Is GE’s Expansion In Wind Energy A Step In The Right Direction?

by Trefis Team
General Electric
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With governments the world over pushing for renewable energy production, wind energy is among the fastest-growing energy sources globally. General Electric (NYSE: GE) has a very small market share in renewable energy as of now, but its renewable business has seen strong growth in the last few years. GE acquisition of Alstom’s energy business in 2015 helped improve its market share in the last few years. However, despite growing revenues, GE’s renewable energy margins are declining. This can be attributed to competitive pressure and lower margins on equipment as a trade-off to greater services revenues in the coming years. We do not expect that growth in the renewable energy segment will have a significant impact on GE’s overall earnings in the near term. Still, this is certainly a step in the right direction, as its growing presence in emerging markets and increasing services revenues will bolster its position in the long run.

Acquisitions To Drive GE’s Renewable Energy Growth

Among the renewable energy supply in the U.S., wind is the fastest growing segment and is expected to surpass hydropower by 2018. Although the U.S. is the largest market for renewable energy equipment, other emerging economies are catching up fast. GE’s renewable energy revenues grew about 44% in 2016, which approximates to about 7,000MW of installed capacity. GE acquired Alstom’s Energy division in 2015, which helped its onshore and offshore wind businesses grow immensely in 2016. GE is looking to gain share in the fast-growing market, as evident from the fact that about 89% of its renewable energy revenues come from onshore wind equipment sales. GE’s acquisition of LM Wind Power was cleared by the European Union recently, and will bolster GE’s Wind Energy business.

Declining Renewable Energy Margins A Concern For GE?

Despite high growth in GE’s renewable segment in the last couple of years, we don’t expect any significant changes in earnings, as renewable energy contributed just around 7% of GE’s overall sales in 2016. Additionally, although GE’s renewable energy revenues have increased in the last few years, its margins have declined from 10.8% in 2014 to 6.4% in 2016. This decline can be attributed to continued competitive pressure from other wind turbine producers, as well as from other energy sources and competitive pricing.

However, we believe that GE has a lot of untapped potential in this field, as developing markets such as China and India are growing their renewable energy capacity at a rapid pace and GE’s existing supplier relationships in these territories should provide the company an advantage. Accordingly, we expect that GE’s emphasis on the space may not mean much in the short term but is a good step over the long run.

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