General Electric’s power unit fights for growth as wind, solar gain
NEW YORK: Vistra Energy Corp (VST.N) and Dominion Energy Inc (D.N) – which serve about 5.5 million electricity customers in more than a dozen U.S. states – both say they are done building combined-cycle natural gas-fired power plants.
Instead, they are building large solar plants, which offer plentiful and inexpensive electricity.
This bearish view of fossil-fuel energy, reflective of a growing acceptance by utilities of renewable power sources, poses a hurdle to John Flannery’s plan to turn around General Electric Co’s (GE.N) $35 billion-a-year power unit.
GE’s chief executive spelled out the difficulty on Wednesday. Power profits will be flat this year after falling 53 percent in 2017, he said, and GE is planning that demand for heavy-duty natural gas power plants will be less than half what it forecast just over a year ago, and will stay at that level through 2020.
New plant sales are “going to be tough,” Flannery said at an investor conference on Wednesday. “This is not going to be a quick fix, but there is, at the end of the day, long-life assets here with intrinsic economic value. We’re going to make the most of what we have there.”
In the long run, Flannery and Russell Stokes, the head of GE Power, have said demand for electricity and natural gas power generators will grow about 2 percent a year – in line with global forecasts – as utilities make a gradual transition to renewable power.
Following a strategy he laid out in November, Flannery is cutting 12,000 jobs and $2.5 billion in costs at the unit. On Wednesday, he said GE has tripled some sales incentives in the power division and is competing aggressively for new contracts to maintain plants and to get the call when utilities need parts or repairs during an unexpected outage, something of which GE had lost sight.
But some analysts and investors are skeptical about the long-term prospects of a business devoted to natural gas and coal power plants that are falling out of favor with utilities.
The competition from solar and wind, along with abundant low-priced gas produced by fracking, is curbing orders for new plants and forcing the closure of old ones. Some utilities are even filing for bankruptcy.
“That means companies are going to have trouble selling new fossil-fuel plants,” said Mark Dyson, a principal at the Rocky Mountain Institute, an organization that researches the power industry.
Over 126 years, GE has weathered ups and downs in power market before, and has legions of sales and service people around the world. Last year it booked 26 orders for its newest gas turbines in Mexico, Bangladesh and elsewhere. It is investing in its separate, $10 billion-a-year renewables unit focused on wind and hydro, which saw revenue fall 6 percent last year. GE also sells battery storage, software and smart-grid technology to work with wind and solar systems.
GE power equipment orders – an indicator of future sales – fell 41 percent in the first quarter, accelerating from a 17 percent drop last year, according to GE’s earnings reports.
GE’s performance reflects the broader trend of utilities shifting to renewables from fossil fuels.
Global sales of large natural gas power plants have fallen by half since 2013, according to McCoy Power Reports. Coal and gas-fired plants accounted for just 38 percent of new electricity capacity financed globally last year, down from 71 percent a decade ago, according to Thomson Reuters data. Solar and wind now draw 53 percent of such investment, up from 22 percent, a Reuters analysis shows.
Source: reuters
