Sunday, November 12, 2017

Changing energy market disrupts pioneers GE and Siemens

From the Financial Times:

As the costs of solar and wind power have plunged, making them cheaper than fossil fuel generation in many parts of the world, the traditional model of the industry has changed. Capital spending on the new technologies has soared. Battery storage is also starting to be a cost-effective solution for supporting the grid, challenging the market for “peaker” gas turbines that are used when demand is at its highest. Yet both groups have taken positions in renewable energy but have stumbled along the way. 

 The result is that GE and Siemens are being forced to drive down costs dramatically in their core power businesses. Siemens is looking to cut thousands of jobs in its power and gas unit. On Monday, new GE chief executive John Flannery will outline his plans for turning round the American group, whose financial position has become so precarious that it has been evaluating a cut in its once rock-solid dividend.

Yet although both groups face a turbulent environment, the immediate outlook is considerably brighter at Siemens, which appears to be better positioned to adjust to the disruption sweeping through the energy industry.

GE’s 2017 has been a disaster. Questions swirled in June when the company announced the departure of Jeff Immelt, chief executive since 2001. Answers arrived in October, when GE reported a fall in earnings for the third quarter and sharply reduced its guidance for the full year. Mr Flannery, who took over in August, described those results as “unacceptable, to say the least”, and said the company needed to “to make some major changes with urgency”.

Read the full story (FT subscription required)

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