GE bolsters $16bn green arm to step up hybrid fight

Will General Electric hive off its renewables division?

There’s been plenty of talk on this in the last year as GE’s financial troubles have deepened. This patchy performance was again on display in the firm’s fourth-quarter results last week.

Now clearly we aren’t fortune-tellers. The logic of selling the renewables arm – one of GE’s bright spots – for a short-term capital boost always seemed a bit skewed to us. The attraction of GE Renewable Energy to a potential buyer is the reason why it should be attractive to GE. It is one of the world’s leading wind turbine makers and is therefore well-placed to expand globally as more countries embrace renewables.

But strange things can happen, of course.

GE is set for a period of upheaval. It brought in Larry Culp as chief executive in October from Danaher, and he has been tasked with leading a turnaround even if it means short-term pain. We would never rule out a sale – but we think a change last week makes this less likely.

On 30th January, GE revealed plans to simplify its renewables operations by moving its grid, solar and storage technologies into GE Renewable Energy.

This brings all of its key renewable technologies under one portfolio, where they will sit alongside GE onshore turbines; offshore turbines, including the 12MW Haliade-X platform unveiled in early 2018; hydro; and the turbine blades that it offers through LM Wind Power.

There are a couple of reasons why we see this move as strategically significant, and why we think it makes the idea of a sell-off of GE Renewable Energy far less likely.

First, the restructuring has created a $16bn business in GE Renewable Energy with 40,000 employees, up from the 23,000 workers before the move was announced. It is a great show of support in the unit under the leadership of chief executive Jerome Pecresse at a time when GE has shown that it isn’t shy of changing its management.

Now it could be that GE is looking to make this unit look even more attractive ahead of a potential sale, but we just don’t see it. To us, it appears more similar to the approach that Italian utility Enel took a few years ago when it put Enel Green Power at the heart of its strategy. Culp has also spoken positively about growth prospects in the “fast-growing renewable energy market”. Why would he turn away from that?

Second, the shift should equip GE to better take the battle to competitors including Vestas and Siemens Gamesa, which have traditionally focused on the wind sector but have both been investing in digital and hybrid technologies in the last year. The key players in wind are all looking at how better to use digital, solar and storage.

For example, Vestas has thrown its weight behind hybrid projects over the last year, and last February bought US energy analytics firm for $100m; and Siemens Gamesa has been working on its first projects combining wind, solar and storage over the last 18 months.

This restructuring shows GE Renewable Energy is going down the same route – and, given prospective growth of hybrid projects, it feels like the right way to go.

And finally, as part of this shift the company has stripped out a layer of management in its onshore wind arm, which it said would enable GE Renewable Energy teams in the Americas; Asia-Pacific; Europe and Africa; and MENA to be more competitive.

This shows that GE Renewable Energy won’t be immune from the cuts and changes in the group turnaround plan. But, in our view, the shift of grid, solar and storage into its portfolio is a show of support in the unit’s future within the GE group, while raising the pressure on the traditional GE Power division. That's the division we'd really be worried to be in.