Europe on the move: A conversation with Hitachi Energy’s CEO

Electricity is the foundation of modern life and the essential force that underpins progress around the world, but the grid’s ability to evolve and scale is the bottleneck to growth. Global leader in electrification Hitachi Energy is spearheading these efforts worldwide. CEO Andreas Schierenbeck recently sat down with the leader of McKinsey’s Electric Power & Natural Gas Practice, Lorenzo Moavero Milanesi, for the inaugural Europe on the move podcast. Schierenbeck discussed the challenges facing Europe’s grid and the urgency to make electricity abundant, secure, affordable, and sustainable.

The following transcript has been edited for clarity and length.

Energy as a defining imperative

Lorenzo Moavero Milanesi: We are here today with Andreas Schierenbeck, CEO of Hitachi Energy, as part of our series on lifting Europe’s ambition. Andreas, welcome. Why is energy so important to lifting European ambition?

Andreas Schierenbeck: That’s a good question. Normally, we don’t think about energy, but it actually drives our entire society. It’s responsible for economic growth, and cheap energy is a prerequisite for being competitive. It must not only be affordable, but safe, secure, and sustainable. That’s what we are working on at the moment, both here in Europe and worldwide.

The need to overhaul Europe’s electrical grid

Lorenzo Moavero Milanesi: Europe finds itself at a critical juncture, with many forces converging on the continent as we speak. These challenges include affordability, rising inflation, geopolitical uncertainty, technological changes, and an aging population. What’s your sense of the priorities Europe should address to deal with these uncertain times in the next three to five years?

Andreas Schierenbeck: That’s a very complex question, and I think that time frame is a little bit too short. Because, for the first time in a while, we are acknowledging that energy means safety and security, yet it also poses a risk. And the magnitude of energy safety and security is probably bigger than any EU member state can handle on its own. We all know that achieving consensus in Europe on anything is never easy. And when you talk about electrical energy generation and the grid, everything we produce has to be transmitted, because the European grid is not very well interconnected. It’s not inherently bad, but it was created for a different purpose.

Lorenzo Moavero Milanesi: We talk a lot about growth, scale, and European leadership. What do you think the level of European ambition should be?

Andreas Schierenbeck: The level of ambition for Europe and its energy concerns means that we need to agree on one strategy, figure out how we want to supply Europe, and determine what resources we have. Because this is what every region of the world is doing, be it China, India, or the United States. Everybody is figuring out what they have and what they can use.

We also need to ask ourselves how we are derisking our portfolio, because nobody wants to be dependent on a single source of energy. We have learned that this may not be a good idea. Then, of course, you have to decide what kind of grid you want.

European grid planning was done in a completely different time, for a different purpose. Now we need to take interconnectivity, resiliency, energy exchange, and the learnings from the Ukraine war into consideration.

So, we need a different grid, and we have to agree on how to build it. The US grid package is a good start, defining corridors and bringing the market together. But that’s a different discussion, and these things take time.

Tackling Europe’s energy trilemma

Lorenzo Moavero Milanesi: You mentioned greater integration and agreeing on a diversified strategy. These are ingredients needed to solve the energy trilemma, right? In other words, making sure European energy is secure, affordable, and decarbonized. What other ingredients should we bring into the solution?

Andreas Schierenbeck: I would say I have a different opinion. The energy trilemma cannot be solved. It’s like a three-body problem. It’s unstable. You have to make compromises about affordability, safety, security, and sustainability. There is no perfect solution. And you have to keep asking what you want and how much you are willing to pay or sacrifice for safety and security.

So, the trilemma is always unstable and needs to be negotiated again and again. For example, Germany relied on Russian gas for a long time. Now the situation has changed, and Germany no longer wants to be dependent on Russia.

One thing is for sure. If Europe wants to move forward, it has to become faster and more competitive. It’s just not feasible to wait three, four, five, or six years for various permissions in the future. I know it’s not easy, but I think we have to face these questions. We are spending too much time on bureaucracy and other considerations instead of saying, “We have to define what we want and execute on that.”

And we have shown that we can do this in times of crisis. We can also build things rather fast, even in the last couple of years. But we have to change our speed and the gear, because the world is not waiting for us.

Building the future by investing in footprint and people

Lorenzo Moavero Milanesi: In this context, Hitachi Energy is playing a pivotal role in solving what you call an unstable trilemma, but a trilemma that is important to address to ensure an orderly energy transition. Hitachi Energy also faces several challenges, including debates over affordability, supply chain constraints, and the need to hire and train talent. So, in that context, what actions is the company taking?

Andreas Schierenbeck: First, we are investing because we know that we need more equipment for the grid, of which we are one of the biggest suppliers. We also invest the largest amount in the industry to produce more energy.

But I don’t agree that affordability and grid investment are a contradiction. Every euro you spend on the grid saves two to three euros over the long term, because you eliminate grid congestion, when you’re paying for energy you’re not using.

So, from that point of view, having a stable grid for the right purpose saves you money. If you look at energy prices across all EU member states, you shouldn’t underestimate how prices are determined. The grid is not the biggest cost in that equation, and a properly defined one can actually save money.

On the other hand, we are also investing in people because investing only in machinery is not enough. We have strong European roots, having been founded in Sweden and Switzerland before becoming Hitachi Energy. We remain committed to Europe and are hiring more than 5,000 people globally each year over the next couple of years.

Competitiveness through high-voltage connections

Lorenzo Moavero Milanesi: You touched on affordability. Could you share some examples of what Hitachi Energy is doing to address this?

Andreas Schierenbeck: We’re always looking for better solutions to reduce costs, such as what we are doing with high-voltage direct-current [HVDC] links connecting countries or offshore wind parks. The latest auctions in the UK have shown that the price of offshore wind parks connected with HVDC can be very competitive. Connecting different states and regions across Europe with HVDC links is also helping bring down energy prices.

Lorenzo Moavero Milanesi: Andreas, what about innovation? HVDC systems are very complex. The energy system is becoming increasingly complex as energy flows decentralize. What is Hitachi Energy doing in terms of innovation?

Andreas Schierenbeck: We pioneered HVDC a long time ago, and I would say the next decades will be the age of HVDC. Of course, we’re always looking to improve our ability to supply energy to the grid. Power quality also plays a big role as the number of solar systems and onshore and offshore wind increases, so we now have more grid components to compensate for.

We’re also looking at integration, software, and AI because the grid was designed a long, long time ago for a kind of central generation, transportation, distribution, and consumption. Now the grid is changing, because everybody with a rooftop solar panel is generating and probably selling energy. So, software innovation using AI to improve efficiency is one example of innovation. 

Moving from transactions to partnerships

Lorenzo Moavero Milanesi: Andreas, you mentioned a lot of initiatives underway at Hitachi Energy, but you are also intensifying your partnerships with both the public and private sectors. Could you tell us a bit more about these partnerships and what drove your decision to offer customers a better value proposition through them?

Andreas Schierenbeck: I think it’s part of this age of electricity, as it’s called by the IEA [International Energy Agency]. Electricity demand is growing faster than ever before, much faster than primary energy. And it’s changing how we work together. The energy market used to be very transactional. If you needed some equipment, such as a transformer, you ordered one and got one because there was spare capacity. Now everybody in the industry, not just us, is fully booked.

And even though we are still investing, we are only investing in bankable business cases. That means we have to know who is buying what. Which means we have to ask our customers and partners, “What do you need, and when?” Otherwise, we wouldn’t invest. So, it’s completely changing the way we work together.

So, we’re moving from transactional relationships to partnerships. You tell me what you need, when you need it, and we reserve it. We also save time and money because I don’t need as much time engineering as before. I can order long-lead items in advance, put them in stock, and invest in additional capacity.

And while it changes how we work with our traditional customers, there are new customers like the hyperscalers building data centers. This opens up new possibilities, because you have much more freedom to design the systems in a more cost-effective way, as long as it’s faster.

But from my point of view, the central challenge in this age of electricity is learning to work together and move from transactions to partnerships. Because that’s the only way we can cope with the rising demand, since supply and demand are not in balance today.

Satisfying the growing need for services

Lorenzo Moavero Milanesi: How does this change the way you work with your customers? Historically, you sold them equipment, but now you offer them a revised value proposition that includes services to help them manage systems over their entire life cycle.

Andreas Schierenbeck: Yes, services are another way to help our customers. Why are services more important than before? Our customers face big challenges and are now spending three to four times as much on capital expenditures than before.

If you’re spending three to four times more than you have ever spent in a year, you need more people. Which means you have to recruit your own people, such as maintenance crews and project managers, to run these new initiatives instead of providing services. So, there is an opening for the industry to fill that need for services.

On the other hand, our customers also face an aging employee population. And as older employees retire, a lot of experience is leaving these companies as well. So, it makes sense to turn to companies like ours, which have experience with this equipment and can scale it.

The benefits of corporate synergy

Lorenzo Moavero Milanesi: Hitachi Energy has a deep European heritage with ABB, but so does the global Hitachi Group, which is active in many areas, including industry, mobility, digital, healthcare, and building systems. How is that helping you offer better value propositions to your customers?

Andreas Schierenbeck: Being part of a larger company is always helpful because it provides easier access to financing and resources like software, which can be rather difficult in this era of AI. If you have it all in-house, it’s so much easier.

Our AI-powered HMAX solution, for instance, is based on an innovation developed by our rail colleagues. HMAX gathers, processes, and analyzes data from sensor platforms to make propositions. So, that’s not something new.

There are a lot of synergies to take advantage of in such a large group. And, of course, we have a wide footprint because we are active worldwide, although not everywhere.

The power of taking time to slow down

Lorenzo Moavero Milanesi: Finally, allow me to ask you a more personal question. You lead a business that is active in roughly 140 countries, and you oversee more than 56,000 employees. You also need to balance the short-term deadlines for delivering products and services to your customers with the long-term investment decisions you make every day. How do you strike a balance, given the ambiguity of the current environment? How do you deal with that?

Andreas Schierenbeck: First, I’m not doing it alone. I have a great team and great colleagues worldwide who make decisions daily and work with customers. I see only the tip of the iceberg, and probably most of the problems, because bad news always travels to the top.

But this is normal for every top manager. We are here to solve problems, find solutions, and change the culture, because we are in a transition—and culture is the most important factor for an organization, especially as it grows.

Ultimately, you have to find that balance in the business between running fast and not overextending teams or overinvesting. I try to find the balance in my personal life as well. It’s not always easy, but there are two things I do that help.

When I’m home, I often walk my dog because he slows me down. He stops at every corner and sniffs around, so if you want to walk fast, forget it. He sets the pace, which gives me time to think and slow down. I’m also into running. And although I’ve downgraded from running marathons to half marathons, that’s good enough.

Lorenzo Moavero Milanesi: With your dog or without?

Andreas Schierenbeck: I’ve tried to run with my dog once in a while. After 100 meters, he looks at me with an expression that says, “What are you doing?” Forget it.

Lorenzo Moavero Milanesi: We covered a lot of ground. I see three themes from our conversation regarding attributes for leadership from a European champion.

The first is resilience, especially in dealing with this ambiguous environment we find ourselves in now. The second is the capacity to always innovate and learn, especially in an ecosystem of increasingly diversified partners.

The third one is the importance of talent, and how you are hiring and training a lot of new people in Europe, as well as how you are working with your leadership team to navigate the current environment. Thank you so much for this inspiring conversation, Andreas.

Andreas Schierenbeck: Thank you for having me.