Capacity: the schedule behind Europe's grid margins

Siemens Energy booked €17,926m of orders in the third quarter of FY26, against €16,613m a year earlier[1]. Its backlog stood at €162bn at period end, against €136bn twelve months before[1]. Book-to-bill, orders taken against revenue recognised, was 1.57 in the quarter and 1.70 over nine months.

Siemens Energy's grid orders grew 26% over nine months. Group capital spending grew 8%. Grid Technologies margin rose two points. Capacity is being added more slowly than the queue is lengthening. A supplier that expands slowly into a shortage converts it into margin.

A piece in May argued that hyperscaler demand for grid equipment was structural rather than cyclical, and named concentration in US hyperscaler capital expenditure as the risk[2]. These claims can be tested. Hyperscaler demand continues to rise as Alphabet and Meta both posted upwards guidance on capital expenditure. Meta narrowed upward to $130–145bn from $125–145bn in July 2026[3] and Alphabet raised to $195–205bn from $180–190bn in the same month[4]. US orders made up almost ten percentage points more YoY of group orders in the third quarter FY26, at 44.9% against 35.1%. The risk named in May grew almost ten points in a year.

Order intake indicates what customers say they intend to buy. Capital spending measures what the firm commits of its own money against its own forecast. The first states the size of the demand, the second the capacity being built to serve it. Siemens Energy spent €1.13bn of capital over the nine months to June, against full-year guidance of about €2.2bn[1][5].

Siemens Energy spent €1.04bn over the same period a year earlier[1]. Spending rose 8%. Intensity, capex as a share of revenue, decreased to 3.58% from 3.63%. Expansion of facilities under the Grid Technologies brownfield programme in Austria, Italy, China, and Saudi Arabia will increase transformer and switchgear capacity by about 50% from 2026 to 2030[5]. Two further expansions, at Nuremberg and in India, add capacity from 2028 and 2030 respectively[6][7].

Siemens Energy's Grid Technologies profit is growing almost twice as fast as its revenue. Profit before special items, before non-recurring earnings or expenditure, increased 34.3% YoY to €1.8bn against €1.3bn. Revenue rose 19.4%. Margin before special items was 18.3% over the nine months until June, against 16.3% a year earlier[1]. Siemens Energy does not disclose capital spending by segment.

Europe's other large grid equipment suppliers are in a similar position. Schneider Electric's net capital spending fell to €669m from €717m while group revenue grew 14% organically[8]. ABB's intensity also fell, to 2.29% from 2.45%, while Electrification orders rose 58% on a comparable basis[9]. Hitachi Energy and GE Vernova, two other suppliers that build large transformers at scale, have disclosed site-level expansions on comparable timelines, and neither publishes a global capacity figure[10][11].

The scheduled capacity increase by Siemens Energy of about 50% between 2026 and 2030 is approximately 11% a year compounded. Grid Technologies orders rose 26% over nine months[1]. Intensity fell partly because revenue grew 17.5% in the quarter, and part of the margin gain is volume across a fixed cost base. Siemens Energy discloses no price and volume split. Capital spending still rose 8%, group orders 19%, and the backlog from €136bn to €162bn.

Transformer lead times have doubled over five years to about four years, on IEA figures cited by IFRI[12]. US generator step-up transformer lead times surpassed 160 weeks by the first quarter of 2026, against an average of 143 weeks in 2024, based on figures from a Wood Mackenzie analyst[13]. Major cable and large power transformer manufacturers have full order books until the end of the decade[12]. Competition prevents manufacturers from disclosing capacity to operators, as products are contract-specific. The result for operators is no visibility of their suppliers' capacity and exposure to rising prices and lead times[12]. New manufacturing capacity takes three to four years to build[12]. That lag explains the timing. It does not explain an endpoint of 50%. Buyers are paying to move up the queue[13]. Capacity to shorten it arrives in 2030.

FY26 capex guidance was unchanged at about €2.2bn in the third quarter[5]. Almost €1.1bn remains for the fourth quarter[1][5]. If fourth quarter capex is near guidance, the capacity is being built and the gap is being closed. If capex falls short, 8% is the capital expenditure growth for the year against orders that grew 19%. Orders are booked in a quarter. Capacity moves in years.

---

Notes

[1] Siemens Energy, "Earnings Release Q3 FY 2026," 5 August 2026.

[2] Continental, "Powering the AI buildout: Europe's industrial exposure to American capex," 14 May 2026.

[3] Meta, "Meta Reports Second Quarter 2026 Results," 29 July 2026.

[4] Alphabet, "Alphabet Announces Second Quarter 2026 Results," 22 July 2026.

[5] Siemens Energy, "Q3 FY26 Pre-Close Group Call," 29 June 2026.

[6] Siemens Energy, "Siemens Energy invests €220 million in German transformer factory," 5 September 2025.

[7] Siemens Energy India, "Q1 FY26 results," 13 February 2026.

[8] Schneider Electric, "2026 Half-Year Results," 30 July 2026.

[9] ABB, "Q2 2026 Results," 16 July 2026.

[10] Hitachi Energy, "Hitachi Energy reaffirms commitment to Latin America through an additional $150 million USD investment to expand power transformer manufacturing capacity," 9 March 2026.

[11] GE Vernova, "GE Vernova expands manufacturing capacity in Vietnam to support growing global electrification needs," 10 March 2026.

[12] Institut français des relations internationales, "Europe's Power Grid Challenge: A Make-or-Break for Accelerating Electrification," 26 May 2026.

[13] Reuters, "US power companies scramble to secure equipment as surging data center demand strains supplies," 9 July 2026.

Image credit: Andrew Hall, Unsplash

---

Continental is a biweekly column on European economics by Felix Schmidt. New issues appear on Substack first and on the International Economics Post within 48 hours.