General Electric Co.
aims to create a market-leading power company as the conglomerate splits into three. But it faces fierce competition from rivals who are also repositioning their businesses to take advantage of the global renewables boom.
GE this week announced plans to create a new, stand-alone company it would create around 2024 that would combine its existing units that make wind turbines, turbines for traditional power plants, and its digital businesses. Such a company would instantly become a major player in energy manufacturing, positioned to thrive from 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 field that includes similar renewable companies created by its German industrial rival, Siemens HER
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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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“Globally, the competition is definitely increasing, it’s a fight,” said Shashi Barla, principal analyst for global wind supply chain and technology at Wood Mackenzie, a research and advisory firm. He estimates that the top five wind turbine players will dominate 75% of the global market by the end of the decade, with some smaller companies possibly disappearing or being taken over by larger ones.
Turning the power sector around has been a priority for GE chief executive Larry Culp as he tries to overcome GE’s mismanagement and costly acquisitions of rival turbine makers that have failed. Acquisition in 2015 of the energy assets of French Alstom HER
resulted in a $22 billion charge three years later.
“We’ve been focused on improving the operational performance of these companies,” Culp said Tuesday. He said the power sector will carry the least debt of the three when it exits.
Although GE has made progress in revamping its power unit, analysts said it remains the weakest of the three companies expected to emerge from the once mighty conglomerate, which also plans separate aviation 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 power, according to financial filings. These units together made about $33 billion in revenue in 2020. Its digital division made about $1 billion in revenue last year.
“Of GE’s three businesses, this is the toughest,” said Morningstar equity analyst Joshua Aguilar. “That said, it’s a tough business for everyone.”
Wind turbine makers, including GE, face numerous near-term headwinds that have hurt returns, from pandemic-related port delays to questions about the fate of pending tax credits in Congress. Port grumbles and soaring material costs, including steel and resins, have affected their ability to deliver wind turbines on time and within budget. Logistics costs have skyrocketed for moving turbine blades, which span over 200 feet for onshore wind turbines and as long as a football field for offshore wind turbines.
A fallout in 2024 would give GE about two years to show that the power business can turn a profit on its own. Rivals have already moved in similar directions.
Siemens is ahead of GE in spinning off electricity and wind power. In 2017, Siemens, which was struggling to make a profit from its wind business, merged its business with Spain’s Gamesa in a deal that created one of the world’s biggest players in the field. The deal capped a series of mergers in the wind industry at the time after years of manufacturing overcapacity and technological improvements that squeezed manufacturers’ margins.
Last year, Siemens sold Siemens Energy, which now owns 67% of Siemens Gamesa,
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 renewables lies in building offshore wind turbines and providing maintenance services. The Biden administration is preparing to open up swathes of the US coastline to wind projects as part of a plan to boost clean energy production.
Analysts have said GE could grab a major share of the US offshore project 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 Dogger Bank, an offshore project under construction in the UK.
GE has “the front-row pole position to capture the majority of that,” said William Blair & Co analyst Nick Heymann.
Its grid business could see a boost thanks to the roughly $1 trillion infrastructure package passed by Congress last week, which included funding for upgrades to the country’s aging electrical distribution system. The cobweb of power lines that provide electricity across the country has proven vulnerable to storms and extreme fires, and the movement of new renewable energy from remote areas to urban centers has led to traffic jams.
“This will allow GE to be very involved in upgrading all of our long-haul transmission lines,” Mr. Heymann said.
GE has identified hydrogen as a potential growth area for its gas turbine business. Hydrogen can be blended 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, chief executive of GE Power, recently posted on LinkedIn about the company’s hydrogen-ready gas turbines and grid modernization efforts.
“Our ability to reach these three areas – wind, gas and grid, as well as carbon-free sources like nuclear and hydro – is unique and presents an incredible opportunity for the future,” Mr. Strazik wrote.
—Thomas Gryta contributed to this article.
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