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Our Industry and Markets

Strong prospects for long-term growth

Demand differs by country and is generally created by events. Frequent events, such as a remote mine needing power to work, or infrequent ones, such as a large-scale power shortage, for example in Bangladesh.

We therefore address the market through our two business units which are well positioned to help our customers and each of which has strong prospects for long-term growth.

7 key drivers

GDP Growth

Our Power Solutions Industrial and Rental Solutions markets have historically grown as a country's economy grows.

The average GDP growth of the countries in which we operate is forecast to be around 2% per annum in Rental Solutions and 4% per annum in Power Solutions Industrial over the next few years (Source: IMF, October 2016).

Global GDP Growth (%)

In 2016, whilst average GDP growth was 1.7% in Rental solutions, revenue decreased 8%. This apparent market underperformance was driven by the low oil price and resultant weakness in Oil & Gas and Petrochemical & Refining, key sectors for the business, particularly in North America.

Elsewhere, other sectors have been stronger, particularly in Europe. The market in Power Solutions Utility is generally linked to the power shortfall in a particular country.

The customer is normally the state owned utility and in order for them to make a purchase decision our analysis suggests that GDP growth typically needs to be around 5% for conversion from an enquiry into a contract.

These customers require base load, peaking and in some cases, backup power. There are a wide variety of factors that influence the decision to purchase electricity and they vary between countries.

In recent years, lower commodity prices, particularly for oil, have significantly affected the tax receipts in some commodity rich countries around the world and therefore their ability to afford power. In other countries, the lower oil price has made power more affordable.

Population growth & industrialization

As populations continue to grow and urbanise, and as industrialisation drives economic growth, demand for electricity increases.

Electrification rates are typically low in many emerging market countries and even in those places where electricity is available, reliability is often poor.

These countries may have plans for permanent capacity, but raising the significant funding that is required can take a considerable period of time to realise and the amount of investment required can be challenging to obtain from traditional sources. It typically takes between five and 10 years for a new permanent plant to be commissioned.

Delays in realizing new capacity, ageing infrastructure and reliance on intermittent hydropower can also exacerbate an existing shortfall.

Global Population (Billion)

Global population growth to 2020

1% per annum

Meanwhile, the global population is forecast to grow by over 1% per annum until 2020, and double this rate in the least developed countries according to the United Nations. Therefore the power shortfall is likely to increase.

Propensity to rent

Customers have the choice to either buy or rent, or live with less power than they require. Our competitors are not just rental companies but also equipment manufacturers. Where the need is urgent or for a short time, customers tend to rent. There is a growing awareness of the benefits of outsourcing. In deciding whether to rent or buy customers consider issues such as the tax treatment of assets and the availability and cost of finance for purchasing equipment.

Ageing infrastructure

In emerging markets, investment in new and replacement permanent power infrastructure has not kept pace with demand and so frequent breakdowns and damaging power cuts have resulted, with many regions remaining off-grid entirely.

Delays in realising new capacity, ageing infrastructure and reliance on intermittent hydropower can also exacerbate the existing shortfall. In the long term, the drivers of growth – increasing demand for electricity and insufficient investment in permanent supply – are structural.

Capital markets are less willing to support long-term infrastructure projects in these markets, particularly when de-carbonisation and ageing infrastructure in developed countries requires trillions of dollars in investment.

Reliability of supply

In Power Solutions Industrial, our customers are typically looking for electricity where the grid is unstable and they seek backup, or where the grid doesn’t exist. The largest customers in this segment tend to be in Oil & Gas and Mining and are often in remote locations.

In the Utility business, the decision by governments to purchase power using flexible solutions is usually a political one and given slower economic growth in recent years, the opportunity cost of not having electricity is less acute.

Businesses that are growing, but that are unable to rely on utility power or where it is simply unavailable, are seeking alternative sources of electricity.

The structural shortfall creates substantial opportunities for Aggreko and we will continue to win work by understanding the market, customer needs and offering solutions that meet their requirements.

Fragmented competition

We compete with a number of companies around the world, and we have two competitors with whom we compete on a global basis within Power Solutions Utility. But we are the only company with a truly global footprint.

In Rental Solutions, our competitors are either privately-owned specialist rental businesses, divisions of large plant hire companies or OEM dealerships. Few provide the sector specific solutions that Aggreko does.

Over the past year, we have seen an increase in the larger general rental companies moving into speciality sectors, including power, heating and cooling. This tends to affect us at the lower end of the market – the price sensitive, equipment only customers, rather than the full solution customers.

However, we are aware that this poses a threat to us and therefore our strategic priorities are designed to address this. In every region across Power Solutions there are a large number of regional, national and local businesses in the market; in particular, some of the larger Caterpillar dealers.

In recent years competition has been stable, however since 2012, demand has been lower and therefore there has been an oversupply of diesel generation equipment in the market.

The largest competitive force that we face in the utility market is for a share of a government’s budget. In most emerging market countries, the utilities are state controlled and money spent on power is money that cannot be spent elsewhere.

Our key differentiator is our global scale and large homogenous fleet, which facilitates fast deployment and economies of scale.

So few competitors are able to compete for large-scale or technically demanding work. Over the last year we have not seen a significant change in the competitive landscape in Power Solutions.

Natural disasters and geopolitical emergencies

Reactive demand is caused by events that happen infrequently and cause a power shortage for a period of time. This is impossible to predict, but important work to secure. Reputation and fleet availability are essential to be able to respond to such an emergency.

Typically, this type of work is in response to a natural disaster or in post-conflict reconstruction and military support. Examples include Japan where we provided power following the 2011 earthquake and tsunami, Hurricane Matthew in North America in 2016, and our military support in Iraq and Afghanistan.

Frequency of major events

High value, but low frequency events change the size of the market on a temporary basis with a need for short term power, heating and cooling solutions.

Typically these are major sporting occasions like the Olympic Games, FIFA World Cup and Commonwealth Games. Our global scale, expertise and excellent reputation in executing these events means that we are well placed to win contracts.

In the last year we won contracts for the Olympic Winter Games Pyeong Chang 2018 and the 2018 Gold Coast Commonwealth Games in Australia.

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