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GE to Stop Selling Equipment for New Coal-Fired Power Plants

Bloomberg logoBloomberg 9/21/2020 Ryan Beene
a close up of a rail: Hopper cars laden with coal trail behind an eastbound Norfolk Southern Corp. freight train heading through Waddy, Kentucky, U.S. © Bloomberg Hopper cars laden with coal trail behind an eastbound Norfolk Southern Corp. freight train heading through Waddy, Kentucky, U.S.

(Bloomberg) -- General Electric Co. plans to stop supplying equipment to new coal-fired power plants, exiting a market that relies on the dirtiest fossil fuel to focus on gas turbines and renewable energy equipment.

The move may include asset sales, site closings and job impacts, GE said in a statement Monday. The company’s Steam Power operation will continue to service existing coal power plants while also providing equipment for nuclear plants.

With the shift, GE will focus on “power generation businesses that have attractive economics and a growth trajectory,” Russell Stokes, head of the company’s power portfolio, said in the statement.

The exit from coal marks yet another step in Chief Executive Officer Larry Culp’s effort to reshape GE’s electricity-equipment business, which has been at the heart of the company’s financial woes in recent years. Even before the coronavirus pandemic slammed orders, GE Power had been a cash drain amid waning demand for new electricity plants.

GE fell 6.8% to $6.41 at 10:04 a.m. in New York amid broad market declines that slammed airlines, which the manufacturer supplies with jet engines. The shares tumbled 38% this year through the close on Friday, compared with a 3.5% drop in a Standard & Poor’s index of U.S. industrial companies.

Alstom Assets

Culp reorganized GE’s broader power operation soon after being named CEO in 2018, placing steam in a so-called Power Portfolio alongside businesses focused on grid, nuclear and other lines.

While Boston-based GE no longer reports revenue for those units separately, steam accounted for $1.9 billion of the broader power business’s $27.3 billion in revenue in 2018, according to a regulatory filing.

Last year, following an internal revamp of business lines, GE’s Power Portfolio unit -- which houses its steam businesses in addition to Power Conversion and GE Hitachi Nuclear units -- generated $5.5 billion in revenue. The gas-fired turbine business posted $13.1 billion.

The steam power business was built largely through the disastrous 2015 deal for Alstom SA’s energy assets, which GE hoped would enhance its ability to supply “combined cycle” power plants using gas and steam turbines. GE took a $22 billion charge in 2018, largely related to Alstom.

‘Value Destruction’

The planned coal exit marks an about face from GE’s prior desire for a bigger presence in the steam market to tap long-term service contracts, which the company touted as a key upside for the Alstom deal, said Gordon Haskett analyst John Inch.

The new plan highlights the “billions of dollars of shareholder value destruction that is embodied with the failed Alstom acquisition, and also likely reflects GE’s inability to sell the business,” Inch said in an email. He rates GE shares as a hold with a $5 price target.

GE earlier explored a possible sale of the steam-power unit, Bloomberg News reported in January.

(Updates with analyst comment in 10th paragraph)

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