GE energy spinoff aims to capture interest in renewables

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Nov 9 (Businesshala) – General Electric Co.’s plan to turn energy units into a standalone company could attract investors looking for a well-known name in renewable energy if they can ignore legacy fossil-fuel operations are, financial experts said.

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Earlier on Tuesday, the 129-year-old group outlined plans to split into three publicly traded companies focused on energy, healthcare and aviation.

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The energy unit combines existing wind and gas-fired power turbines and the services, and software businesses. The spinoff will be completed in 2024, GE said.

Chief Executive Officer Larry Culp said in an interview, “We are most focused on helping customers best GE needs and help them navigate the energy transition.” Utilities and others are now moving to solar, wind and hydropower.

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The plan echoes that of GE rival Siemens AG, which spun off its power division in 2020 to form Siemens Energy. This is similar to the electric utilities Enel and Iberdrola’s embrace of renewable energy over fossil fuels.

For GE, divestment can unlock value from component businesses and may be welcomed by investors who evaluate pure-play companies, said Dan Pickering, chief investment officer at financial services firm Pickering Energy Partners.

reliable player

“Investors would welcome a known franchise,” Pickering said. The size and reputation of the GE Energy unit will make the spinoff “a worthwhile and reliable player in the business,” he said.

Spinoffs can cause “value creation” in businesses that “are losing and losing money overall before and after the pandemic,” said Colin Scarola, an equity analyst at investment firm CFRA Research.

Shares touched 3-1/2-year highs on the breakup, and ended up 2.6% at $111.29, compared to a 0.35% drop in the S&P 500 index.

The energy business will include equipment and services for gas, coal and wind turbine, hydro-, nuclear and electric power generation. And this will include renewable and digital software operations.

Servicing coal-fired power plants, which GE classifies as steam, will be an issue for some investors.

“We want to see some resolution for what we are going to do with our Steem business,” said Matt Breedert, managing director of energy transition investments at fund manager Ecofin. GE needs to “become a market leader in sustainability, and they’re not there yet,” he said.

Another obstacle is the loss-making renewable energy business, which includes wind turbines. That unit hasn’t posted an annual profit since 2018, and reported a third-quarter loss of $151 million compared to a profit of $204 million in GE’s electricity group that includes gas turbines.

The company also holds a 16% stake in oilfield services firm Baker Hughes Company, a remainder from its poorly timed and short-lived 2017 acquisition. Baker Hughes is moving to offer energy transition services and could compete with future GE Energy spinoffs.

But the estimated size of the market may prove more tempting. The United Nations-backed International Renewable Energy Agency (IRENA) estimates that annual spending to limit global warming to 1.5 °C by 2050 could exceed $3 trillion.

Reporting by Liz Hampton in Denver and Rajesh Kumar Singh in Chicago Additional reporting by Scott DiSavino in New York Editing by Matthew Lewis

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