Is General Electric Making a Bigger Push Into Wind?

The acquisition of Alstom would greatly enhance GE's wind power segment.

Apr 27, 2014 at 1:10PM

Wind Offshore Haliade Belwind
Haliade 150-6 MW wind turbine        Source: Alstom

Like a wind turbine spinning on a gusty day, the rumor mill is churning with speculation that GE (NYSE:GE) is in talks to purchase French energy company Alstom (NASDAQOTH:ALSMY). Denying that it has been informed of any potential public offer, Alstom traded at more than 10 times its average volume on the day the rumors began flying. The company is scheduled to report its annual results on May 7, at which time it is expected to provide an update on its prospects of activities. Although Alstom operates in a variety of energy segments, like solar, wind, hydro power, and coal, let's take a look at how purchasing the company -- a company that has installed or is installing more than 2,600 wind turbines with more than 5,000 MW of capacity --  would greatly benefit GE's operations in the wind sector.

The big fish in offshore wind
Regarding Europe's top offshore turbine supplier in terms of annual installations, Siemens (NASDAQOTH:SIEGY) is the hands-down winner. The company's 1,082 MW accounted for 69% of market share in 2013; Alstom's 6 MW accounted for only 0.4% of the market share. But, what Alstom can boast of is offering the most impressive offshore turbine model -- the Haliade 150-6MW. Alstom contends that it improves yield by 15% compared to existing offshore turbines and supplies power equivalent to that used by 5,000 households.

Closer to home, offshore wind is another story -- a story that is still waiting to take off. However, if and when it does, Alstom is well-positioned to profit. In fact, it already has profited. Deepwater Wind, developer of the 30 MW Block Island offshore wind project, announced in February that it had switched turbine suppliers from Siemens (with which it had made a deal in 2010 for five turbines) to Alstom, which will supply five of the Haliade 150-6 MW turbines and will provide service and maintenance for 15 years. Deepwater Wind said that it had already made a multi-million dollar payment to Alstom in order to begin the manufacturing process. The Block Island project is expected to be completed in 2016.

Not just a force at sea
Alstom's experience developing wind power extends onshore as well. The company has more than 2,600 wind turbines installed or under construction in more than 200 wind farms, delivering nearly 5,000 MW. Most recently, Alstom made a deal, a €55m turnkey contract, for a 51 MW wind farm for Turkish petrochemical company Petkin. Developed in two phases, the project will use Alstom's 3 MW Eco 110 turbines. The first phase, 27 MW, is expected to be operational in 2015, while the second phase, 24 MW, is expected to be operational in 2016.

Entering its first wind power contract in the South Korean market, Alstom made a deal for 10 Eco 110 turbines to supply the 30 MW Gimnyeong wind farm on Jeju Island. The project is scheduled to be fully operational by the end of the year. Unlike South Korean, Alstom already has a presence in the Japanese market, and earlier in the year, the company announced a deal which will further develop that presence. Winning a contract to supply and supervise the installation and commissioning of 29 wind turbines for Green Power Hamada, Alstom will bring its installed wind power capacity in Japan to 100 MW when the 48 MW wind farm becomes operational in 2016.

Losing the wind in its sails
2013 was not a particularly good year for GE and its wind power division. According to research firm, GlobalData, GE installed 980.2 MW of wind turbines in 2013 -- more than 80% lower than its 2012 installed capacity. This had a significant impact on revenue for the power and water segment, which encompasses the wind division. Management credits lower equipment volume from wind and thermal as a major factor in the segment's $24.7 billion in revenue, a 13% decrease compared to 2012. This is a much different story from 2012 when management cited the 10% increase in power and water revenue for the year over 2011 levels as "driven by an increase in sales of equipment at Wind."

Foolish final thoughts
Although 2013 was unimpressive for GE in regards to its wind division, management expects 2014 to be an improvement. Inconsistent performance aside, GE is an industry leader in wind power, from innovative wind turbine design to sophisticated software solutions to optimize wind farm performance. Should GE end up acquiring Alstom, it would be a major step forward in further distinguishing itself as a leader in the wind power market.

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Scott Levine has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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