Hitachi, Ltd. (NYSE:HIT), Mitsubishi Electric Corporation (6503.T) and Mitsubishi Heavy Industries, Ltd. (7011.T)(MHI) are considering joining their hydroelectric power business.
The companies announced the beginning of concrete discussions towards consolidation. Going forward the three companies look to jointly establish a company that would handle marketing, servicing, engineering, development and design for hydroelectric power generation systems.
A framework calls for the new company to begin operations on October 1, 2011. Hitachi would own a 50% stake, while Mitsubishi Electric and MHI would split the remaining 50%.
In the coming years, hydroelectric power generation is expected to attract continuous demand as a clean renewable energy contributing toward the realization of a low-carbon society. In Japan, while the number of projects to build large-scale new plants has been decreasing, demand for renovation and preventive maintenance of existing power generation facilities and for upgrading of power generation capacity is expected to remain solid.
In overseas markets, vigorous and sustained demand is anticipated in such countries as China, where large-scale electric power development projects leveraging the nation’s abundant water resources are in progress, as well as in Latin America and India. The business environment continues to be severe, however, due to Chinese manufacturers’ expansion into overseas markets, in addition to existing competition with European companies.
As a result, Hitachi, Mitsubishi Electric and MHI have decided the best way to strengthen and expand their business interests is to pool their resources.
The companies also expect to strengthen the competitiveness of their technologies in pumped storage power generation, particularly in the area of variable-speed pumped-storage power generation, which is expected to attract rising market demand.
A pumped storage power generation system consists of an underground power generation plant and two water reservoirs–on the upper and lower sides of the plant. By releasing the water stored in the upper reservoir into the lower reservoir and thereby driving pump-turbines, power is generated. By pumping up the water in the lower reservoir to the upper reservoir using surplus electricity when electricity demand is low, repetitive power generation becomes possible. A variable-speed pumped-storage power generation system, which is capable of instant adjustment of power generation, is regarded as a promising technology for large-scale power generation/storage systems that contribute to power grid stability.
The three companies aim to secure the world’s leading position.
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