Wärtsilä focuses on the marine and energy markets with products, solutions, and services. Our target markets are sensitive to business cycles. However, this is offset by the somewhat different business cycles in the various market segments. Wärtsilä’s manufacturing model brings flexibility to both manufacturing and cost structure through outsourcing and supports profitability independently of the business cycle.
Decarbonisation and digitalisation transforming marine operations
The transition towards decarbonised operations is of paramount importance to the maritime industry, and stricter regulations on ship emissions are expected to come into force worldwide. Over the coming years, industry players must work together to develop economically viable options that meet the International Maritime Organisation’s (IMO) emission targets. The IMO aims to reduce the average CO2 emissions per transport work by at least 40% by 2030 and the total annual greenhouse gas (GHG) emissions by at least 50% by 2050, compared to 2008 levels. Furthermore, the EU is set to include shipping in its emissions trading scheme, while green finance has gained traction with increased attention on green bonds and sustainability linked loans.
Vessel owners must embrace changes in four areas for the transition towards decarbonisation to succeed:
The adoption of alternative fuels is key to the achievement of GHG targets. Significant investments have been made in zero-carbon fuels, such as green ammonia and hydrogen. However, LNG remains the most well-developed alternative, with 3% of the fleet and 26% of the order book fitted or set to be equipped with dual-fuel engines, and more than 120 ports currently providing LNG bunkering services. The abatement of local pollutants is also a key focus area, where the global sulphur cap set by the IMO came into force at the beginning of 2020. This means that ships have either to use lowsulphur fuel or install scrubbers. Currently, 23% of the fleet and 28% of the order book in terms of gross tonnage is fitted with scrubber systems.
Significant leaps in energy efficiency are also possible through the application of innovative technologies, both in newbuild and retrofit projects. These include hybrid systems, hull air lubrication, rotor sails, as well as advanced rudder and propeller designs. The drivers for the implementation of new solutions are balanced between the common effort to reduce emissions and the potential for lowering operating costs. In the context of digitalisation, fleet optimisation solutions are increasingly being acknowledged as central to the global requirement for reducing operating costs, while complying with environmental ambitions. New digital applications and cloud-based remote solutions are gaining traction, while ship-to-port communications, as well as document and data exchange, are increasingly being handled electronically rather than via personal interaction. In parallel, different degrees of autonomous shipping are being explored as a key means for boosting fleet efficiency, safety, environmental sustainability, and overall operational performance.
Marine markets in 2020
The economic fallout of COVID-19 has had a notable impact on seaborne trade and passenger transportation, affecting both the appetite for newbuild investments and demand for spare parts and maintenance activities across all segments. Cruise has inevitably been one of the most severely challenged sectors, with global travel restrictions and ‘no-sail orders’ causing the majority of the fleet to be left idle for most of the year. The sharp decline in domestic and international travel also affected ferry services, although some recovery was seen towards the latter part of the year.
The negative impact of the pandemic on the energy markets has resulted in further cuts in offshore oil and gas exploration and production, as well as in a slowdown in the recent LNG sector expansion. The offshore wind farm industry, on the other hand, saw record investments and capacity start-ups in 2020.
The tanker market had an extraordinary second quarter of the year, driven by unprecedented demand for floating storage, but the subsequent downturn in oil trade and an easing of floating storage demand led to a winding down of earnings. The bulk carrier sector had a very challenging first half of the year due to weak Brazilian iron ore exports and a sharp fall in coal trade, but improvements began to filter through by mid-year. Container trade was initially severely hit by the COVID-19 crisis, on the back of widespread lockdowns disrupting the world economy, consumer activity, and supply chains, but later rebounded with average volumes returning to 2019 levels.
The appetite for scrubber retrofits or installations on newbuilds was limited by the narrow price spread between high- and low-sulphur fuels, which was caused by the turmoil in the global oil markets, and uncertainties related to the COVID-19 pandemic.
On the other hand, the decarbonisation of the shipping industry continued to accelerate, and the IMO’s 2030 and 2050 targets for reducing GHG emissions remain high on the agenda. At the same time, restrictions on physical travel have further accelerated the adoption of digital technology, which enables secure remote monitoring and training during the pandemic. Furthermore, the uncertainty and economic squeeze set off by the pandemic have increased interest in fleet optimisation and performance management technologies that enable fuel and operating cost savings.
Focus on energy transition and flexibility
Wärtsilä’s operating environment is influenced by the ongoing energy transition. A more sustainable energy infrastructure is emerging, driven by economics and climate policies. The past decade has witnessed growing investments in solar and wind energy, as these technologies have become the cheapest source for new bulk electricity in two thirds of the world. By 2030, solar and wind technologies are expected to become cheaper than existing baseload generation almost everywhere. The cost of energy storage technology has also plummeted. The storage market is expected to grow rapidly in the coming years, driven by economies of scale and technology development. In parallel, climate policies, such as tightening emissions legislation, are forcing the closure of ageing carbon-intensive energy sources, thus further encouraging the deployment of renewable energy.
The intermittent nature of solar and wind generation is gradually beginning to impact the running hours of conventional thermal capacity designed typically for baseload operation. The role of power system flexibility has thus become a topic of growing importance, as it will be a key enabler of sustainable power systems in the future. Flexible gas-based generation and energy storage are the key solutions for meeting future power system reliability and flexibility needs. Power-to-X solutions will further support reaching the 100% share of renewables in power systems.
In emerging markets, electricity demand is increasing, along with economic growth and improving standards of living. Interest in renewable energy sources is also increasing rapidly as a result of lowering costs, but conventional thermal technology still plays a key role in power production in emerging countries. Demand is the highest for flexible technologies that can adapt to an increasing share of renewables in the future, thus enabling the most sustainable and affordable power systems.
Natural gas continues to be considered as a transition fuel towards more sustainable energy systems. In the developing world, the gas infrastructure is improving and replacing more carbon-intensive energy sources in baseload generation. On a global scale, the role of gas will change, as renewable energy sources will impact the running hour of baseload generation, and more system flexibility will be required. Flexible gas technology will have a key role to play in countries where the energy transition is more advanced, as well as in developing countries seeking future-proof baseload technology.
Hydrogen and synthetic fuels offer interesting possibilities for decarbonised power generation in the future. In a power system that incorporates renewables and battery storage, some of the excess renewable energy could be used in the production of green hydrogen to fuel power plants that balance the power system when cloudy or calm weather reduces the output of solar and wind power plants. Green hydrogen produced via electrolysis could be used as a fuel as such, or could be synthesised to facilitate its handling and use. Hydrogen and synthetic fuels are especially valuable in providing medium and longterm flexibility, as they can be stored and transported when needed. In addition to technology development, wider adoption of hydrogen in power or other sectors, such as industry or transportation, would require extensive investments in infrastructure.
Technological progress, along with increasing power system complexity with intermittent renewable energy sources, is paving ways to use new digital technologies. Remote monitoring, as well as recommendations and forecasting enhanced by artificial intelligence, are becoming more common in power plant operations. New data, along with platformbased business models and solutions, enable system-level integration and asset base optimisation throughout the entire lifecycle of the assets.
Energy markets in 2020
The COVID-19 pandemic and the resulting slowdown of economic activity and decline in energy demand negatively impacted the power sector. Inflexible baseload generation saw the biggest decline, but also the running hours of liquid and gas fuelled power plants came down. Uncertainty regarding the duration, development, and economic impacts of the pandemic caused customers to postpone investments in new power plant capacity. Site access constraints affected project deliveries and field service activities. The energy transition is expected to slow temporarily as a result of delays in project deliveries and investment decisions, cheaper fossil fuels, and the focus on containing the virus spread and mitigating its business impacts. Nevertheless, activity in the energy storage markets improved towards the latter part of the year, driven by the increasing need for short-term flexible capacity in power systems with a higher share of renewables. The allocation of financial stimulus packages by governments and monetary institutions to the energy sector should further support investments in green energy.
