GE's multi-billion dollar error | News | Eco-Business

L a week, General Electric announced that it would close a gas plant in California 20 years before the plan. The Inland Empire Energy Center in California, the company said, was "uneconomical to support" in part due to outdated technology.

But California's aggressive clean energy targets and commitment to using renewable energy were also a decisive determinant of GE's decision to take the plant off-line. In addition, the closure is not just a hiccup in GE's energy plans, but is just a small slice of the American giant's stumbling on pure energy in recent years.

The company has lost hundreds of billions of dollars of investor funds in just two years as the shares have declined. And a new report claims the decline is largely because the company failed to be aware of the increase in clean energy.

"You don't necessarily think of GE as an energy company," said Kathy Hipple, financial analyst at the Department of Energy Economy and Financial Analysis (IEFA), who produced the report. "But every company on the planet will be affected by climate change."

Founded in the late 1[ads1]880s, General Electric was part of the 12 companies offered at the Dow Jones Industrial Average at the formation in 1896. While the name GE can convey images of light bulbs and household appliances to most Americans. The massive multinational conglomerate is a key player in several different industries.

GE now owns ten subsidiaries, including companies that handle aviation technology, healthcare and financial services. Energy production is divided into two units: GE Power, a gas-focused division and GE Renewables, a much smaller company with a focus on primary wind technology.

GE's energy problems began in 2014 when the company announced it would buy French gas turbine company Alstom for $ 13 billion. The timing of the purchase coincided with a seismic shift in climate policy. The acquisition was completed in November 2015, just one month before hundreds of people gathered in Paris to ratify the landmark climate agreement in December 2015.

"It was as if Bayer bought Monsanto just as the bulk of the class came through," says Ion Yadigaroglu, managing partner of Capricorn Investment Group, a clean energy investment company.

GE's purchase of Alstom also coincided with a global decline in renewable energy prices, reducing demand for gas turbines soon after GE had made its costly choice. In 2016, solar costs fell by 69 percent, which put "well in the cost of fossil fuels", according to the International Renewable Energy Agency – while the cost of land-based wind fell 20 percent in the same time period.

Since then, costs have only declined again. In November, the financial advisory firm Lazard reported that the construction and operation of new renewable energy plants have It has become, in some cases, cheaper than using older conventional plants.

"You are in a situation where the market for one of your main products – Literally the bottom falls out of it," said Hipple. She explained that the tools were cautious about spending millions on gas turbines that would take years or decades to pay.

"Tools and power plants said," We don't have to do things now. We just have to wait and see, "she said. "The price of renewables is dropping – why the lock-in? Why is it locked in now? Let's keep an eye on natural gas prices. Let's keep an eye on renewable prices. We don't have to act quickly."

According to the IEEFA report, GE lost investors a staggering $ 193 billion – 74 percent of market value – between 2016 and 2018. GE Power was a major driver of this loss as it began to bluff money, moving from $ 4 billion in profits in 2016 to losing more than 800 million dollars in 2018. The company's other subsidiaries experienced only slight fluctuations in profits during this time.

Last year, GE was fired by Dow after 110 years on the index after the shares died. GE was the last remaining original member and a remnant from a time when the US economy was driven by industrial giants instead of big tech. "The company was often at the center of American capitalism" over the past century, wrote in the New York Times last summer about the change in Dow, and noted the removal as a "new blow" to a company like "reeling" from challenges to its power operations. "As recently as the 1990s, GE was sometimes the most valuable US company of market value," Times reported.

GE's case, of course, cannot be entirely attributed to the lack of foresight on clean energy. The well-known leadership is fought in the company – its long-term CEO Jeff Immelt was forced to retire in 2017 and his successor was removed by the board a year later – in addition to numerous legal issues, significant investor trust has broken. And GE has a significant investment in renewable energy sources: The wind turbine business is the third largest in the world and has earned hundreds of millions of dollars in profits over the past two years.

The Alstom acquisition was praised by many investors when the acquisition was completed in 2015, with the New York Times pledging the agreement to help strengthen GE's position in emerging markets such as China and India, where coal-fired air pollution is a threat to public health. Analysts now say GE Paid too much to acquire the company.

Experts agree that GE at best suffers from poor timing and in the worst case, the price pays for a significant lack of foresight. The Alstom acquisition and the later matches in the Power department were the key to bringing the rest of the company down. News reports about GE's decline and the company's grim future point to the Alstom acquisition as one of the main drivers in its shrinking stock prices. A Fortune profile of Immelt painted the Alstom agreement as a key example of the CEO's often poorly recommended tendency to "pay the top dollar to acquire the hot companies at the moment."

And in a July interview with Bloomberg, JP Morgan Analyst Stephen Tusa said GE's power business was "in secular decline," meaning it is threatened by long-term market trends. Tusa predicted GE's power business in the future "could be worse, not better than today."

This story was published with permission from Nexus Media. Read the full story.