“The financial year 2021 showed: We are on the right track. With strategic and proactive crisis management we protected our employees from infection in the best possible way, supplied our customers reliably and continuously, and presciently managed challenges such as the disruption of global supply chains in the pandemic. The positive underlying business performance provides both planning security and a sound financial foundation for our transformation into a provider of sustainable solutions. Our customers are demanding such solutions – and we are ensuring that the shift to new types of climate-friendly system solutions can be realized.”

emphasized Andreas Schell, CEO of Rolls-Royce Power Systems.

Significant economic recovery

Power Systems has ended the 2021 financial year with an underlying operating profit of £242 million (€282 million) (2020: £188 million, €212 million). The underlying revenue increased by 3%

to £2,749 billion (€3,199 billion) (2020: £2,735 billion, € 3,077 billion). In the currency used for reporting (British Pound Sterling), revenue appears almost unchanged due to currency rate effects. The underlying operating margin increased to 8.8% (2020: 6.5%). With this, the Rolls-Royce division significantly increased its profit in the second year of the pandemic despite challenging conditions. Order intake of £ 3.3 billion increased by 24% compared to the previous year. The order backlog reached a record £2.8 billion (€3.4 billion) at the end of the year.

“Current factory utilization is proof of returning confidence and intend to invest across all segments”,

said Andreas Schell.

Sustainable solutions operationalized

Power Systems has reorganized the company into four business units with the introduction of a matrix structure in April 2021. In addition to the existing business in “Mobile Power Solutions” and “Stationary Power Solutions“, there is a new business unit for the Chinese growth market: “Power Solutions for Greater China”. The new unit “Sustainable Power Solutions” focuses exclusively on developing sustainable and climate-friendly systemic solutions across all application areas.

In 2021, as part of Rolls-Royce’s Net Zero strategy, Power Systems published its detailed roadmap to carbon neutrality “Net Zero at Power Systems“: from 2030 on, newly supplied products will reduce the product portfolio’s greenhouse gas emissions by 35% compared to 2019.

Hydrogen solutions as an essential component of the energy turnaround

In Berlin and Friedrichshafen, Power Systems is vigorously developing solutions based on hydrogen, the fuel of the future.

“We see ourselves not only as a manufacturer of products that run on hydrogen, but consider the entire hydrogen ecosystem in our development, in line with the concept of integrated end-to-end solutions,”

explained Andreas Schell.

The mtu fuel cell element for climate-neutral energy supply had its world premiere at the UN Climate Conference COP 26 in Glasgow at the end of 2021. A fuel cell demonstrator is in an ongoing operation in Friedrichshafen. From 2025, the company plans to have series-manufactured fuel cell systems in the megawatt range.

Power Systems is providing the first hydrogen-powered mtu energy supply system as part of a lighthouse project for the reconstruction of a terminal in the port of Duisburg, Europe’s largest inland port. Three mtu fuel cell systems and two hydrogen-fueled mtu thermal power stations will supply the new container terminals with CO2-free energy from 2023.

“In Duisburg, our products and solutions are essential components in a climate-neutral solution that paves the way to a carbon-free future,”

said Andreas Schell.

Investments and partnerships to further expand the sustainable offer

The British technology group, Rolls-Royce, supports this strategy and is prioritizing investment in more sustainable solutions and is allocating €400 million to support the growth of the “Sustainable Power Solutions” business unit of Power Systems. This investment will expand the development capacities for new technologies and solutions, as well as support further partnerships and potential acquisitions.

“This illustrates the confidence Rolls-Royce Group has in our capacity to realize significant value from our transformation towards climate-friendly technologies. This confirms our course,”

underlined CEO Andreas Schell.

Power Systems has made investments of around € 120 million in its 20 most important projects in 2021. This includes a new test stand for the company’s engines in China enhancing further its local presence. Several partnerships illustrate the multifaceted transformation into a solution provider: Together with investment company SDCL, Rolls-Royce will offer all-in-one energy solutions to customers who neither own nor operate the plants themselves.

In September 2021, Rolls-Royce Power Systems and yacht manufacturer Ferretti announced their deepened partnership for the development of sustainable solutions for modern yachts. NautiQ, a new bridge-to-propeller marine automation system, was unveiled as a result of the acquisition of the former Servowatch company.

“In the future, Power Systems will be increasingly partnering and developing system solutions together with our customers and in ecosystems that go far beyond what we offer today,”

said CEO Andreas Schell.

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Rolls-Royce Power Systems is taking the next step towards a climate-neutral future. By 2030, the Rolls-Royce business unit is to cut greenhouse gas emissions by 35% compared to its 2019 level through the use of new net zero and cero carbon technologies. This near-term target plays a significant role in Rolls-Royce Group’s ambition to achieve net zero by 2050 at the latest.

To accomplish that mission, the role of pioneer goes to Power Systems:

“With ‘Net Zero at Power Systems’, we’re not just taking action to protect the environment. We’re re-aligning our strategy towards eco-friendly energy and propulsion systems. We already see these explicitly as growth opportunities for our business in the coming years,”

says Andreas Schell, CEO of Rolls-Royce Power Systems.

A key element in achieving these goals is the certification of the most important mtu engine products, which will run on sustainable fuels from as early as 2023 and then be successively brought into use.

“The certification means that the new generation of Series 2000 and 4000 engines, that currently account for 85% of our sales revenues, will be qualified to run on second-generation bio-fuels and on E-fuels,”

explained Dr Otto Preiss, Chief Technology Officer and COO of Rolls-Royce Power Systems.

The engines are used in a wide variety of applications, for example, in energy supply, commercial shipping, heavy land vehicles, passenger trains and in yachts.

Power Systems is taking a multi-pillar approach to reducing emissions: Besides using sustainable fuels, the Rolls-Royce business unit is also building on new technologies such as CO2-free fuel cell systems. From 2025, these will be used in power generation solutions – from balancing energy for compensating fluctuations in the public grid to continuous power and the provision of emergency power in, for example, hospitals and data centers. On top of that, development engineers are also working on engines powered by hydrogen and methanol as well as on concepts for decentralized Power-to-X systems. Other sustainable solutions such as battery energy storage systems, hybrid propulsion systems for marine and rail applications and microgrids already feature in the Power Systems portfolio for decentralized, environment-friendly power solutions.

Considering the key buying criteria related to fossil fuel (as presented in Figure 3) and assuming an acceptable TCO assessment, availability of bridging technologies, and the specific priorities of the applications, Rolls-Royce Power Systems expects a change in technology split as shown on the right side of Figure 3. 

Tackling the biggest sources of emissions first 

“To make as big an impact as possible in the fight against climate change, the first priority of Power Systems is to re-align its product portfolio towards sustainability. That’s the area we’re concentrating on at present because that’s where we see the biggest potential for cutting greenhouse gas emissions. But this year will also see us setting milestones for gearing our production and value chain to long-term climate neutrality”

explained Dr Otto Preiss.

Figure 4 gives an outlook of the expected relevant technologies needed for the market transformation as Rolls-Royce Power Systems sees it today. Independent of the underlying GHG scenario the figure shows their expectation of the still important role of ICE in the coming years. However, it is clearly competing with the rise of battery and fuel cell technology.

As a specialist for propulsion and energy solutions, Power Systems is thus setting strong milestones with ‘Net Zero at Power Systems’, which follows on from the Rolls-Royce parent company’s ‘Pathway to Net Zero’ programme. In total, the Power Systems products sold in 2019, the year before the pandemic, will generate some 109 million tons of greenhouse gases over their service life in the field – almost double that emitted by the Greater London region every year.

“That means that when it comes to lowering emissions, we have a lot of leverage. But the onus is on policy-makers as well to put in place stable framework conditions for sustainable energy solutions in the areas of industry in which we operate, thereby providing clear incentives to participate in the changeover to sustainable products”

said CEO Andreas Schell.

The move towards sustainability began at Rolls-Royce Power Systems some time ago. ‘Net Zero at Power Systems’ is in fact a further development of the ‘Green & Hightech programme’ and as such forms an integral part of the overarching corporate strategy that has been driving the transformation into a provider of integrated sustainable solutions for energy and propulsion since 2015.

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“With this cooperation, we are combining our competencies – on the one hand, PBST’s global sales structure for turbochargers and, on the other hand, Rolls-Royce’s latest high-efficiency MTU turbocharger technology for high-speed diesel and gas engines,”

explains Andreas Schell, CEO of Rolls-Royce Power Systems. 

The turbochargers developed and produced in-house by Rolls-Royce Power Systems will thus be made available in additional markets. For Rolls-Royce, this creates a new channel for sales in addition to Woodward L’Orange. PBST will include the latest generation of the MTU turbocharger family ZR1 to ZR5 in its product portfolio and will distribute them under the series name HIRO in the future.

“The MTU brand is characterized above all by its in-depth know-how in high-speed applications. Thanks to this product expansion, we are now able to offer our customers exactly the right turbocharger for their high-, medium- and low-speed applications under one roof via the PBST brand,”

says Dr. Uwe Lauber, CEO of MAN Energy Solutions.

The MTU turbochargers are offered on the basis of a modular system for engines in the 400 to 2,500-kilowatt power ranges in single- and two-stage versions. Rolls-Royce designs them to meet the specific requirements of various applications such as marine, rail, construction, heavy land vehicles, and power supply.

“Advanced turbocharging helps engines achieve low fuel consumption and high power over a wide speed range. It is an important building block for meeting increasingly stringent emission requirements in the future – without compromising engine performance or efficiency,”

explains Dr. Otto Preiss, Chief Technology Officer and COO of Rolls-Royce Power Systems.

“With the aim of offering new propulsion and energy solutions for a climate-neutral future, we are also currently working on electrically assisted turbochargers for greater agility and lower fuel consumption, as well as on turbocharger concepts for fuel cells.”

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“Despite the unprecedented scenario in which the global economy finds itself due to Covid-19, we have actively managed the economic impact on Power Systems in the first six months of 2020. We identified this problem at an early stage and took a number of countermeasures. The challenge of focusing effort on shielding our employees from infection while continuing to serve customers to the best of our abilities has been met despite the prevailing headwinds,”

said Andreas Schell, CEO of Rolls-Royce Power Systems.

Markets reacting differently – diversified positioning pays off

Looking back over the first half of 2020, Louise Öfverström, Chief Financial Officer of Rolls-Royce Power Systems, commented:

“The drop in revenue is due to noticeable reluctance on the part of customers to invest in new equipment, although the falls varied from application to application. Our diversified positioning across a range of applications covering 13 markets has once again proven to be the right one and has had a stabilizing effect on our business.”

Sales in the power generation market remained stable due to increased investments of data center customers safeguarding their electrical power systems against unexpected outages.

“The lockdowns have made us all keenly aware of the primary importance of keeping data flowing. Our systems help secure power supplies to many safety-critical facilities such as data centers, server parks, and hospitals too,”

explained Andreas Schell. The defense sector remained stable and was not influenced by the pandemic.

Equipment destined for the oil and gas sector, industrial powertrains and propulsion systems for passenger ships and yachts were all hit by declining sales. As a great many vehicles, machines and systems were halted during lockdown, service revenues fell by around 12%, as was expected.

Crisis management keeps production going

“In some areas, we have adjusted production to this lower demand scenario, using measures such as short time work at German sites. However, at no point did operations have to come to a halt, despite challenges in our global supply chains. Thanks to intelligent crisis management and good relations with our supply partners, we’ve been able to deliver all orders despite the difficult environment. This too has helped reduce the consequences for our business,”

stressed Schell.

In order to mitigate the financial impact of the pandemic, Power Systems has taken a number of measures aimed at preserving cash. A ban on all non-critical business trips and a review of ongoing projects, pausing them where necessary, are just some examples. In order to reduce personnel costs, managers are waiving parts of their salary, or postponing remittance. Other cost measures include a hiring freeze, postponement of salary increases this financial year, and a three-week unpaid production break at US plants.

CFO Louise Öfverström explained:

“We are doing all we can to mitigate the financial risks arising from the current situation. Cost discipline and safeguarding cash flow continue to be top priority,”

she continued.

Cautiously optimistic outlook at present

Signs of recovery are now emerging in some applications and markets, for example in China.

“State rescue programs and the easing of Covid restrictions, where feasible, will help bring about recovery. That said, whether and to what extent a recovery will occur also depends on what happens to the infection rate, and how that impacts the economy,”

said Schell. From today’s perspective, Power Systems’ end markets are expected to return to pre-Covid levels by the end of 2021.

New tech powering transformation

“We want to emerge from this crisis stronger, so we’re using the time to press ahead with our transformation even more keenly than before,”

said Schell. Even in these days of Covid-19, Power Systems is continuing to implement its PS 2030 corporate strategy: To become a provider of integrated, net-zero-carbon solutions, and to assist customers throughout the entire product lifecycle, aided by a strong core business. Electrification, digitalization and decarbonization are the key watchwords.

“The announcement of our collaboration with Daimler and its partner Volvo in using commercial vehicle fuel cells in distributed power supply systems has made our customers and the industry sit up and take notice. This will be a real alternative for many, especially if the fuel cells run on green hydrogen produced from renewable energy sources,” added Schell, looking to the future.

said Schell. Work is already underway on a demo system due to go into operation in early 2021.

Integration of two new subsidiaries

Back in January, Rolls-Royce acquired a majority stake in Berlin start-up Qinous, renaming it Rolls-Royce Solutions Berlin. The battery storage specialist is the heart of the new Microgrid Solutions business unit at Power Systems, pulling together all activities associated with local, intelligent power grids. Its portfolio ranges from individual components to fully featured microgrids that combine renewable energies, battery storage and conventional power generation. A separate production bay at the company’s Bavarian facility in Ruhstorf is currently being readied for equipping battery containers with battery modules and peripherals.

Power Systems is also reinforcing its core business with the addition of Belgian company Kinolt, a specialist in uninterruptible power supplies, which was acquired in July. This move sees Power Systems grow its line-up of integrated total solutions for emergency power supplies used in safety-critical environments such as data centers and industrial facilities housing sensitive production processes. The company, with almost 300 employees in Liège (Belgium), Willich (Germany) and other locations across the world, is to be merged fully into the business unit, with its products joining the MTU product range.

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The Power Lab will concentrate on the development of cutting-edge technologies for the marine and infrastructure sectors, with a strong emphasis on fuel cell systems and the production and deployment of synthetic fuels.

“We’ve made it our mission to leverage the trends we’re seeing in our markets by creating the new drive and energy solutions our customers are looking for which support a climate-neutral future. Therefore, it is essential that the development of our product portfolio is centered on new technologies which enable this future,”

said Andreas Schell, CEO of Rolls-Royce Power Systems.

“The Power Lab is an important milestone on the path we’re taking.”

Partnerships and technological openness key to winning new markets Rolls-Royce’s new organisational unit is headed by Dr Peter Riegger, who previously led the Research & Technology division; he sees a willingness to embrace new technologies as the key to success.

“Our research engineers now have more technological freedom to develop new ideas and refine them in cooperation with customers and partners.”

In this respect, long term partnerships nurturing the development of technologies and capabilities will play a crucial role in enabling new markets to be captured.

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