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Efficient power transmission is essential as we move toward a more sustainable energy economy. ABB Ltd (NYSE-ABB) is the global leader in electricity transmission, focused on greener, smarter, more cost-efficient power infrastructure. The potential for efficiency gains between power production and consumption is believed to be 80 percent, and ABB invests heavily in R&D to create next generation energy technologies. Innovative products and strong project execution position the company to benefit from several long term trends: renewable energy transmission, an aging infrastructure replacement cycle, and international growth. Revenues are expected to increase 10 to 12.5 percent annually over the next 5 years.
Large-scale renewable energy transmission is constrained by geographic and technological barriers. In the U.S., our most abundant renewable power resources are located in the center of the country and require a highly efficient transmission infrastructure to direct energy to population centers on the coasts. ABB will be a critical player in meeting this challenge, while also acting as the largest supplier of products and services to wind turbine manufacturers. Currently, ABB is linking an offshore wind farm to the German power grid using high-voltage direct current transmission technology.
Infrastructure stimulus spending and a much needed replacement cycle will benefit ABB in the short term. Seventy-five percent of transmission lines in the U.S. are 25 years old or older, and the National Electric Reliability Council and new energy efficiency requirements from the Department of Energy are driving systems replacement. In addition, China is planning heavy infrastructure spending to shore up its own economy. Infrastructure buildout in emerging markets accounts for over half of ABB’s revenues.
ABB’s growth will also be bolstered by its financial flexibility. The company has the strongest balance sheet in the industry due to a successful organic growth strategy focused on improving operational efficiency, disposing of non-core assets, paying off debt, and avoiding large mergers and acquisitions. With $4.6 billion in net cash and very low debt, the company is poised to benefit from low acquisition target valuations and industry consolidation.