What happened
Shares of General Electric (GE 3.77%) fell 7.7% on Monday after the industrial conglomerate said it would exit the coal power business.
So what
GE will stop building new coal-fired power plants and shift its focus toward renewable energy sources, such as wind turbines and nuclear power plants. The company said the change in strategy will likely require asset sales, site closings, and job cuts.
"With the continued transformation of GE, we are focused on power generation businesses that have attractive economics and a growth trajectory," GE Power CEO Russell Stokes said in a press release.
Investors headed for the exits after GE announced it was bailing out of coal. Image source: Getty Images.
GE's retreat from the coal power industry marks a major change in direction for the industrial giant, which spent $9.5 billion to acquire Alstom's coal-powered turbine business in 2015. That purchase was ill-fated, as soon thereafter coal power began to be rapidly replaced by natural gas, wind, and solar.
Now what
Although its Alstom acquisition was a mistake, GE is making the correct decision today by cutting its losses. Wind, solar, and other renewable sources are clearly the future of the power industry, and GE is wisely directing its limited resources toward these high-growth markets. Exiting the coal business might be painful for customers, employees, and shareholders in the near term, but the move could help to stabilize GE's financial situation and position the struggling company for a long-term recovery.
