GE chief Culp: US industrial giant 'well positioned but must make better margins'

US industrial conglomerate General Electric’s onshore wind business is experiencing “remarkable growth” but needs to deliver better margins, while profitable revenues remain several years away for its top-of-line offshore machine, the 12MW Haliade-X turbine, according to CEO Larry Culp.

GE is “well-positioned” to capture onshore wind growth, particularly in its home market – the world’s second largest after China – where the OEM has pulled ahead of arch-rival Vestas by about 12 percentage points.

“We just need to deliver better margins. That entails capturing value up front when we write new orders. We need to be aggressive when we think about cost in that business,” Culp told a Bernstein brokerage investor conference today (28 May).

“Not only in terms of what we procure but also how we support the projects, the installations in the field.”

“A host of things we’re doing there that I think will allow the onshore wind business to be a stronger performer in line with competition.”

Getting onshore wind to perform better is a key for GE Renewable Energy to regain positive cash flows and become an attractive margin business over time.

The first outsider to become CEO of GE, Culp took over the debt-laden and loss-making American industrial icon in October 2018 and embarked on what he said would be a multiyear financial turnaround.

His strategic vision for a slimmer, financially strong GE includes strengthening Renewable Energy which he identified as one of three core industrial businesses – Aviation and Power are the others – that will underpin its growth this decade.

Renewables lost $302m in the first quarter, dragged down by grid and hydro businesses that have hemorrhaged deficits since GE acquired them from Alstom last decade. Both are turnarounds “in need of work”, Culp said.

GE this quarter expects to deliver 1,100 onshore turbines and re-power kit orders globally, up from 950 in the first quarter, led by a 20% surge in North America, mainly the US.

Project developers there have been racing to complete construction of projects this year and in 2021 to qualify them for the federal production tax credit (PTC) at full value ($24/MWh over 10 years) or at 80%, $19.20/MWh, respectively.

To start construction, most did so by “incurring” at least 5% of the project cost by taking delivery or title to equipment, usually turbines. This resulted in a flood of orders for GE, as well as Vestas and Siemens Gamesa. All three have nacelle and blade factories in the US.

This stretched the supply chain in North America and has been made more difficult by the Covid-19 outbreak. Last month, GE was forced to quarantine all 900 employees for 14 days at a blade plant in North Dakota owned by subsidiary LM Wind Power.

“We make many of our own blades to go with the turbines. We’ve been working through supply challenges given we’re in some geographies that have been particularly pressured of late,” he said.

Some of GE’s wind factories are at 50% capacity and coming back online but did not specify which of the facilities he was referring to. The vendor’s large nacelle manufacturing site is in Pensacola, Florida.

Supply chain pressures should ease after President Donald Trump’s administration on Wednesday gave developers an extra year to complete projects that began construction in 2016 and 2017 scheduled to come online this year and next.

In terms of new US projects, Culp said GE has not seen much of a slowdown because of Covid-19. “A little bit of noise here and there but demand and plans remain strong,” he added.

Turning to offshore wind, Culp called the Haliade-X turbine a sizeable research and development wager. “That’s a bet GE can and should be making,” he said, having noted earlier this year that the company wants to be a major player in the fast-growing global offshore market.

“It is going to take several years for those indications of interest to become profitable revenues,” Culp cautioned.