Analysis and Future Development Trends of the Power Transformer Industry in 2018

In recent years, China's electricity demand has grown rapidly, and the high-speed construction and investment of the power grid have driven the market demand for transmission and transformation equipment. According to the 13th Five Year Plan, related industries such as power supply, power grid, and rail transit are facing good development opportunities, further driving the growth of the supporting transformer market. The construction of projects such as West East Power Transmission, North South Mutual Supply, and Cross Regional Networking has driven the rapid development of China's power transformer industry.

From 2010 to 2017, the overall sales revenue of China's transformer manufacturing industry showed an upward trend, but due to the macroeconomic situation in China, the growth rate of sales revenue in the transformer manufacturing industry tended to decline. In 2017, the sales revenue of large-scale enterprises in China's transformer manufacturing industry was 368.9 billion yuan.

The power transformer industry is a typical investment driven industry, and domestic power investment determines the rise and fall of the power transformer industry. Especially for power grid companies, there is a huge demand for everything from the highest end 1000kV ultra-high voltage transformers to the lowest end 10kV distribution transformers.

The overall sales revenue of the power transformer industry showed an upward trend from 2011 to 2017. In 2016, the power transformer industry achieved sales revenue of 272.675 billion yuan, a year-on-year increase of 12.24%. In 2017, the power transformer industry achieved sales revenue of 269.355 billion yuan, a year-on-year decrease of 1.22%.

Industry market competition pattern

From the perspective of market structure, the domestic transformer industry market is currently in the "Warring States period", with large enterprises competing to gain market share, while small enterprises are competing with each other, resulting in poor survival conditions. Overall, the competition in China's transformer industry is fierce, with foreign multinational corporations seizing a large market share. The number of domestic transformer manufacturing enterprises is also rapidly increasing, and the competition in the mid to low end transformer market is fierce. Presenting a pyramid structure, as the voltage level increases, the technical barriers become stronger, the number of manufacturers decreases, and the degree of monopoly increases.

Chinese transformer companies can be divided into four major camps: ABB, AREVA, Siemens, Toshiba and other multinational corporations have formed the first camp with technological and management advantages, occupying 20% -30% of the market share, and the market share is still expanding; Domestic large enterprises such as Baobian, Tebian, and Xibian have formed a second camp by improving the technological level and grade of their products, occupying 30% -40% of the market share; Manufacturing enterprises represented by Jiangsu Huapeng Transformer Co., Ltd., Qingdao Qingbo Transformer Co., Ltd., Shunte Electric Co., Ltd., Shandong Dachi Electric Co., Ltd., Hangzhou Qianjiang Electric Group Co., Ltd. have formed a third camp; Many private enterprises, due to their flexible operating mechanisms and absence of non productive burdens, have also formed a certain market share and formed the fourth camp.

At present, there are few large-scale transformer manufacturing enterprises, with only three having annual sales revenue exceeding 5 billion yuan. Small and medium-sized transformer manufacturing enterprises account for more than 80% of the total number of enterprises. Most small businesses have weak financial strength, which leads to weak production technology and can only produce low-end products below 110, resulting in a serious overcapacity in the mid to low end transformer market.

Due to the low added value and low profit margin of mid to low end products, coupled with supply-demand imbalance, prices continue to decline, and most companies are on the brink of losses. Additionally, the current transformer mid to low end market is mixed, leading some companies to seek market development at the cost of sacrificing quality. These enterprises will inevitably be eliminated by the market. Compared to the high-end market, the market prosperity is high and there is still a lot of market space.

Future Trends in the Power Transformer Industry

Transformers are the core and key equipment of power systems, and China's transformers have strong competitiveness in the global market. However, traditional products have serious overcapacity, fierce competition, and small average profit margins. The comprehensive brand strength of local enterprises is not strong. For example, the two packages of transformers for the Beijing Daxing Power Supply Company's new airport transmission and transformation project equipment announced at the end of 2017 were both won by joint ventures of ABB and Siemens. On the other hand, the construction of the new generation of power grids, especially ultra-high voltage transmission lines, has provided new requirements for transformers, requiring enterprises to invest a considerable amount of research and development funds.

The Changji Guquan ± 1100 kV high-voltage direct current transmission line is the world's first ± 1100 kV direct current transmission line project. The project's publicly tendered 4-pack converter transformers are provided by four companies: TBEA Shenyang Transformer Group Co., Ltd., Shandong Power Equipment Co., Ltd., China XD Electric Co., Ltd., and Baoding Tianwei Baobian Electric Co., Ltd. ABB and Siemens have also made important contributions to the innovative cooperation of converter transformers with State Grid.

In 2017, State Grid conducted four centralized bidding for distribution network equipment. According to the announcement information on its e-commerce platform, the total bidding volume in 2017 decreased significantly compared to 2016.

According to the prediction of the Institute of Finance and Economics of the Chinese Academy of Sciences, the primary power demand during the "12th Five Year Plan" and the "13th Five Year Plan" will maintain a stable growth trend, and the annual average growth is expected to reach 6.7-7%. By 2018, the demand for primary energy electricity will reach 1.4 trillion kilowatt hours, and is expected to reach 1.6 trillion kilowatt hours by 2020. During the 13th Five Year Plan period, State Grid Corporation of China's investment in the national power industry will reach 7.1 trillion yuan, an increase of 16.4% compared to the 12th Five Year Plan period, of which power grid investment will reach 3.5 trillion yuan, accounting for 49%.

With the advancement of China's power grid intelligence project, the construction of intelligent power grids in urban and rural areas has begun, providing broad development space for intelligent distribution, control and other equipment, especially the manufacturing of transformers.

It can be expected that the huge investment in distribution network construction in the next few years will directly promote the development of the medium and low voltage substation equipment market, especially transformer products with good energy-saving effects and high intelligence will demonstrate strong competitive advantages. According to the development plan of China's power industry and the historical development law of transformers, forward-looking analysis predicts that by 2023, the output of transformers in China will reach 2.16 billion kVA, and the market size of the transformer manufacturing industry is expected to reach 750 billion yuan.

With the increasing competition in the power transformer industry, mergers and acquisitions as well as capital operations between enterprises will become increasingly frequent. But it also helps to facilitate technological exchange and complementary advantages among major manufacturers, promoting the development of the industry towards high capacity, high voltage, high reliability, and technological innovation.

Secondly, with the continuous improvement of environmental regulations and the increasing awareness of environmental protection, the future construction of substations, especially urban substations, will be increasingly constrained by environmental protection. The energy consumption, noise, and electromagnetic fields generated by power transformers during operation are environmental impact factors that should be considered in substation design, distribution network layout, or environmental protection assessment. Therefore, the development trend of power transformers will also be environmentally friendly, mainly reflected in energy conservation, low noise, non permeability, and biodegradable recycling.

The supporting construction of new energy power stations has also stimulated the demand for substation equipment, effectively driving the stable and sustained growth of the transformer market. However, it has also put forward higher requirements for the technology and reliability of transformer products. New energy sources such as wind and solar power have the characteristics of intermittency, randomness, and poor dispatchability, requiring transformer equipment to have higher stability and reliability; Wind and solar power plants are located in relatively harsh environments with scattered layouts, which require high environmental adaptability for transformers and should have visual real-time monitoring functions to reduce maintenance frequency; Nuclear power plants have extremely high safety requirements for transformers, which must be able to withstand extreme earthquakes and sudden short circuits at the end of their service life; Energy storage power stations have higher requirements for bidirectional power interfaces of transformers and interfaces for connecting renewable energy to the grid.

With the further deepening of distribution network renovation and construction, urban power transformers will develop towards high impedance direction. The characteristics of high reliability, energy saving, environmental protection, low noise, and miniaturization will be the top priority for the development of urban power transformers. The substations in cities will also present personalized design development, which will affect the development of power transformers towards combination, modularization, and intelligence based on factors such as geographical location.