General Electric made a massive losing bet on fossil assets that “misjudged the pace of the energy transition to renewables and cost its shareholders billions”, according to a financial research group that claims other corporate giants risk the same costly error.
A series of fossil-based deals – including 2015’s “ill-advised and ill-timed” acquisition of Alstom’s mainly thermal power business – missed the potential for the growth of wind and solar and their steep cost declines to cause havoc to GE's strategy, said the Institute for Energy Economics and Financial Analysis (IEEFA).
Within two years of the $10bn-plus deal – which also included Alstom’s relatively small wind power operations – the effect of a global flight from coal and collapse in the market for gas turbines meant GE’s biggest ever acquisition quickly turned sour, said a new note from the think-tank.
“In 2018, GE booked a $23bn write-down for the goodwill balance in its Power division, more than the entire investment in Alstom just three years after the acquisition was completed.”
“GE lost investors an almost unprecedented and simply staggering $193bn in just three years to 2018, 74% of its market capitalisation,” said IEEFA director of energy finance studies Tim Buckley.
The root of the problem was that “GE assumed wrongly that demand for natural gas and coal would continue to track global economic growth. The company did not recognise the ever-lowering costs of renewable technologies and the increased take-up of energy efficiency, which decoupled energy demand from economic activity,” the IEEFA claimed.
The Ohio-based energy think-tank – which receives funding from the Rockefeller Family Fund, among others – claimed major GE investors should have prevented the group’s “epic failure of corporate governance”, singling out US investment giant BlackRock. “Unless investors want to cop a repeat hiding similar to GE’s, BlackRock needs to urgently divest from fossil fuels and invest in zero-emission industries of the future,” said Buckley.
GE has been contacted by Recharge to comment on the IEEFA note. The company is currently undergoing a major restructuring under recently-installed CEO Larry Culp.
Last year GE announced plans to dramatically reshape the company, aiming to sell off a range of businesses including healthcare, transportation and oil & gas, while focusing on three core industrial pillars: Power, Renewable Energy and Aviation.
GE Renewable Energy was beefed-up earlier in 2019, with the addition of grid, solar and energy storage to its remit.
The fledgling offshore wind business acquired with Alstom is now a central plank in GE’s renewables strategy, based around the 12MW Haliade-X that is the world’s largest commercially-announced wind turbine.