General Electric’s power unit fights for growth as wind, solar gain

Reuters

Vistra Energy Corp and Dominion Energy Inc — which serve about 5.5 million electricity customers in more than a dozen US states — both say they are done building combined-cycle natural gas-fired power plants.

Instead, they are building large solar plants, which offer plentiful and inexpensive electricity.

This bearish view of fossil-fuel energy, reflective of a growing acceptance by utilities of renewable power sources, poses a hurdle to John Flannery’s plan to turn around General Electric Co’s US$35 billion-a-year power unit.

With electricity prices trending downward, utilities are increasingly unwilling to risk capital on a new plant unless then can lock in a long-term price, executives said.

“Building new large, combined-cycle gas plants is challenging without the stability of a long-term power contract,” said Timothy Menzie, chief executive officer of InterGen, an international power generation company.

POWER PLAYER

GE faces a further challenge: long-term erosion of the large base of plants it services. After acquiring the Alstom power business in 2015, GE has a base of customers that produces one-third of the world’s electricity. Long-term contracts to service those plants bring GE billions of dollars in annual revenue.

But as utilities close older coal and gas-fired plants, the revenue growth from services is under pressure.

Wind and solar can cost as little as US$18 a megawatt hour, compared with US$40 for a large gas plant, said Mikael Backman, North America regional director at Wartsila Energy Solutions, part of the Finnish company that makes quick-start natural gas-fired generators.

Across much of the United States, some utilities now buy all the cheap renewable power they can on electricity markets and use quick-start gas engines to fill in when wind and sun falter. In California, regulators have put on hold a project that planned to buy one of GE’s large natural-gas turbines while Southern California Edison, which planned to buy the power, studies using wind and solar instead.

The shift from fossil fuels stretches beyond states like California, which is aggressively switching to renewable power.

In oil-rich Texas, wind and solar now provide 21% of the state’s electricity. Utilities there are shutting down the equivalent of about 20 average-sized coal plants this year, according a Reuters analysis of data from power system operator ERCOT. Out of 183 power-generation projects on the drawing boards, only four would run on fossil fuels, ERCOT said. The rest are wind and solar.

ExGen Texas Power, an affiliate of Exelon Corp, filed for bankruptcy protection in November for five natural-gas plants, the second such bankruptcy in Texas last year attributed to low power prices. GE supplied parts and service to several of the plants, according to the bankruptcy filings. Reuters could not determine whether the contracts will remain in effect.

In Virginia, Dominion Energy ended several maintenance contracts it had with GE this year when it mothballed a large gas-fired plant built by companies GE later acquired and idled seven other coal and natural gas units in the state.

Dominion aims to build 4,720 megawatts of solar by 2033, the equivalent of about five large combined-cycle power plants.

It is opening a new combined-cycle natural-gas plant in Virginia this year, built with GE and Mitsubishi equipment. It said it has no current plans to build more such plants.

“Solar is very cheap,” spokesman Dan Genest said. “These units were just not cutting it.”

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