Bloomberg: Electric cable manufacturers are making substantial profits thanks to green energy

Halden (Norway), Aug. 15 (CTK/Bloomberg) – The tallest building in Norway rises above a pine forest near the town of Halden, which has a population of about 30,000. The gray factory, with almost no windows, is as tall as a 50-story skyscraper and makes the world’s largest electric cables. They are so long that there is only one way to keep them upright so they can be covered with insulation – they hang inside the tower, using gravity, Bloomberg reports.

Each kilometer of cable weighs more than 50 Ford F-150 trucks. Their price, including installation, can exceed one million euros (more than CZK 25 million). But the world needs these high-voltage cables because they transmit electricity underwater for hundreds of kilometers. They are essential to the transition from fossil fuels to cleaner energy and can carry electricity generated by solar power in Africa to northern Europe, and wind power from the North Sea to Italy and Spain.

„Demand is exponential,“ said Nexans CEO Christopher Guérin in June as he cut the ribbon at the company’s second major tower.

It will more than double the company’s production capacity at the site. The plant near Halden belongs to Nexans.

Even so, cables remain in short supply. Nexans and its competitors have seen orders increase tenfold in recent years, according to their executives. Production at the Halden plant is sold out until at least 2028. Companies have a 12-year backlog of orders, HSBC Holdings said last year. But the sharp rise in copper costs has also driven up prices for electrical conductors and cables. Between 2004 and 2022, they rose more than fivefold.

Rising prices and limited supplies show how technological progress, including renewables and electric vehicles, is constrained by the production capacity of old-line industries. But cable manufacturers are thriving in this environment. Guérin became CEO in 2018 and decided to focus Nexans on the rapidly growing electrification market. Since then, the company’s profit before tax, interest and non-cash expenses has doubled to 665 million euros (CZK 16.7 billion). It has also increased its dividend more than sevenfold. Shareholders are delighted: over the past five years, the share-price performance of Nexans and its two largest competitors has matched that of famous names in the high-tech sector. Nexans’ share price has more than tripled, as has that of its Italian competitor Prysmian. Shares in Danish company NKT have risen by about 600 percent.

Power companies, however, are not happy, as they have no choice but to pay the highest prices for cables, if they can buy them at all. French grid operator Réseau de Transport d’Électricité and its Irish partner paid 750 million euros (CZK 18.9 billion) for 1,000 kilometers of Nexans cables that will run from France to Ireland, said Gilles Etheimer, the company’s head of procurement. In the past, they could make demands of suppliers, but now they mostly sit quietly during negotiations over major deals. „Prices are rising enormously and contracts are harder to negotiate because they have so much business. We aren’t negotiating; they are dictating the terms,“ Etheimer said.

Governments have long accused cable companies of monopolistic behavior and have imposed numerous fines on them in recent years for illegal price-fixing or market-sharing agreements. Lawsuits brought by some of the companies’ biggest customers are still pending. The cable companies, however, say they operate within the law and have strict compliance procedures in place.

In any case, it is not easy for new competitors to enter the market. Manufacturing requires large upfront investments to support a complex process with very little room for error. „An eyelash inside the installation system can cause a fault,“ warns NKT CEO Claes Westerlind.

Once the copper strands have been suspended from the top of the Nexans factory, machines must coat the cables with polyethylene, lead and other protective layers. In a warehouse with white-painted walls, the cables are tested using artificially generated lightning to check whether they can withstand the extreme conditions that may occur underwater. And factories cannot be built just anywhere. They must be near deep-water ports so that cables can be transferred directly to installation vessels.

European countries began transmitting electricity over very long distances using submarine cables in the middle of the last century. Government efforts to promote cleaner energy are now helping drive demand. During his 2019 election campaign, US President Joe Biden promised to eliminate carbon emissions from the power grid by 2035. Shortly after taking office, he announced plans to build a series of offshore wind farms, with high-voltage cables bringing their electricity ashore. Britain and the European Union are taking similar steps.

Bloomberg reports that to achieve net-zero carbon dioxide emissions by 2050, the world will need to triple its spending on power grids by the middle of the next decade compared with last year. A shortage of submarine cables could delay the transition to a new energy system.

Energy companies are responding to inadequate cable supplies by making huge purchases well in advance. Dutch grid operator Tennet Holding is investing 160 billion euros (CZK 4 trillion) in new capacity, including offshore wind farms off the coasts of the Netherlands and Germany. It will need up to 10,000 kilometers of cable, almost the distance from New York to Dubai. Under normal circumstances, it would buy cables in stages. Given the current situation, it has launched a tender for a contract covering the purchase of cables, power transformers and specialized transport and installation vessels. It is a 10-year commitment. British energy company National Grid has adopted a similar approach and plans to buy about 14,000 kilometers of high-voltage cables.

Meanwhile, signs of growing competition are emerging. Japan’s Sumitomo Electric Industries is building a new 350 million-pound (CZK 10.3 billion) plant at a port in northern Scotland, which is expected to begin operating in 2026. It will be able to produce hundreds of kilometers of cable a year. South Korea’s LS Cable & System is building a submarine cable factory in the US and is considering another in Britain.

Even with this growing competition, suppliers still hold all the cards, said Hans-Theo Norman, an economics professor at Heinrich Heine University Düsseldorf who has studied practices that restrict competition in the sector. „There is no longer any need for a cartel,“ he said. „Prices will rise, and consumers will have to pay,“ he added.