How Significant Is Renewable Energy Business For GE?

Almost all the major economies are pushing for clean energy sources due to the global environmental concerns such as global warming, pollution and ozone layer depletion. At the Paris summit in 2015, leaders of 196 countries agreed to reduce their emissions significantly in the following years. This will require usage of clean energy sources such as wind and solar and we believe GE stands to gain from this move and will look to capitalize on this opportunity, especially in China, which accounts for 40% of global renewable capacity growth. China requires almost one-third of cumulative new investment in the next five years. In Q3’16, the renewable energy segment of General Electric (NYSE: GE) contributed about 9.5% to its overall revenues. However, this figure may grow to 15% in the next five to six years if GE grabs 16% global market share by 2020.

How Big is the Global Renewable Energy Market?

The renewable energy market consists of wind turbines, solar energy and hydropower generation. We will restrict our scope to global wind turbines and hydro turbines industry for this article. Global wind turbine market was estimated to be about $53 billion in 2015, with global hydraulic turbine market reaching nearly $15 billion. Both the markets have grown at mid-single digit growth rate for the past 5 years, driven by global environmental concerns that are pushing countries towards renewable energy sources.

China has outpaced other countries in renewable energy installations recently. In wind power itself, China accounted for more than 45% of worldwide installed capacity in 2014. China’s power generation needs, pollution concerns, favorable policies and ambitious targets are all driving this change. We believe this will continue to be the case in the foreseeable future.

Renewable energy industry to grow amid Global Climate summit

The global wind turbine and hydro turbine markets are forecasted to grow at a CAGR of about 3% for the next 5 years. Key drivers are growing demand from developing countries and and aggressive European Union (EU) targets for wind power additions out to 2020.

The European Union has set a target of 20% final energy consumption from renewable sources by 2020. The progress of this target was reviewed in September 2015 and this is expected to result in increased demand for wind power installations.  Additionally, the UN climate change conference (COP 21), which was held in Paris in November 2015, calls for zero net anthropogenic greenhouse gas emissions to be reached during the second half of the 21st century. This will significantly increase the use of renewable energy production in the participating countries.

What does this mean for GE?

GE Renewable Energy Equipment market share has fluctuated in last five years and stood at 8.3% in 2015. We currently estimate GE’s renewable energy global market to reach 14% in the next 5 years due to GE’s acquisition of the majority of Alstom SA’s energy business for $13.5 billion in November 2015. This is the company’s largest industrial investment so far and is expected to significantly expand its footprint in renewable energy business.

Renewable energy segment contributed about 9.5% to GE’s overall revenues in Q3’16. However, if global renewable energy market grows according to our estimates, and GE is able to penetrate into key markets such as China and India, GE renewable energy’s revenue contribution to its overall revenues may reach as high as 15% in the next five years. This assumes that GE grabs about 16% market share by 2020.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of General Electric

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