Energy

The energy business supplies gas turbines, compressors and diesel power units to customers around the world. The business is a world leader in the supply of power for onshore and offshore oil and gas applications. Our developing civil nuclear capability has further strengthened our position in the power generation market.

The energy business delivered a strong performance in 2010 with underlying revenue of £1.2 billion, an increase of 20 per cent over 2009, and profit growth of 13 per cent as the business delivered a strong second half recovery to offset the £26 million charge taken in the first half of the year related to the industrial Trent engine. During 2010, the land-based diesel power business was integrated into energy, increasing revenue by £140 million.

Oil prices continued to strengthen during the year and, as a result, bid activity increased in the oil and gas sector, although it is also the case that a number of potential projects were delayed. The traditional power generation market for the Trent continues to be depressed by the low demand for electricity in developed countries. However, the business has been successful in securing new unit orders for both the Trent gas turbine and Bergen reciprocating engines in countries where significant power shortfalls exist, with major orders received from Bangladesh, India, and Venezuela.

Orders for land-based diesel and gas engine power generation applications tripled in 2010 when compared to the preceding two years.

A packaging partnership for the industrial Trent was agreed with STX in South Korea, further broadening territorial coverage.

Services

Demand for aftermarket products and services again grew strongly with another record year delivering revenue of £542 million, an increase of 15 per cent over 2009. Including the land-based diesel units there are now a total of 662 units, or 33 per cent of the fleet under long-term service agreements. Operators continue to benefit from product upgrades that incorporate the latest technology, including the Avon 200 upgrade, which was introduced in 2006 and has now been delivered to more than 24 customers.

Developments

Investment in low carbon technology products continued with the ongoing development of fuel cell technology. In tidal generation the 500kW demonstration unit at the European Marine Energy Centre in the Orkney Islands successfully achieved its technical milestones, generating in excess of 50MWh in the process and earning a Renewable Offset Credit under the UK Government’s tariff regime. Plans are now underway to build a 1MW unit that will provide the basis for a commercially available product.

Nuclear

During 2010, we continued to progress plans for a UK nuclear manufacturing base and announced the opening of two new nuclear-specific University Technology Centres (UTCs), located at Imperial College London and the University of Manchester. Rolls-Royce is also a lead partner in the UK Government’s Nuclear Advanced Manufacturing Research Centre (NAMRC) facility, which is due to open in September 2011.

The business further extended its nuclear manufacturing skills base through the integration of Canada-based ODIM Numet, specialising in engineering, manufacturing and through-life support of nuclear island systems.

In India, a Memorandum of Understanding was signed with Larsen & Toubro Ltd for a collaborative approach to address new nuclear build markets both in India and internationally. At the beginning of 2011, Rolls-Royce signed an agreement to collaborate with Nuclear Power Delivery UK consortium on its plans to deploy the Westinghouse nuclear reactor in the UK.

The nuclear instrumentation and control business performed well in 2010, establishing a solid platform for global growth across Central and Eastern Europe, China and India. It is also delivering 20 safety instrumentation and control systems for eight new plants in China.

Future

Traditionally a strong oil price has resulted in increased business for original equipment in the oil and gas sector. We would therefore expect the market to continue to strengthen for products and services if the oil price remains relatively high. In power generation we now have a broad range of systems to offer and this puts us in a position of strength to take advantage of any market upturn. We will also continue to explore opportunities in emerging economies.