Hitachi and Mitsubishi Heavy in tie-up Two of Japan's top industrial conglomerates are to merge their thermal power plant units, mounting a challenge to Siemens and GE at a time of growing uncertainty over the global outlook for fossil-fuelled power. In a deal sketched out on Thursday evening, Mitsubishi Heavy Industries and Hitachi will set up a joint venture, beginning operations in January 2014, bringing together MHI's strong thermal power business in southeast Asia and the Middle East with Hitachi's solid market share in Europe and Africa. A merger of the two units, which had combined thermal power sales last year of about Y1.1tn ($13bn), would put the new Japanese champion within reach of the world leaders: Siemens of Germany, with €18bn in sales from fossil-power generation and transmission in the 12 months ending in September, and GE of the US, where energy sales came to $31bn in 2011. "This is good news," said Yukihiro Kumagai, an analyst at Jefferies in Tokyo, noting that MHI's expertise in bigger plants - 100 megawatts and above - will complement Hitachi's focus on smaller facilities. Merging will give them stronger pipelines to each customer segment. Since Japan shut off almost all of its nuclear capacity in the wake of the Fukushima crisis, natural gas- and coal-fired plants have been called into action to power homes and businesses in the world's third-largest economy. Yet the longer-term outlook for thermal power remains uncertain, with the main political parties at odds over Japan's future energy mix ahead of a general election next month. Globally, too, doubts have emerged over the pace of thermal plant development in major markets such as the US and Europe, as the economic downturn has sapped demand for power, giving generators little incentive to invest. At a joint news conference, Hiroaki Nakanishi, Hitachi president, said the tie-up was necessary to thrive in a tough global economy and to beat overseas competition from established global operators, as well as rising rivals in China and India. "Thermal power faces a shifting global environment," he said, with "an increased awareness of the environment" and "a reassessment of energy sources." Hideaki Omiya, MHI president, said they may also consider co-operation in nuclear power equipment. A venture in nuclear may be more complicated, said analysts, as Hitachi has an alliance with GE, while MHI is close to Areva of France. MHI and Hitachi are already well known to each other, having set up joint ventures in the past in trains, steelmaking equipment and hydroelectric power equipment. MHI is to own 65 per cent of the new thermal power company, with Hitachi holding the remainder. Shares in MHI were among the biggest movers in Tokyo on Thursday, up 3.9 per cent, following a report of the imminent announcement in the Nikkei newspaper. Hitachi rose 3 per cent.