GE Renewable Energy will “struggle to return from losses”, stymied by exposure to a shrunken post-PTC US onshore wind market and an offshore turbine that could take years to deliver returns, claimed analysts at JP Morgan.
The renewables unit of industrial giant GE is “paying the price” for “a myopic strategic approach” that failed to “exploit their strengths to the fullest and lacked the will to invest for the future at the expense of the present”, according to a downbeat note on the business’s prospects from the investment bank’s North America Equity Research team.
The JP Morgan analysts reckon GE Renewable Energy is over-optimistic for the prospects for its onshore wind business, given the ramp-down expected in the US market as the market-fuelling production tax credit (PTC) incentive disappears after 2021.
“The bottom line is that with their home market, which represents >50% of segment volume, appearing to be very challenged, we struggle to see how 2021 is better than 2019 or 2020,” said the report. When it comes to looking beyond the US for renewed growth, the JP Morgan analysts reckon key competitors Vestas and Siemens Gamesa are “inherently more global and lend themselves to being more profitable given more critical mass, so whatever volume GE does get will likely be weaker margin.”
The bank’s research note is also skeptical over GE’s bid to “leap-frog” the market with the 12MW Haliade-X offshore wind turbine, and a “$400m development budget that’s a key headwind on [GE’s] own near term”.
“The problem is that both Vestas [now MHI Vestas] and [Siemens Gamesa] have been developing a broad portfolio and honing their execution capabilities for over a decade”, said the analysts, claiming “risk around installation and start up performance is a big differentiator”.
The JP Morgan report added that it’s “notable” that the first Haliade-X prototype is being tested onshore. “The key risks that we see are not necessarily that the product works but around the installation/risk of execution, which is something that will likely be embedded in the price of initial deals.
“In the end, like almost everything with GE and big ticket capital goods products, the initial units are likely to be materially dilutive, at a time when there is no air cover from the core US onshore business.”
The JP Morgan report – entitled Gone With The Wind: Renewables Long Term Outlook Is Impaired – cites input from GE’s competitors but not from GE Renewable Energy itself.
GE Renewable Energy posted a $219m loss for the first quarter of 2019, a result the OEM put down to a variety of factors ranging from continuing price pressures in the US market to various legacy issues with projects.
But the US group has previously insisted it’s well placed to compete in the future global market, pointing to a major onshore product launch with the 5MW Cypress platform, as well as the Haliade-X, the strength added by its LM Wind Power acquisition, and increasing opportunities in the repowering and service markets in the US elsewhere.
GE has also seen recent boosts with news that Vattenfall is interested in deploying the Haliade-X at projects off Europe, and a potential foothold in China for the 12MW turbine.
CEO Larry Culp – who is making a beefed-up GE Renewable Energy one of the key pillars of a ‘new-GE’ along with Power and Aviation – has said 2019 is a “re-set year” for the conglomerate, but the longer-term prospects are sound.