With the world increasingly shifting to renewable energy sources, electric alternator specialist Leroy Somer is taking the time to contemplate its future, pondering changes to come to the diesel generators market.
“It’s true that diesel generators will have a more difficult future in the 10 years ahead,” David Sonzogni, President of Electric Power Generation Europe & Asia, tells The CEO Magazine. “People are trying to reduce carbon emissions and look at the overall carbon footprint of the equipment they use, and so using diesel fuel on larger power plants, or coal, is really quickly going out of fashion.”
Reimagining its product for a greener future is therefore critical for the company to survive. That’s why the company is looking at cleaner fuels such as hydrogenated vegetable oil, which is already making standby generators “very clean”, according to Sonzogni.
“We think that this will help our industry continue to see regular orders,” he says. “Gas generators are also becoming very popular, but we see battery storage systems and hydrogen, whether in fuel cells or in internal combustion engines, taking a big share of our market.”
We know that Earth’s resources are limited, and working on a more sustainable business model means increasing the use of recycled material, but also continuing to redesign your product to use less of this active material.
With the goal of remaining relevant in all industries, Leroy Somer, which was acquired by Nidec in 2017, plans to be incredibly innovative in the coming years, building on an already strong base. “Nidec is already one of the largest battery-storage-for-power utilities supplier or manufacturer in the world. We are already one of the largest,” Sonzogni says.
“And we recently announced a joint venture with a Norwegian company to manufacture our own batteries so it’s really important to us to remain relevant in a very fast changing market.”
Sustainability is a big part of this plan, with both Leroy Somer and its parent company, Nidec, having committed to zero carbon targets. It’s particularly relevant for them because of the vast amount of steel, copper and cast iron that it uses each year.
“We know that Earth’s resources are limited, and working on a more sustainable business model means increasing the use of recycled material, but also continuing to redesign your product to use less of this active material,” Sonzogni says.
“Nidec alternators already have the lowest power-to-weight ratio. We divide the power by the weight of your machine, it gives you a ratio and we have the best in the industry, meaning we use less material to deliver the same power to our customer.”
But with competitors fast catching up, Sonzogni is well aware that the company cannot afford to rest on its laurels. “We are working on the next generation of product that will again use 20-to-25 percent less active material,” he says.
“If we need less raw material, less iron ore, less copper, there will be less waste, but also lighter equipment that will be cheaper to transport and easier to recycle. We are working actively to launch the first product by 2024.”
It’s a positive news story for the company as it emerges from the trials of the pandemic relatively unscathed. With its diesel generators used as a standby power source for a wide range of buildings, from hotels to shopping malls, demand remained solid. “We have not seen our business drop as much as others and we managed to end the 2020 financial year almost flat versus 2019,” Sonzogni says.
Limited competition also worked to Leroy Somer’s advantage, with only four or five significant competitors in the space, according to Sonzogni. “Towards the end of 2020 with normality coming back, we started to see business increasing at a very, very fast pace,” he says.
But the impact of the pandemic on commodities prices is certainly being felt, with the company forced to hike prices in response to the rises. “Most of our sales guys in Asia have never had to go to customers and increase prices,” Sonzogni reveals.
“We are in a heavy industry and we don’t have that much margin. So when inflation is such that your cost is impacted by 10-to-15 percent, you have to pass it on to customers. We had to educate the sales guys and tell them that it was OK to do so and basically lead the way because when you are a market leader, competitors always expect you to be first.”
Although he admits it was a “difficult exercise”, Sonzogni believes it’s important to act swiftly, particularly as copper prices doubled and magnetic steel prices tripled. “If you don’t increase price, you go bust. It’s as simple as that,” he insists.
Leroy Somer has also managed to avoid the full impact of global supply chain issues because it has always had a regional focus on manufacturing, Sonzogni explains. “We think it’s a great strategy because it gives the responsibility to each unit to be profitable in their own market,” he says.
Nonetheless, issues still arose when the company was unable to source magnetic steel in Europe and couldn’t ship the material there from China. “We had to organize ourselves into crisis teams to be able to deliver to customers on time, according to what they expect. And this has really taught us a lot of things,” he says.
The trials of the last two years have acted as an important reminder not to take anything for granted, according to Sonzogni.
“Market leadership, winning a customer – these things can change in an instant if you’re not paying attention to all of the signals and all of the changes around you,” he reflects.
But when faced with market challenges, it’s important to remember that these are felt by everybody. “Do your best and remember that the biggest competitor is not X, Y, Z company, it’s yourself,” he says. “You are the one that limits your own ability to exceed your own results.”
This shortage of magnetic steel will last for the next five years, Sonzogni predicts, exacerbated by the rise in demand for electric vehicles, particularly in Europe. “Electric cars require an electric motor inside that uses more or less the same magnetic steel that we use in electric motors, generators and transformers,” he explains. “This additional load on the market is straining capacity for the magnetic steel producers.”
Working out ways to secure its supply chain and keep costs as low as possible is therefore a major focus. At the moment, the steel comes from Latin America, Africa and Australia, then is refined in China before being shipped again to Europe – a process Sonzogni describes as “neither sustainable financially nor environmentally”.
“There are a lot of things we could do better,” he admits.
In 10 years, we might not be the same company we are today, but we will make sure that we are still relevant in the power industry and that we are still here to serve our customers with the best components.
The company is in the process of lobbying the European Union and the French government to help ensure there are adequate and affordable supplies of magnetic steel.
“Otherwise, Europe will lose the competitiveness to India and Asia and it will accelerate the shift to these regions for manufacturing, And to be able to support our customers in Europe, this is not what we want, of course,” he says.
The power generation industry still looks much the same now as it did 50 years ago, according to Sonzogni. But at Leroy Somer, the cogs of change are well and truly turning.
“In 10 years, we might not be the same company we are today, but we will make sure that we are still relevant in the power industry and that we are still here to serve our customers with the best components,” he says.
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