Why rivals have plenty of reasons to fear GE

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In the wake of its acquisitions of Alstom’s power and grid business in 2015 and blade maker LM Wind Power this year, GE now sells the broadest portfolio of renewables technologies of any company in the world. Yet it’s the $260bn company’s immense research capabilities that should perhaps be most worrying to competitors.

GE is not only able to cross-pollinate between its clean-energy technologies; it’s also doing so among all of its industrial units — an internal exchange of ideas, expertise and resources the company refers to as the “GE Store”. While the concept may sound a bit woolly, the corporation has a highly ordered process for identifying technology coming out of one industry that may be useful to another.

Much of this intellectual exchange occurs among the roughly 2,000 scientists employed at GE’s five Global Research Centers, in the US, China, India, Germany and Brazil. At the entrance to the flagship research facility — in Niskayuna, in leafy upstate New York — visitors are greeted by company founder Thomas Edison’s desk and his famous quote on a wall: “I find out what the world needs, then I proceed to invent it.”

Renewables’ role within GE

GE’s post-Alstom decision to turn its renewables unit into the company’s seventh “tier-one” business division — alongside stalwarts like Power, Oil & Gas, Transportation and Aviation — sends an important signal about renewables’ place in the world, and chief executive Jeff Immelt’s priorities.

GE Renewable Energy has arguably become the world’s most important maker of green power equipment, with an unrivalled portfolio of technologies, and research muscle that is second to none.

Yet while GE is driving change in the renewables industry, it’s also clear that the renewables business can help reshape the industrial giant, which stands at one of the most critical junctures in its 125-year history.

Immelt is under growing pressure from investors to boost a share price that remains stuck below its pre-recession levels. The 61-year-old has bet his legacy on a policy of returning GE to its industrial roots while adding a lucrative layer of digital offerings. Renewables perfectly encapsulate his vision for GE as a maker of big, intelligent machines yoked seamlessly to the industrial internet.

“It’s no secret that our markets are growing faster than the average GE business,” GE RE chief executive Jérôme Pécresse tells Recharge. “We want to be a growth engine for GE. We want to be one of the most global businesses within GE.”

Paris-based GE RE clocked sales last year of $9bn, nearly 90% of it coming from onshore wind. The division accounted for 8% of GE’s total industrial revenues, up from 6% the previous year. Expect that figure to keep climbing, Pécresse says, starting with blade maker LM Wind’s contribution in 2017.

Immelt has chosen to keep some of Alstom’s top executive talent in place at GE RE, starting with Pécresse, previously president of Alstom’s renewables business. But he’s also bringing in trusted veterans from across the GE empire.

“I won the lottery with this job,” says Peter McCabe, who was handed the reins to GE’s onshore wind business in February, after a multi-decade GE career spanning healthcare to transport.

“I love this business. The size, the dynamism, and the purpose I feel — not only with our team internally, but also with our customers — is pretty unique,” he says. “And frankly, I think, it’s pretty unstoppable.”

That same enthusiasm for renewables pervades GE and its 70,000 workers across 120 countries, McCabe says.

“This is a desirable place to be inside the GE family,” he tells Recharge. “And that’s coming from a guy who’s lived in a lot of different houses within the GE family.”

Jérôme Pécresse, chief executive of GE Renewable Energy (and former Alstom renewables boss), lists a number of company research areas that will benefit renewables. These include smarter control systems; additive manufacturing (better known as 3D printing); materials science, with obvious benefits for wind blades; and improved electricity-transmission equipment, which will allow for higher levels of renewables penetration.

Then comes the industrial internet, often called the Internet of Things, which is perhaps GE’s biggest and most existentially important technological bet — and one that carries enormous promise for renewables.

GE is straining — and spending billions — to make its Predix platform the dominant operating system for the industrial internet. Like Google’s Android for mobile phones, Predix is an open digital ecosystem that allows GE’s engineers, as well as outside developers, to design applications for machines and industrial processes.

Using Predix, GE is creating a “digital twin” of every product it makes. These cloud-linked clones will allow GE’s wind customers to assess the “real-time molecular health” of their turbines in the field, potentially making unplanned downtime a thing of the past, says Peter McCabe, GE’s head of onshore wind business.

John Lavelle, a three-decade GE veteran who was put in charge of the offshore wind business last November, adds: “There’s probably no technology GE offers that can benefit more from digital than renewables.”

The implications for offshore wind may be especially profound, he says, given that unplanned maintenance is “exponentially more costly” offshore.

Digital technology will also boost productivity at the fleet level. Wind turbines will be able to “speak” to each other, learning and collaborating. A hydro operator with a sequence of dams on a river can optimise the flow of “water fuel” from one dam to another, says Yves Rannou, another Alstom veteran who is now chief executive of GE’s hydropower business.

Of course, GE is far from the only wind company investing in digital technology. For example, German industrial giant Siemens is advancing its MindSphere platform as a rival to Predix. But at the end of the day, few companies in the world — let alone the renewables industry — have GE’s resources for pursuing these digital pastures. GE’s market capitalisation of $260bn is more than double that of Siemens — and 14 times larger than Vestas’.

David Hostert, head of wind research at Bloomberg New Energy Finance, says the race to control digital technology in the wind market is intensifying. He points to Chinese OEM Envision’s acquisition last year of Norwegian digital-energy specialist BazeField as a sign of things to come.

“We’re expecting a lot of M&A in this space over the next 12-18 months,” he says.

Market challenges

GE was the world’s second-largest supplier of onshore wind turbines last year, and its €1.5bn ($1.6bn) acquisition of Danish blade maker LM Wind Power in April has sent ripples across the industry. And thanks to its Alstom purchase — the largest industrial acquisition in GE’s history — the company has returned to offshore wind, taken on a concentrating solar power business, and become the leading hydro supplier globally.

Yet for all of its daunting advantages, GE faces many challenges in renewables. And to its credit, the company is forthright about them.

GE’s onshore wind sales remain heavily concentrated in the US, where it counts major operators such as NextEra Energy and Invenergy among its key customers. “Historically we’ve had a disproportionate focus on the US,” McCabe concedes.

This seems especially pressing given Vestas’ growing strength in the US. Last year Vestas installed more turbines on American soil than any other supplier, knocking GE off the top slot in its home market for the first time in more than a decade.

For several years, GE has focused on broadening its sales base across the global renewables market, yet last year 58% of the division’s revenues came from the US — up from 56% in 2015. “[In the future] I’d like to see 70% coming from outside the US”, says McCabe. “Not because of the US shrinking, but because we’re getting our fair share in the rest of the world.”

The European onshore market remains a priority. “You can’t ignore Europe — it’s too big,” McCabe adds, noting that the company is also seeing success in India, Australia — and Latin America, where Alstom was strong.

While China is a nut that “none of the big Western OEMs have cracked”, McCabe says if anyone can do it, it’s GE, which already has a “huge footprint” in the country — and a track record of building significant market share in other Chinese sectors.

In offshore wind, GE is very much playing catch-up with Siemens and Vestas, despite taking on Alstom’s 6MW Haliade turbine — and inheriting the supply contract for the high-profile Block Island offshore project, the first built in US waters.

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GE Renewable Energy chief executive Jérôme Pécresse

GE’s offshore wind business has plenty of orders to keep it busy over the next few years, including the 396MW Merkur project in the German North Sea, to be completed by the end of 2018, and the roughly 1GW backlog attached to EDF projects off the French coast.

And in March, GE clinched a deal to supply three offshore turbines to a pilot project being built by China Three Gorges. It may not be a huge order, but it’s a “very influential customer in an important market”, Lavelle notes.

But the reality is that GE’s 6MW turbine is too small to win many future orders in Europe, the world’s dominant offshore market, and may soon face similar problems elsewhere. “The 6MW probably has a few years of good life in the US, and hopefully in Asia,” Pécresse says. “But it’s fair to say the turbine size is soon going to be a bit small in Europe.”

Both Pécresse and Lavelle say GE is not ready to make any announcements about a bigger offshore turbine in the works, though most in the industry expect one to come. GE, Pécresse insists, will “find a way to compete in the market”.

The missing piece of the puzzle: solar

The breadth of technology GE has on offer is unrivalled in the renewables industry, but there is one big puzzle piece missing: solar.

The company sells concentrating solar power (CSP) equipment, a business brought over from Alstom, but GE RE boss Jérôme Pécresse, says “the jury’s still out” on how big a niche CSP will be in places like the Middle East and Africa.

The most glaring gap in GE’s portfolio, of course, is PV panels.

Global installations of solar PV eclipsed wind for the first time in history last year, and the trend may be irreversible. It’s possible the global solar market will grow to several times the size of the wind market as it matures. Siemens, for one, is predicting that two thirds of all new power installed between now and 2030 will come from distributed energy systems — mainly PV.

Pécresse acknowledges that the battle between wind and solar is among the most important playing out in the energy world. Earlier this decade GE looked set to go big in PV, acquiring manufacturer PrimeStar Solar and announcing plans for a big factory in Colorado. But in 2013 it got cold feet, selling PrimeStar’s technology to US compatriot First Solar.

In hindsight, the decision looks wise. First Solar swallowed a huge loss last year, as did US rival SunPower.

“To some extent, there is regret that we’re not in solar,” Pécresse says. “But if we’d stayed in solar I think there would also be some regret.

“One difference between wind and solar is that even as wind energy’s costs have come down, people along the value chain have still been able to earn a decent amount of [profits]. In contrast, solar costs have come down at the expense of profitability for most of the players in the value chain.

“We have not found a way for GE to make a big inroad into solar. But it’s a very important question.

“The market is so big that if we were not revisiting the question frequently, we wouldn’t be doing our jobs.”

 

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