GE pares Q3 renewables losses to $317m as Vernova spin-off targeted for April 2024

General Electric’s renewables business pared losses by 66% in the third quarter to $317m from a year earlier with onshore wind turning profitable, as the company announced spin-off of its GE Vernova energy and power division will occur early second quarter 2024.

CEO Larry Culp attributed the division’s improved performance to better pricing, cost reduction, improving fleet reliability, greater manufacturing efficiencies and selectivity where it does business, more reliance on a reduced number of “workhorse” products, and productivity gains.

Onshore wind is GE’s main renewables business comprising $2.43bn of quarterly revenue of $4.15bn with grid $946m, and offshore wind, hydro, and hybrid solutions the balance.

Culp said onshore wind will be profitable in the second half, although still lose money in 2023. “We expect improved performance from here,” he added on an earnings call.

To build on that positive momentum, GE said Vic Abate has been given an expanded role as CEO of the wind business, while continuing as corporate senior vice president and chief technology officer. A new wind chief financial officer is also in place.

GE is halfway through an enhancement programme to improve fleet reliability with 60% completion expected by yearend. A year ago, the company surprised analysts by taking a $500m charge partly related to resolving fleet availability issues.

Offshore wind, which is now generating revenue as deliveries of 6MW and 13MW nacelles ramp for projects in Europe and the US, will lose $1bn this year, according to Culp.

He made no effort to sugarcoat the challenges at offshore wind, which he forecast will also lose $1bn in 2024, although “cash performance will substantially improve.” In the near-term, Culp said the business has a “problematic financial profile.”

In a 10-Q filing to the Securities and Exchange Commission, GE said its offshore wind business "continues to experience pressure related to our product and project cost estimates, as well as in our delivery schedule projections. "

While GE is "deploying countermeasures to combat these pressures" and is committed to driving improvement, "the increase in production levels for our new larger turbines remains a key challenge that could result in future losses."

Culp called GE's present $6bn backlog of offshore turbine orders "tough," which it expects to largely complete over the next two or three years.

“Meanwhile, we are making operational progress with rising availability from the 800MW installed of our six-megawatt platform,” he said.

All is not gloom, however. Culp said application of “lean” operating principles and lessons learned over the last several years from making onshore wind, grid, and the conventional power business profitable provides encouragement for a brighter outlook for offshore wind.

The red ink at offshore wind is a key reason both GE Renewable Energy and Vernova will post losses in 2023.

Vernova, which in addition to renewables, includes GE’s conventional thermal power equipment, and energy transition businesses, will lose between $100m and $300m this year, according to revised company guidance.

The spin-off, which Culp said will take place before GE announces its first quarter 2024 earnings the fourth week of April, will leave both Vernova and GE, as an aerospace company, as standalone businesses trading separately on the New York Stock Exchange.

Renewable Energy lost $1.09bn in the first nine months, a 39% improvement from a year earlier. GE did not issue full-year guidance for the division, which lost $2.24bn in 2022. The business has not turned a profit since third quarter 2020.

Third quarter grid and wind turbine equipment revenues rose 14% to $4.2bn from a year earlier, while orders totaling $3.9bn increased 3%. A 40% surge in North American orders - mainly US - made up for a sharp decline internationally, although GE gave no numbers.

Greater subsidy support in Europe and particularly the US, where GE is now focusing most of its onshore wind business effort, has established multi-year demand visibility for future growth.

“Our strategy is to focus on fewer markets, pivoting more toward north America, where GE is the market leader,” he said.

With the Vernova spin-off in sight, Culp sought to project wind and renewables more broadly as a solid business with good growth prospects.

“Customers continue to invest in the energy transition, driving meaningful demand for our products and services,” said Culp, noting what he calls "incredibly healthy demand despite the interest rate environment."

“We are really pleased overall with renewables,” he added.