GE Renewable Energy posted a $666m loss for 2019 but orders rose, as the US group navigated headwinds including tariffs and pricing pressures in the onshore wind market while looking to the future with its key new turbine models – the Haliade-X offshore and Cypress on land.
The renewables arm of US industrial giant GE reported full-year orders of $16.9bn, up 10% year-on-year, with revenues 7% higher at $15.3bn.
The full-year deficit – compared to a $292m profit in 2018 – came as GE Renewable Energy reported record onshore wind deliveries of 1,533 turbines and repower kits in last year’s final quarter, as developers raced to finish projects in time to extract full value from US tax incentives.
While onshore wind deliveries boomed in the last quarter, orders in the segment were flat. GE said new order pricing in onshore wind “continues to stabilise”.
Total GE Renewable Energy orders were 11% down in Q4 “due to the non-repeat of large deals in Hydro and Grid Solutions”.
A $197m fourth-quarter loss for GE Renewable Energy was “driven by execution issues, particularly in Grid; price headwinds; tariffs; and increased R&D investment; partially offset by positive volume”.
GE said the renewables business “delivered a steep volume ramp in onshore wind to meet customer demand despite mixed performance overall”.
‘We have clear work to do’
Renewable Energy’s weak financial performance and the pressing need to drive change to achieve better results is a key challenge facing the company this year, chief executive Lawrence Culp said on a fourth quarter earnings conference call, adding there are no easy fixes.
“Renewables are a priority and key operational focus for the team. We have clear work to do. The journey to improve earnings and cash at renewables will take time,” he said, telling analysts that the key performance metric of free cash – money generated from operations after bills are paid and investments – will likely decrease there in 2020.
Culp provided few specifics on how GE will achieve the turnaround, telling analysts he and other senior managers will brief them in more detail on a 4 March investor call.
After taking over as boss of the financially ailing conglomerate in October 2018, Culp vowed to strengthen Renewable Energy which he identified as one of three core industrial businesses – Aviation and Power are the others – that will underpin its growth this decade.
The journey to improve earnings and cash at renewables will take time.
He said he was last week in Paris, where they are based, for a thorough operating review of the onshore wind, offshore wind, hydro and grid businesses. They “reinforced my convictions that we can improve our performance in renewables”.
Onshore wind made money in 2019, with the last three quarters profitable. Double-digit growth is very healthy but “we need to see that convert more directly into margins and cash”, said Culp. GE sees strength for onshore in international markets going forward as it continues to diversify from the US where it is the top supplier.
One headwind this year will be in the US, where GE is ramping turbine production because of the production tax credit (PTC), the wind industry’s main federal incentive. While the OEM will likely continue gaining share there, the surge in delivery volume will exceed inbound progress revenue collections from project developers and this will add cost pressure.
The company is optimistic that its Cypress onshore turbine will help meet global demand for more powerful machines on land.
Offshore wind remains an earnings and cash drag but in a positive sense as GE builds a global presence in anticipation of strong sector growth this decade and prepares commercial launch for the 12MW Haliade-X – the world’s largest.
“We are still in investment mode. We think with Haliade-X we have an opportunity to bring an exciting technology to market in 2021 that will help improve our overall performance,” said Culp.
The Haliade-X received huge boosts to its prospects in the latter part of 2019 with orders to equip the 3.6GW Dogger Bank project in the UK, the world's biggest offshore wind project, and 1.2GW of US developments in Maryland and New Jersey.
Other reasons for cheer for the future included a rare 1GW+ order spree for a western OEM in the Chinese onshore market.
The hydro and grid business is a major underperformer and loss-leader, in part because of how contracts were underwritten by Alstom, which GE acquired last decade. The focus is on daily execution at factories and in field service organisations, improving project execution and contract underwriting framework, said Culp.