GE’s power unit has been battered by low demand for gas turbine generators amidst a boom in renewables.
Signs of trouble in General Electric’s power business reached a fever pitch last year, when profits fell 88% in the fourth quarter. Steve Bolze, who had led the division, jumped ship in July after 12 years on the job and 24 with the company. In early October CEO John Flannery, who replaced Jeffrey Immelt in 2017, was suddenly ousted – which some attribute, at least in part, to the distressed power unit.
On October 30 GE reported that its power business lost $631 million last quarter, and announced a $22 billion write-down of the business. GE also revealed plans to divide it in two: one division for gas turbine generators, and the other for the rest of the business. “The talent here is real, the technology is special,” said CEO Lawrence Culp. “But GE needs to change.” He added that big changes in the power business are his priority. Culp is the former CEO of Danaher, which he is credited with transforming from an industrial manufacturer to a science and technology firm.
GE says its power generators supply 30% of the world’s electricity. There are over 7,500 GE gas turbines in power plants worldwide. This long-lived equipment should be feeding the company a steady flow of maintenance and repair business. And yet it’s not. Former GE managers and industry analysts point to “a combination of a sharp market turn, a wayward acquisition and self-inflicted wounds,” the New York Times reports.
The energy sector is undergoing transformation, with energy efficiency programs and renewables such as solar and wind both expanding and becoming more affordable. Advances in battery technology are also expected to make renewables more reliable in unfavourable weather conditions. These developments, which have unfolded sooner than unexpected, have led utility executives to curb new orders. Analysts estimate that demand for gas turbine power generation will be over 40% less this year than in 2016.
Other major producers of large gas turbines, notably Siemens and Mitsubishi Hitachi Power Systems, have also felt the energy market turn, but analysts say they have moved more quickly to adapt than GE. Among former GE managers, there is debate over whether the company was slow to respond or, as the biggest producer in the energy market, was inevitably the hardest-hit.
There are bright spots, however: GE’s power unit still leads the industry in technology and has a healthy roster of customers, analysts say. They suggest that the key to a comeback for the business is to quickly address the basics, such as cutting costs. They also emphasise the importance of catering to customers more, and of retaining experienced managers and skilled engineers.
