GE Is Likely to Keep Getting Windburned on Renewables
CEO Larry Culp has vowed to fix problems with onshore turbines, but the offshore business is troublesome as well.
GE’s offshore wind business is going to continue to have problems.
Photographer: Scott Eisen/Getty Images
General Electric Co. plans to spend $600 million to try to right the ship at its wind-energy business, which is clearly the biggest drag on profits. Don’t expect this to be the last time this business will need fixing.
The overhaul, disclosed when the company announced its third-quarter results on Tuesday, is aimed mostly at the production of onshore wind turbines and is expected to result in $500 million of annualized savings. The onshore wind business has sales of about $9 billion a year and accounts for most of the losses at the renewables segment, which were $934 million in the third quarter. Unreliable wind turbines that result in warranty payments to customers are the root cause of most of the red ink. This is Chief Executive Officer Larry Culp’s main focus with the new spending.
The plan makes sense. Culp wants to produce a few standard wind models — what he calls workhorse products — that will eliminate the complexities of making too many variations for different customers. This will streamline manufacturing for GE and suppliers and provide higher quality while reducing costs. With a simplified, more reliable wind turbine, the warranty costs will drop. For those already in operation, GE is considering corrective measures to reduce the percentage of downtime into the low single digits.
This is all good on paper, but GE has been talking about blade-failure problems and addressing them with AI-enhanced inspections and preventive maintenance for almost two years. Losses since then have only deepened. Through the first nine months of this year, the renewable energy unit bled $1.8 billion. In the third quarter, the renewables unit had $500 million of higher warranty and other reserves because of wind-turbine performance.
Culp has drawn a line in the sand, saying the onshore wind business will become profitable in 2024. This leaves little margin for error because GE plans to spin out Vernova, an energy company that consists of GE’s renewables and the traditional gas-power business, that same year as part of a plan to split into three companies (the other two are aerospace and health care). The goal for profitability at renewables has already been pushed back by a year. The task of simplifying manufacturing is difficult because the technology continues to change rapidly.