of total revenues is expected to decline between now and 2006 as lower prices and a mature end user market temper demand.

Growth markets include the UK, Italy, and France where the state's overriding presence in electricity generation, transmission, and distribution provides a stable market for investment, the firm says.

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