Thursday, November 10, 2005

GE Energy head eyes wind energy to power growth

GE Energy head eyes wind energy to power growth
Thu Nov 10, 2005 12:51 PM ET
By Timothy Gardner

NEW YORK (Reuters) - Wind power and other energy alternatives present significant growth opportunities for General Electric Co.'s (GE.N: Quote, Profile, Research) energy unit in the face of high oil and gas prices, the head of GE Energy said on Thursday.

GE Energy, a $17 billion unit of the industrial, finance and media conglomerate, forecasts revenue from wind energy to grow by 50 percent to $3 billion in 2006.

The wind business has already grown ten-fold since GE bought the business from Enron in 2002.

"Right now we're pretty shocked by demand for wind," John Krenicki, president and CEO of GE Energy, told Reuters in an interview. In 2007, GE targets sales to grow to $4 billion and increase at a rate of more than 10 percent annually through the end of the decade, he said.

The wind segment represents one of the fastest-growing pockets of GE's energy business, which has seen profits finally rebound after a 2-1/2-year earnings slide triggered by a downturn in the wholesale electricity market.

GE forecasts operating profit at the energy unit -- which accounts for more than 10 percent of GE's total revenue -- to grow by 10 to 15 percent in 2006 from an estimated $2.7 billion this year.

It targets revenue to rise more than 10 percent next year.

GE Energy builds wind turbines at its plant in South Carolina where it used to concentrate on making gas turbines. As a result, it can increase wind manufacturing throughout the decade with little or no added capital costs, Krenicki said.

The U.S. wind energy business is enjoying the benefits of federal energy legislation passed this summer which extended a production tax credit for two years.

Krenicki, who engineered a drastic earnings turnaround in his previous job as the head of GE's plastics business, forecasts that by the end of the decade wind power may be able to compete on its own without tax incentives, thanks to lower costs from manufacturing improvements.

In gusty parts of the country, such as West Texas, wind power has become competitive and sometimes cheaper than power from natural gas.

Globally, GE Energy is also positioned to take advantage of the interest in a clean energy that releases virtually no greenhouse gases. GE recently signed the biggest wind turbine contract in China.


Krenicki said that given the volatility of energy prices, GE's customers want a broad portfolio of generating assets, including nuclear, natural gas turbines and clean coal units called integrated gasification combined cycle (IGCC).

"Really our strategy is to be a leader in each one of those," said Krenicki, who sees the Middle East and Africa as huge markets for natural gas turbines.

GE is now selling 20 percent of its turbines to Nigeria, while Middle Eastern countries such as Saudi Arabia need turbines for electricity and, increasingly, for desalinating sea water into drinking water.

About two-thirds of turbine demand in the Middle East should come from electricity needs and the rest going to desalinization.

GE Energy expects sales of IGCC, which offers utilities a cheaper way to capture and sequester greenhouse gases than traditional pulverized coal units, could be a $75 billion opportunity from 2010 to 2020.

That market could grow even larger to over $100 billion if the United States, which dropped out of the Kyoto Protocol, ever requires carbon constraints, he said. U.S. firms American Electric Power (AEP.N: Quote, Profile, Research) and Cinergy (CIN.N: Quote, Profile, Research) are planning IGCC units, but are not installing carbon capturing until required to do so.

As GE aims to diversify and expand its energy portfolio, Krenicki sees ample opportunity to drive profitability gains by shaving costs with more efficient use of materials and leveraging its size to lower expenses.

"There is so much more we can extract from them," said Krenicki. "There is infinite room for improvement."

(Additional reporting by Daisuke Wakabayashi in Boston)