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The rotating diameter of the largest wind turbines can be longer than two football fields.
Sebastian Salome-Gomis / AFP via Getty Images
The gusts of wind that stir the grass on a hot summer day, a result of Earth’s uneven heating and its rotation, are a key to reducing humanity’s dependence on fossil fuels. Air may be important for
general Electric
Stocks Too, If the Company and the World Make the Right Moves
“We see a clear path to adding 150,200 gigawatts of onshore wind to the US over the next 10 years,” said Scott Strzyk, CEO of GE Vernova, at General Electric’s 2023 Investor Day held in Cincinnati on Thursday. “This is relative to 88 gigawatts over the past 10 years.”
GE Vernova comprises the GE (ticker: GE) gas power, wind power, and electricity grid businesses. It is scheduled to close in early 2024.
Wind power is growing in the US and it is taking up a large share of global electricity generation capacity. If some of the issues can be ironed out then this could be a winner for Vernova.
GE says it’s about 8,000 GW of installed power generation capacity in the world, generating about 28,000 terawatt hours of electricity a year.
in the US there are about 1,100 GW Capacity to generate about 4,000 terawatt hours of electricity in a year. The US accounts for about 15% of all electricity production globally. One gigawatt of wind capacity can power about 300,000 homes in a year.
Global production is expected to reach approximately 50,000 gigawatt hours by 2040. This is an average annual growth rate of about 3% to 4%. It will be driven by everything from population growth to rising living standards and the electrification of personal transportation.
Tesla
(TSLA).
GE expects onshore wind turbines to account for about 50% of total growth, taking onshore wind from about 7% of current global electricity generation to about 25% by 2040.
Offshore wind is also increasing, but from a much smaller base. It is still more expensive to generate than onshore wind and other methods of power generation. Today, offshore wind The production accounts for about 1% of global electricity production and could reach 5% by 2040 based on international energy data. Baron’s Estimate.
Onshore wind matters most to GE and GE stock. The company believes that with approximately 54,000 wind turbines installed in more than 50 countries, it is well-positioned to benefit from growth. GE is the No. 1 provider of turbines for onshore applications in the US. Its total wind business projects sales of approximately $13 billion in 2022.
there is a catch. The business is not profitable, reporting operating losses of $2.2 billion this past year. All this development won’t matter if GE doesn’t figure out how to make money selling turbines.
There are many reasons for the losses. Wind turbines have become increasingly difficult to manufacture recently due to inflation. Turbines could be ordered years in advance, so when labor and materials became more expensive, producers were caught offside on contracts.
Changes in government policies also affect this sector. Production and investment incentives are applied and then eliminated, creating a boom and bust cycle for orders. This makes it difficult to run an efficient manufacturing system.
The recently passed Inflation Reduction Act includes incentives for wind power which will benefit the wind sector. GE is trying to control what it can by reducing variation in its turbines and producing more standardized products.
Down the road, beyond 2024, Strazik sees onshore wind power operating profit margins perhaps reaching high-single-digit levels of 8% or 9%. The Inflation Reduction Act and the $500 million in annual costs that have put GE out of business should help achieve that.
“It’s there for the taking,” Strazik told Baron’s,
He has only one concern. “One of the challenges is adding that growth to electricity generation,” he said.
More renewables means more electricity has to be transported over longer distances. Offshore wind turbines, for example, can be 100 miles or more offshore. Building the necessary transmission and distribution capacity, and obtaining the necessary government permission to do so, can hold back the renewable energy transition.
The time to build a generating asset is less than the time to connect that asset to the grid. “A lot of us in the industry are concerned,” Strazik said.
Fortunately for GE, its power grid business makes solutions for grid connections. It’s another reason why Strzyk feels good about Vernova’s future.
Still, Vernova doesn’t expect full-year profit in 2023. ge has Forecast Operating losses of approximately $200 million to $600 million in 2023. The upbeat forecast for 2024 could help usher in a Vernova spinoff early next year.
For now, investors appear optimistic. GE stock, which includes GE’s aerospace and power businesses, was up about 39% so far this year, as of the close of trading on Friday.
S&P 500
was up about 0.6%.
Dow Jones Industrial Average
was 3.7% less.
Write to Al Root at [email protected]