Hitachi Integrated Report 2022

Digital Systems & Services

Whatʼs Hitachi

Introduction
Green Energy & Mobility

Connective Industries

Value Creation Initiatives

Hitachi Astemo

Strategies by Sector

Green Energy & Mobility
Ensure happiness of people around the globe
through delivering green energy & mobility

Value Creation

Business Strategies

Sustainability

Corporate Governance

Data

58

Hitachi Integrated Report 2022

Digital Systems & Services

Whatʼs Hitachi

Introduction
Green Energy & Mobility

Connective Industries

Value Creation

Energy BU

7%

Railway Systems BU

30%

Main products and services

High-speed and intercity trains
Commuter trains
Tram, monorail, driverless metro
Signaling systems
Traffic management system
Turnkey solutions
Operation and maintenance
MaaS (Mobility as a Service)
Asset management

9%

Renewable energy solutions
Distributed energy resources solutions
Service solutions
Power semiconductors

Nuclear power plant ABWR
Fuel debris removal technologies
Nuclear fuel cycle

FY2021
Revenues

2,051.0
billion yen

Corporate Governance

59

Data

Results and Forecasts

Main products and services

Main products and services

Sustainability

Hitachi Astemo

Green Energy & Mobility Business Structure
Nuclear Energy BU

Business Strategies

Power Grids BU

Revenues (billion yen) /Overseas Ratio (%)
Nuclear Energy
EnergyPower Grids
Railway Systems

Adj. EBITA (billion yen)
Adj. EBITA ratio (%)
ROIC (%)

Automation systems
SCADA (Supervisory control anddata acquisition) systems
HVDC (High-voltage direct current)
STATCOM (Static synchronouscompensators)
Smart charging systems
GIS (Gas insulated switchgears)
AIS (Air insulated switchgears)
GCB (Generator circuit breakers)
Transformers

2.0
2,051/
80%

The emergence of climate change threats and increased geopolitical risks in recent years
has led to huge investment in energy transition and electrification. The strength of this
sector lies in its diverse products and solutions that contribute to those opportunities,
which serves as a tailwind for our business. We will also leverage our strength tocreate new markets. For example, we expect high growth in development of mobility
electrification for private car, public transportation (trains and buses) and mining
industries, as well as managed services in microgrids expanding for diversification anddecentralization of power supply systems.
Another strength of the sector is its robust business operations underpinned by aworldwide customer network and installed base. We will expand and strengthen this highprofitable business by leveraging the installed base providing services with Lumada’s
digital technology for IT, OT, and products.

344

2,600/
83%

2,300/
82%

280
222

1,310.5

1,112.6

6.9

4.5
628.3

Strengths

4.2

160.4
177.3

150.7
183.7

92.3

System integration
Connected productsManaged services

854%

Main products and services

Lumada revenues(billion yen)

687.9

FY2021(result)

159

FY2022(forecast)*

10260
FY2024(target)FY2021 FY2022 FY2024(result) (forecast)* (target)*Announced on July 29, 2022

Mid-term Management Plan 2024: VisionThis sector has been established with the mission of “Create a sustainable society in which
each individual can play an active role while protecting the global environment by using data
and technology.” Under the themes of energy transition, electrification and energy savings, we,as the Hitachi’s core business sector for green value creation which is a pillar of our Mid-termManagement Plan, will contribute to the realization of a carbon neutral society.
Through the acquisition of ABB’s power grids business (now Hitachi Energy) and the Thales
Ground Transportation System business, we will leverage our global installed base to accelerate
our business transformation into a higher profitability model. We will also expand and implement
Hitachi Energy’s global operation system supported by digital technology across the entire
Hitachi Group to support global growth.

Hitachi Integrated Report 2022

Digital Systems & Services

Whatʼs Hitachi

Introduction
Green Energy & Mobility

Connective Industries

Value Creation

Business Strategies

Sustainability

Corporate Governance

60

Data

Hitachi Astemo

Green Energy & Mobility: Growth Strategy
Business Environment
Under such challenges as climate change and the Ukraine crisis, energy transition andelectrification have been precipitously advanced in global market. The rapid increase inglobal investment in decarbonization is a tailwind for this sector, which has a diverse range of
products and solutions that can help deliver decarbonization to multiple market segments. In
addition to conventional infrastructure projects, we expect new business opportunities such as
electrification of buses, trains, and other forms of mobility, as well as microgrids. Also, businessto-service conversion and GX (green transformation) aimed at creating a carbon neutral society
will emerge and grow around the world.
By leveraging Lumada to enhance this sector’s large installed base around theworld, we aim to evolve it into a recurring business to increase the ratio of highprofitable services. We will also use Lumada to address the challenge of business
transformation, for example, dedicated core businesses such as maintenance, tofoster the transformation of our overall business portfolio. In high growth segments, such as
mobility electrification and microgrids, we will provide offerings combining IT, OT, and products
as “One Hitachi.” For example, we will further expand collaboration with Hitachi Vantara andGlobalLogic in the asset management business, including asset performance management(APM) and the use of digital technologies in eMobility and other fields.

Digitalstrategy

Hitachi aims to contribute to CO2 reduction by 100 million metric tons annuallyGreen
by fiscal 2024 (monetary equivalent of approximately 1.1 trillion yen* 1), andstrategy Green Energy & Mobility Sector’s contribution will be more than 80% mainly
by Hitachi Energy. For example, Hitachi Energy’s high-voltage direct current(HVDC) transmission system and digitalization will contribute to the power grids’ resiliency andrenewables integration. In the nuclear power segment, we will accelerate development of newtechnologies, such as small modular reactors (SMRs). Meanwhile, EFaaS (Energy & Facility
Management as a Service), attractive solution for energy sector, improves operational efficiency
through the integrated management of energy and facilities, and contributes to CO2 reduction
by accelerating the introduction of distributed energy resources solutions.
We will focus on R&D investments in areas such as energy transition, electrification, and energy
savings and develop new products and services that match the market’s decarbonization needsin order to further increase our market share. The sector plans to invest in power electronics and*1 Carbon price: CO2 reduction contribution from decarbonization solutions converted to monetary value, assuming a carbon
price of ¥11,000/t-CO2

digital technologies, which are key to energy transition and electrification, during the period of
the Mid-term Management Plan 2024. Using such technologies, we will also develop sustainableproducts and solutions and expand our service business in our installed base. Through these
efforts, we will contribute to the achievement of a carbon neutral society.

Green Energy & Mobility Sector: Market Trends and Challenges
Major Market Trends
Net zero(in 20-30 years)

Geopolitics andenergy independence

Accelerate shift
from fossil fuels toclean electricity

Expand electrification(mobility, industry, buildings)

Advances in remote andautomation technologies

Challenges
Local regulations,
supply chain

Energy security

Power system resilience Mobility inagainst climate change a decarbonized,
impacts
post-COVID world

Business processtransformation

Leverage Lumada to Make the Social Innovation Business Highly Proﬁtable
Lumada revenues

344 billion yen

Managed service offerings• Blade Total Service • Remotely monitoring and supporting services• Integrated substation maintenance management services solutions

System integration offerings• Digital railway controls • Lumada APM*2, EAM*3, FSM*4 • CNaaS*5
Connected product offerings• IoT-enabled vehicles • Energy management systems for microgrid• Restart of nuclear power plants• Grid-eMotion™
• CNaaS

FY2024 (target)*2 APM: Asset Performance Management *3 EAM: Enterprise Asset Management*4 FSM: Field Service Management *5 CNaaS: Carbon Neutral as a Service

Wide Range of Green Product Examples from the Green Energy & Mobility Sector
SECTOR’S PORTION OF
HITACHI’S CONTRIBUTIONFOR CO2 REDUCTION*6IN FY2024>80%

Power grids

EFaaS*6 Lifecycle CO2 avoided emission in annual products shipped (base year FY2013)

Nuclear powereMobility

Hitachi Integrated Report 2022

Digital Systems & Services

Introduction
Green Energy & Mobility

Whatʼs Hitachi
Connective Industries

Value Creation

Business Strategies

Sustainability

Corporate Governance

Data

61

Hitachi Astemo

Energy Business

Market Environment
Energy transitions targeting a decarbonized society are accelerating on a global basis. We also
see progress in grid restructuring, including the shift to distributed energy resources, virtual
power plants (VPPs), and next-generation transmission networks, in line with the increasing
introduction of offshore wind power and other forms of renewable energy. In particular, demand
related to digitalization, such as predictive maintenance, distributed energy resources, and gridand operational optimization, continues to grow at a high rate. There is also growing momentum
to reevaluate nuclear power in order to achieve zero emissions by 2050.
Japan is also accelerating its energy transition, and the government has set a policy to increase
the ratio of renewable energy to 36%–38% by 2030. Its plan also calls for the development oflong-distance direct current transmission lines to transmit electricity from offshore wind andother renewable energy sources to urban areas, as well as to consider the use of hydrogen. The
domestic market is expected to continue growing against the backdrop of large-scale integrationof renewable energy, energy management such as grids, increasing data centers and the shift toelectric vehicles (EVs), natural disaster countermeasures, and the restart of nuclear power plants.

Business Strategy (Power Grids BU)
The power grids market and related areas are expected to grow against the backdrop of increased
electricity demand from industries, buildings and IT sectors, electric vehicles (EVs) and electrificationof railroads and the need to modernize the power grid to address supply and demand complexities
like the integration of renewable energy and rising adoption of EVs to help realize a net zero society.
Through collaborative creation with customers and partners led by Hitachi Energy, the Power Grids
BU has established itself as a global market and technology leader to support an accelerated energy
transition and pursue a carbon neutral future.
Hitachi Energy, which accounts for the majority of the Power Grids BU, operates four businesses:
Grid Automation, Grid Integration, High Voltage Products, and Transformers. It has a broad portfolio
of products, systems, software, and services, which together with Hitachi and its Lumada value cocreation cycle offer a unique combination of an energy and digital platform for utilities, as well as forcustomers in a variety of sectors, including industries, transportation, buildings, data centers, andcities. Sustainable products and systems, power electronics and digital solutions are being deployed
to build the foundation for a system of systems and enabling the energy transition. Solutions suchas high-voltage direct current (HVDC) technology play an important role in integration of renewables,
long-distance power transmission, and interconnection of power grids across countries andcontinents.

As an increasing trend towards cross-sector integration, Hitachi Energy has developed innovativetechnologies like Grid-eMotionTM—a flash-charging system for electric buses and commercial fleets
supporting the electrification of the transportation sector. Another example is the EconiQTM portfolioof environmentally efficient solutions that reduce environmental impact. In Japan, we will continue tointroduce appropriate Hitachi Energy solutions to serve customer requirements.
In addition to continuously strengthening its power grids core business, the Power Grids BU aims toadvance a sustainable energy future for all and achieve profitable and sustainable growth by doublingits digital and services businesses, and expanding its business at the grid edge of the energy system.
The company is committed to innovation through synergies, partnerships, and pursuing organic andinorganic growth; the Power Grids BU will continue to strengthen its contribution as a partner, acrossthe customer’s lifecycle—supporting planning, building, operations and maintenance. Especially,in the Mid-term Management Plan 2024, Hitachi Energy aims at a 4%–6% CAGR annual revenue
growth ahead of market, and to increase adjusted EBITA to 8%–12%.
By combining Hitachi’s digital technology with Hitachi Energy’s global top-level power grids business,
the Power Grids BU will take advantage of its unique strengths with both energy and digital platforms
to provide solutions for energy transition. We will also realize profitable and sustainable growth byplacing Lumada’s new value co-creation cycle at the core.

FY2021 Performance
NordLink—the interconnection linking Germany and Norway’s power markets andenabling access to renewable energy
Hitachi Energy has delivered one of the world’s longest and most powerful HVDC interconnectors(NordLink) to a consortium owned by Statnett (Norway’s national power transmission anddistribution company), TenneT (Germany’s national power transmission and distribution company),
and the state-owned German development bank, KfW.
The NordLink enables exchange of renewable energy byconnecting wind and solar power from Germany and hydropower from Norway, so that both countries can use theirrenewable resources more efficiently. Through the 623 km
long, 1,400 MW HVDC interconnection, it is possible toprovide enough electricity to meet the needs of 3.6 million
German householdsX, which is equivalent to the total
population of Berlin, Germany.
Hitachi Energy was responsible for the design, engineeringand supply of two HVDC converter systems in southern
Norway and northern Germany.

Hitachi Integrated Report 2022

Digital Systems & Services

Whatʼs Hitachi

Introduction
Green Energy & Mobility

Connective Industries

Value Creation

Business Strategies

Sustainability

Corporate Governance

Data

62

Hitachi Astemo

Business Strategy (Energy BU)

Business Strategy (Nuclear Energy BU)

The Energy BU will focus investments and resources on green and service businesses, aiming tobecome a business entity that contributes to decarbonization and carbon neutrality.
We will develop and promote core solutions and technologies to realize “Hitachi Carbon
Neutrality 2030.” We will also integrate technologies mainly in the three key fields of “renewableenergy,” “energy management,” and “asset management” to deliver high-value-added solutions
and wide-ranging services.
In the green business, we will leverage our expertise in wind power and other forms ofrenewable energy, as well as in distributed energy resources, hydrogen utilization, andpower semiconductors, to generate growth. We will also promote next-generation microgrid
demonstration models and create carbon neutral solutions that incorporate virtual powerpurchase agreements (PPAs).
In the power semiconductors business, we will develop core competencies such as low-loss
and high-voltage technologies that contribute to decarbonization.
In the services business, we will enhance our digital service platforms and applications anddevelop data-driven services and other businesses using Lumada. We are shifting our emphasis
from maintenance services to management services for energy, assets, and the like to address
issues related to social infrastructure and production facilities in various industries.

Leveraging its advanced technological capabilities and abundant knowledge, the Nuclear
Energy BU is working to further improve the safety of nuclear power, which contributes todecarbonization and plays a role in energy supply stability as a base-load power source.
Specifically, we support the restart of nuclear power plants in Japan by ensuring that safetymeasures are taken in accordance with new regulatory standards set by the government. With aview to increasing plant value after restart, we are introducing a management system that utilizes
digital technology while working to improve capacity utilization.
To foster the steady decommissioning of the Fukushima Daiichi Nuclear Power Station, we aredeveloping technologies for fuel debris removal and using underwater remote-controlled robots
with cameras to investigate the inside of reactor containment vessels. We will continue supporting
the decommissioning of this power plant through the development of such technologies.
In the area of small modular reactors (SMRs), which hold promise as innovative nuclear reactors,
we are developing the BWRX-300 together with our partner, GE Hitachi Nuclear Energy(GEH). This reactor uses boiling water reactor (BWR) technology, for which we have extensive
experience in construction and operation. Our aim is to reduce construction costs throughdownsizing while ensuring world-class safety standards.
Hitachi will contribute to stable energy supplies and help realize a decarbonized global society
through the restart of nuclear power plants and the revitalization of Fukushima in Japan, as well
as deployment of the BWRX-300 in collaboration with GEH overseas.

FY2021 PerformanceOne-stop service for wind power facilities that uses drones and AI for inspection,
maintenance planning, and blade repairs
In 2022, Hitachi Power Solutions began offering a one-stop
service for wind power facilities that uses drones and AI for
inspection, maintenance planning, and blade repairs.
This advanced maintenance solution, which uses drones
and AI, will lead the way in decarbonization because it
facilitates stable operation of wind power facilities, withinspections taking one-third the downtime of conventional
services. We aim to contribute widely to wind power
generation projects in Japan, including offshore wind
power generation facilities expected to be fully introducedin the late 2020s.

FY2021 Performance
BWRX-300
Under joint development in the United States andJapan, the BWRX-300 is a compact, next-generation
reactor with an innovative safety system that combineshigh levels of safety and economic efficiency.
A Canadian power company has already selected
BWRX-300 as its reactor model and is preparing toapply for permits and approvals for its construction
in Canada. Other countries, including the United States, Poland, and Sweden, are also conducting
evaluations and studies based on the assumption that the BWRX-300 will be introduced.

Hitachi Integrated Report 2022

Digital Systems & Services

Introduction
Green Energy & Mobility

Whatʼs Hitachi
Connective Industries

Value Creation

Business Strategies

Sustainability

Corporate Governance

Data

63

Hitachi Astemo

Mobility Business

628.3

EMEA 55%

15%( e x c l. J a p

Business Strategy (Railway Systems Business Unit)
Despite challenging market conditions caused by COVID-19, revenue expanded on steadyorders in the Railway Systems BU in fiscal 2021.
In the rolling stock business, orders for projects with attractive long-term service agreements
are on the rise. Specific achievements include an order to build and maintain next-generation
high-speed trains for the “High Speed Two” high-speed railway project in the UK, and thecommencement of a 30-year long-term high-speed railway rolling stock maintenance agreementwith ILSA in Spain. In the United States, the strategic decision was made to construct a newassembly plant for rolling stock the Washington, D.C., metropolitan area. This plant will enable
Hitachi to meet a wide range of demands in the North American rail market.
Hitachi also announced that it will acquire the Ground Transportation Systems business fromThales. Hitachi’s rolling stock and other signaling and services-related businesses currently
have a sales ratio of 6:4. With the acquisition from Thales, the strategy is to increase the ratioof the signaling and service businesses, which are considered to be more profitable. It is also
geographically advantageous, enabling the development of new important markets such as
Germany, Canada and Singapore. By combining the cutting-edge technologies possessed byThales’ signaling and services-related businesses with the digital engineering capabilities ofHitachi’s Lumada and GlobalLogic, we will establish a foothold as a major player in the Smart
Mobility and MaaS business models.
We are also accelerating technological developments to reduce CO2 emissions. We aim to
reduce fuel consumption by 20% or more with storage battery hybrid railcars introduced onintercity railways in the UK. In Florence, Italy, we successfully conducted the first test operation ofa storage battery–powered tram, and are making steady progress toward the global expansionof rolling stock equipped with storage batteries. We are also working with JR East and Toyota
Motor Corporation to develop
Rolling Stock 58%
Rail Control 42%
environmentally friendly hybrid
Manufacturing
Signaling andvehicles using hydrogen as ancontrol products0%Service &2energy source.
Service &maintenanceanmaintenanceIn transforming our business
Turnkey
FY2021solutions
Revenues
from hardware to “services” andincreasing investments in products
billion yen
facilitating a sustainable future, we
aim to achieve revenue of one trillionAm
1 0 ericas
yen and an adjusted operating%
income ratio in the double digits byfiscal 2026.
fi c
A sia Pa cian)Despite the ongoing impact of COVID-19 in fiscal 2021, lockdown restrictions were eased
compared to fiscal 2020 and demand gradually recovered, mainly in Asia and Europe. Although
the long-term impacts of the pandemic on the rail market are still not fully understood, railway
demand is recovering and national governments around the world remain committed to investingin public transportation, where the “Living with COVID-19” lifestyle has taken root.
Railways, which are able to move numerous passengers at the same time consuming lessenergy, are attracting attention for their connection to reduced CO2 emissions, and going
forward, we believe investment in railways will continue over the long term as a solution
supporting society, the environment and the economy in countries throughout the world that arepromoting decarbonization. In the rail market, where automation, predictive maintenance andother digitalization initiatives are under way, we expect to see an increase in Smart Mobility andMobility as a Service (MaaS) solutions that provide travelers with more seamless journeys whenutilizing multiple transportation systems, including railways and buses.

JapMarket Environment

Smart Mobility Example Using Lumada

New Lumada Smart Mobility services launched in Genoa, Italy
In July 2022, Hitachi Rail announced the launch of Lumada Intelligent Mobility Management, a newsuite of smart mobility solutions for cities, transport operators and passengers. The suite includes
powerful tech for passengers and transport operators alike—connecting smart ticketing, traffic flow
management and e-charging through a common analytics platform.
In the launch program, in Genoa, Italy, the new mobile app allows passengers to seamlessly
access every mode of public transport in a city “hands-free” by registering the passenger’s phone
as it connects to the network of more than 7,000 Bluetooth sensors on buses, trains, private hiree-vehicles and even a cable car. The cheapest possible fare is automatically calculated at the endof each day based on the passenger’s actual usage—and without needing to purchase a ticket.
For transport authorities, the new suite ofsmart mobility software empowers operatorswith a “digital twin” of the entire transportation
network, giving real-time visibility of passenger
and multi-modal transport flows around any city.
By offering “as a service” business models tocustomers for these services, Hitachi Rail aims
to make it easier than ever for cities, operatorsand passengers to accelerate the transformation
to more sustainable transportation.