GE is building the power grid of the future. Here’s what we found on a trip.

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NISKAYUNA, N. Y–In

General Electric
‘s

sprawling research center here, you will find two Nobel prizes won by

GE

researchers, Thomas Edison’s desk and current research that can help create the power grid of the future.

The research center in New York state works on everything from electric flight to the electric grid. The grid is where some of the centre’s most interesting technologies can have an immediate impact on companies.

It starts with transformers. Electrical power is transmitted at high voltages to maximize efficiency. Voltage coming out of a power station can easily be north of 100,000 volts. A transformer – essentially a large box with iron, copper and a little oil – steps the voltage up or down.

The high voltage entering another part of the system, such as a substation, can be stepped down by a large transformer to a few thousand volts for transmission to homes. The much smaller transformers that hum on telephone poles take that voltage and step it down to levels consumers are familiar with—about 240 volts.

GE showed Barron’s what it calls a flexible transformer It’s a huge piece of electrical equipment – the first of its kind – that can be bought by utilities.

The flexible transformer comes with a “knob” that allows operators to change the transformer’s impedance – a technical term that partly describes electrical resistance. Variable impedance will be useful as renewable power generation increases. The power output from solar panels can vary minute by minute. Having a flexible transformer can make it easier to manage power transmission from such a source.

The flexibility also comes in how this new transformer can be distributed. It’s kind of like a universal spare part for tools. Of course, tools must have spare transformers in case one goes down. Transformers can take a year to build. Nobody wants a blackout for a year. Moreover, it turns out that these massive transformers are essentially tailor-made. They are built for a specific location and configuration.

The flexible transformer provides a major advantage for the utility industry. Instead of having 10 backups for 10 substations with 10 different voltage ratios, now one or maybe two backup transformers can do the job.

There are other advantages and improvements represented by the flexible transformer. It’s smarter. It can react better to various conditions such as heat, lightning and storms, which helps the network to become more robust. When the power goes out these days, it is often because a transformer fails. GE says the new generation of transformers will fail less often.

GE scientists tell an engineering joke that if the inventors of the transformer came back today, they would recognize the technology. Not much has changed. (Engineers love that joke.)

That cannot remain the case forever, as the grid becomes more complex with the proliferation of generating sources such as wind, solar and battery backup power and all the solar roofs people are installing.

The grid of the future will require better, more flexible hardware. It will also require software to handle all the increasing complexity. GE scientists are also working on it.

GE has a mini-grid of the future operating on campus. Solar panels provide electricity and charge huge batteries that provide energy when the sun is not shining. All of this is managed by GE hardware and software.

All of this R&D will benefit GE’s upcoming Vernova business. GE is breaking up into three companies: One dedicated to aviation, another to healthcare and the remaining business, Vernova, will house GE’s gas power, renewable energy along with GE’s digital and web technology businesses.

Essentially, Vernova will contain the original power generation business that goes all the way back to Thomas Edison. These days, GE makes everything from transformers to wind turbines. It even has a nuclear operation. GE products are involved in approximately one-third of worldwide electricity generation.

Vernova is the business that investors have the most difficulty valuing. GE is one of the leading manufacturers of gas turbines, the giant engines that use natural gas to produce electricity. If your local utility needs power fast, it’s likely to turn on a gas turbine to get the juice.

Investors wonder whether natural gas-powered electricity generation will decline as governments try to cut out fossil fuels. GE’s renewable business isn’t making money right now. And its digital and online businesses are not reported as separate segments.

Barron’s believes Vernova could be worth between 25 and 30 billion dollars. So based on valuations for comparable companies such as e.g

Vestas Wind Systems

(VWS. Denmark) and

Mitsubishi Heavy Industries

(7011. Japan), which also makes gas turbines for power generation.

It is also based on a belief that gas turbines will be with the world for a generation to come. Renewable transitions cannot happen overnight, and gas turbines can also burn hydrogen gas one day.

Barron’s the valuation is probably higher than the business will trade for immediately after it becomes independent in 2024. Investor sentiment is quite low right now.

But things can turn around. And the need to invest in the network, make it smarter with software and more flexible with new hardware, represents a hidden upside for the upcoming Vernova business.

How big remains to be seen, but electric power is not going away.

Write to Al Root at allen.root@dowjones.com