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GE lays off more as tit for tat with French gets out of hand

During 2016 and 2017 researchers in the energy market, totally oblivious to the rise of the renewables sector, and approach of parity pricing of both solar and wind with gas turbines, continued to predict a rosy future for gas (the substance) and gas, the turbine market, especially those used for generating electricity.

Now we are deep into 2019 and those shortsighted forecasters have changed their numbers, and instead of continuing 4% plus CAGR rises for gas, they are forecasting gloom and doom, at the end of 2017 just one of the forecasters, GlobalData said this market would decline by 26% to $6.83bn in the five years to 2022, an average of around 5%.

The issue is twofold, too much natural gas, and a consequent fall in its price; but more importantly too much success in installing gas turbines and an overcapacity, due to the warm winters and early springs which global warming brings and being too expensive when compared to wind and solar.

As a result, all three of the leading companies in the power generation equipment sector, GE, Siemens and Mitsubishi Hitachi Power Systems (MHPS), have all had to adjust to the new realities  of the market – restructuring to reduce costs and cutting production. There is more of this, not less on the near horizon.

If back in 2015 GE had not listened to the all of those forecasts which said that natural gas was a continuingly growing gravy train, then perhaps it would not have chosen to buy Alstom in France. But it did not just buy Alstom, it was so cocky that its business was going onwards and upwards that it promised the French government new jobs, at least 1,000 and got fined in February for producing none of them.

This is one of our bugbears at Rethink. Forecasts that are only linear in that they add the same amount or more of business each year, and forecasts that only ever go up, never down. Even in the market for renewables where a rise is always likely, you have to take account of political set backs and things like voters spoiling the outcome and putting someone in power who may not be quite so impressed with renewables.

When GE acquired Alstom, it didn’t only get the power generation gas assets, with 1,500 GW of installed base, a 50% jump in its core business, but it acquired GE’s deep renewables portfolios, and improved thermal power plant capability and skills to improve electrical grid management, and financial planning skills and big data analytics tools. It looked like a win-win. Except 90% of that business was doomed.

Its boast at the time was that GE would be one of the only companies in the world with the ability to serve customers across the total plant —from water systems, boilers, Heat Recovery steam Generators (HRSGs), steam and gas turbines, to controls, grid management and of course, some renewable technology.

But most of those things relied on gas remaining king, and renewables being subsidized. Once wind began to close in on the price of gas turbines GE should have accelerated down the price curve aggressively and eaten up much of the available business in the wind sector – shifting staff from gas to wind as it went, through retraining. It would not have made much profit in the transitioning time, but then again it never did make much money in that time.

There were a number of things getting in the way of this. The US market is very different, and gas remains at the forefront of home and industrial heat, and electrical generation. It has to be asked will this remain the same game in a US market with a democrat as the president? Probably not. Which is why companies like GE spend a lot of time with their head in the sand, buying forecasts which tell them it’s all going to be fine, and spend more time getting the right president elected, than on creating an agile renewables strategy.

Now it is in a tit for tat with the French Government. The lack of new jobs, meant a fine, and perhaps it was that which led to GE pulling out of the 3 wind contracts at Eolien Maritime France, where it will honor the first slice and then leave the pickings for Siemens Gamesa as was. That may have been because the French government wanted to play hardball with the energy strikes price so that GE gave up on a huge piece of business simply because it was not profitable enough – although that’s life in renewables. Part of the reason for this were also US imposed tariffs. There’s that President which fossil fuel enthusiasts everywhere wanted in power, but which has come home to bite GE.

But also the French may have wanted to oust a US firm which was not honoring its employment promises. In turn now GE has said it will cut 1,044 mostly French jobs in Europe. Its performance in renewables after that was lamentable.  And the US management is not going to listen to a French arm which says gas is disappearing, when at home it clearly isn’t.

This is why GE finds its huge R&D spend on developing the new Haliade-X 12 MW offshore wind turbine, comes just at a time when it is giving up wind projects and having to lay off another 1,000 staff. GE has said it expects a production ramp for 2019 deliveries – we shall see, but we know it has won some friends with this product.

Earlier in the month it was the turn of Siemens Gamesa to find itself the victim of fancy footwork, merged with its sister Siemens Gas and Power, the exact same shape as GE Power and pushed into a separate public listing. Tough to see GE trying the same trick.

Now the French Government is saying it will fight these GE cuts on its home soil, which go against agreements and therefore no doubt involve more losses such as past tax incentives it will have to pay back, and it will once again punish GE for not abiding by the promises it was unwise to offer in 2015.

The cuts will be made mainly in Belfort, eastern France, the European headquarters for GE Energy, and in the Paris region. Overall, GE employs 4,000 people in Belfort, around 1,900 in its gas turbine operations where it originally cut 6,500 jobs upon doing the deal and then two years later another 12,000.

Meanwhile on its website it will not be missed that GE has just switched on an advanced 9E gas turbine at the Iraqi Ministry of Electricity’s (MoE) Al Qudus Power Plant adding 125 MW to the 1,125 MW it has already supplied, but where it will have to take on several hundred Iraqis, not French people.

This is a company whose woes are not over, and for as long as the senior management prefers gas business to renewables, they won’t be.

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