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GE revs up renewables business
turnaround as seismic shake-up at US giant looms
American industrial conglomerate 'has work
to do', says CEO Culp, with onshore wind seen as main growth engine
for struggling unit and offshore wind orders to 'significantly'
increase.
25
January 2022
US industrial conglomerate General
Electric (GE) will this year intensify efforts to turn around its
money-losing renewables business in a challenging near-term market as
part of a recently announced plan to split the group
into three separate public companies by early 2024.
“We do have work to do and we’re on it,”
GE CEO Larry Culp told analysts after the company disclosed its
renewable energy unit’s loss widened to $795m in 2021 from $715m the
previous year.
Free cash flow was negative $1.2bn, a
glaring contrast to $8.5bn in GE’s other core aviation, healthcare,
and power businesses – a trend indicative of a financially stronger
company with “real momentum and opportunities for sustainable,
profitable growth”, as Culp noted.
Last November, GE announced it would
restructure into three separate public companies: aviation,
healthcare, and power, which will include renewables, grid
software/solutions, and gas and steam turbines. Healthcare will be
spun off first in early 2023 with power 12 months later.
Culp,
who took over in 2018 as the first outsider to run the financially
troubled US industrial giant, outlined various actions his management
team is taking to transform the renewables business into an
“investment grade industry leader”.
Scott Strazik will now head up all of
GE’s energy operations. A prime focus for Strazik, a rising star under
Culp who turned around the GE Power division as CEO, is onshore wind,
by far the biggest component of the renewables business.
“We believe this will be a growth business
that delivers high single-digit margins over time,” said Culp. “First,
the demand is there. Onshore wind is a critical component of the
energy transition. We have leading products and a strong services
franchise, but we do face near-term challenges.”
Among them is the US, easily GE’s largest
onshore wind market, where 2022 installations are set to plunge by
one-third or more amid uncertainty if Congress will renew the federal
production tax credit (PTC), the industry’s main fiscal incentive,
which expired the end of last year.
Fourth quarter orders declined 21% for
wind turbines and related equipment versus a year earlier,
highlighting GE’s longstanding over-reliance on US onshore sales.
President Joe Biden is in talks with
Democratic leaders in the House of Representatives and Senate over new
legislation that would include a multi-year extension of the PTC and
other clean energy tax credits, but a path forward is unclear.
“We’re monitoring policy proposals and
see strong and diverse interest in continuing tax credits for wind,”
said Culp. In the meantime, Strazik will attempt to build on last
year’s improvements in onshore wind margins in the US where operations
returned to profitability.
The story is very different globally
where onshore wind is bleeding red ink. Culp said GE is addressing a
range of issues in multiple ways, including operational, productivity
and supply chain improvements, reducing inventory, and “enhancing the
customer experience with better design and testing and quicker
response to field issues”, with the CEO noting that services work is
growing by double digits.
Another key focus is becoming more
disciplined in the projects that GE chooses to underwrite in the
broader markets where it participates, what Culp calls “commercial
selectivity”.
“This means lower volume with lower risk
today, but better margins and less risk over time,” said Culp. “It’s
ok not to compete everywhere.”
GE is addressing inflation, which it
expects to continue through at least first half 2022, by implementing
price increase for products and services for onshore wind and its
fast-growing but still small offshore business.
Culp said GE has 7GW of global
commitments for its 12-14MW Haliade-X offshore turbine with deliveries
to begin this year. “Offshore wind demand continues to significantly
increase across the world,” he said, but did not indicate when the
business will become profitable.
GE has also created a new, dedicated
management office that will focus on “work strength planning and
execution to deliver critical value drivers,” said Culp, which range
from optimizing renewables’ operating model to its capital structure.
Culp is confident his team can get
renewables back on track and profitable over the next two years.
“Renewables is a terrific business,” he said.
Green Play Ammonia™, Yielder® NFuel Energy.
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www.exactrix.com
509 995 1879 cell, Pacific.
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