General Electric’s electricity business faces fierce competition as spin-offs emerge

General Electric Co.

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aims to create a market-leading electricity company as the conglomerate splits into three. But it faces fierce competition from rivals who are also repositioning their businesses to take advantage of a global renewable energy boom.

GE said this week that it plans to create a new stand-alone company it would set up around 2024 that would combine its existing units that make wind turbines, traditional power plant turbines and its digital businesses. Such a company would instantly become a major player in the electricity manufacturing space, positioned to thrive on an accelerated transition to cleaner energy sources amid concerns about climate change, while continuing to sell turbines. natural gas in much of the world.

GE’s power company would enter a crowded area that includes similar renewable companies created by its German industrial rival, Siemens AG

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, and powerful Chinese players such as Xinjiang Goldwind Science & Technology Co.

Only a few big winners will emerge from this ongoing competition for supremacy, analysts said.

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“On a global scale, the competition is definitely increasing, it’s a struggle,” said Shashi Barla, senior analyst for global wind supply chain and technology at Wood Mackenzie, a research and consulting firm. He estimates that the top five players in wind turbines will dominate 75% of the global market by the end of the decade, with some small companies possibly disappearing or being absorbed by the larger ones.

Turning around the power industry has been a priority for GE CEO Larry Culp, as he tries to overcome GE’s history of management missteps and costly acquisitions from competitors in the manufacture of turbines that did not yield results. Acquisition in 2015 of the electricity assets of French Alstom HER

resulted in a charge of $ 22 billion three years later.

“We have focused on improving operational performance in these companies,” Culp said on Tuesday. He said the power sector will carry the least debt of the three when it comes out.

Although GE has made some progress in redesigning its powertrain, analysts said it remains the weakest of three companies expected to emerge from the once powerful conglomerate, which also plans separate aviation businesses. and health.

GE reported an operating loss of $ 484 million for the first nine months of the year in renewables and an operating gain of $ 416 million in electricity, according to financial documents. Together, these units generated around $ 33 billion in revenue in 2020. Its digital division generated around $ 1 billion in revenue last year.

“Of GE’s three businesses, this one is the most difficult,” said Joshua Aguilar, equity analyst at Morningstar. “Having said that, it’s basically a tough business for everyone.”

Wind turbine makers, including GE, are grappling with numerous short-term headwinds that have hurt returns, from pandemic-related port delays to questions about the fate of tax credits pending in Congress. Rumbling ports and soaring material costs, including steel and resins, have affected their ability to deliver wind turbines on time and on budget. Logistics costs have skyrocketed to move wind turbine blades, which extend over 200 feet for onshore wind turbines and as long as a football field for offshore wind turbines.

A spin-off in 2024 would give GE around two years to show that the power industry can cash in on its own. Rivals have already moved in similar directions.

Siemens is ahead of GE in spinning electricity and wind power. In 2017, Siemens, which was struggling to monetize its wind activity, merged its activities with Spain’s Gamesa in an agreement that created one of the world’s largest players in the field. The deal ended a string of mergers in the wind industry as years of manufacturing overcapacity and technological improvements squeezed manufacturers’ margins.

Wind turbine manufacturers, including GE, face many short-term challenges that have reduced yields.


Photo:

Matthew Staver / Bloomberg News

Last year, Siemens divested Siemens Energy, which now owns 67% of Siemens Gamesa,

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as part of its drive to focus on digital industries and smart infrastructure, which typically offer higher margins.

Much of GE’s growth potential in renewable energy lies in the construction of turbines for offshore wind and the provision of maintenance services. The Biden administration is preparing to open up swathes of the US coastline to wind projects as part of a plan to revive clean energy production.

Analysts said GE could capture a large share of the US offshore projects market. Its Haliade-X offshore turbine is the most powerful on the market and will be installed at Vineyard Wind, an 800 megawatt wind farm near Martha’s Vineyard, Mass., As well as at Dogger Bank, an offshore project under construction in the UK. United.

GE has “the pole position at the top to capture the majority of that,” said Nick Heymann, analyst at William Blair & Co.

Much of GE’s growth potential in renewable energy lies in the construction of turbines for offshore wind and the provision of maintenance services.


Photo:

Sébastien Salom-Gomis / Agence France-Presse / Getty Images

Its grid activity could be boosted by the roughly $ 1 trillion infrastructure package passed by Congress last week, which included funding for improvements to the country’s aging power distribution system. The spider web of power lines that provide electricity across the country have proven vulnerable to extreme storms and fires, and the movement of new renewables from remote areas to urban centers has resulted in traffic jams.

“This will allow GE to be very involved in the modernization of all of our long distance transmission lines,” said Heymann.

GE has indicated that hydrogen is a potential growth area for its gas turbine business. Hydrogen can be mixed with natural gas to reduce a power plant’s carbon footprint, and GE is planning a demonstration project in New York State with the technology.

Scott Strazik, Managing Director of GE Power, recently posted on LinkedIn about the company’s hydrogen-ready gas turbines and efforts to modernize the grid.

“Our ability to reach these three areas – wind, gas and grid, as well as carbon-free sources like nuclear and hydropower – is unique and presents an incredible opportunity for the future,” Mr. Strazik.

Write to Jennifer Hiller at [email protected] and Georgi Kantchev at [email protected]

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Rosemary C. Kearney