December 7, 2017 / 10:20 PM / 9 days ago

Breakingviews - Fossil-fuel slowdown spreads pain at GE and beyond

DALLAS (Reuters Breakingviews) - The ebbing of fossil fuels is sapping energy from GE - and beyond. The conglomerate is laying off 12,000 people in a power division that lights up 30 percent of the world. It blamed overcapacity amid a shift from coal and gas to renewable energy. But other divisions are closely tied to fossil fuels, too. Its troubles suggest a wider shakeout is in the offing.

The company’s power division makes turbines for electricity-generating plants around the world. Most of those plants have traditionally been driven by coal and natural gas, along with nuclear, but alternatives are coming on fast. The International Energy Agency predicts renewables will account for 40 percent of global power generation by 2040, up from 24 percent in 2016. Coal’s market share is projected to shrink significantly.

Other GE businesses are tied to fossil fuels in one way or another. Revenue at the company’s transportation business, which makes diesel-powered locomotives, fell 14 percent in the third quarter from the same period last year.

New Chief Executive John Flannery said at an investor presentation last month that the company may sell this group, in part because of secular declines in U.S. coal shipments by rail. He has also formed a committee to review the company’s 62.5 percent stake in Baker Hughes, an oil and gas servicing company that is directly tied to growth in drilling business. In aggregate, with the power division, these three groups generated nearly half the group’s revenue in the third quarter.

GE is starting to switch its business mix in the right direction.  It has a renewable energy group that was bolstered by its acquisition of Alstom in 2015. Meanwhile, the cuts announced Thursday will save $1 billion a year in expenses.

Competitor Siemens, which announced a smaller round of power layoffs last month, may have encouraged GE to scale down. Others should take note of the shifts in the global energy market too. Fossil fuels appear to be starting to power down for the long term. Those who get ahead of the change may be able to bring new things to life.

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