General Electric Company (NYSE:GE) has been the lead supplier of U.S. wind turbines for years. That's great news, except for the fact that 2015 could be a bad year for domestic turbine bookings. Thank Congress for that while you're keeping an eye on the progress of GE's wind business.
Wind power installations in the United States have fluctuated violently in recent years along with changes in the federal production tax credit (PTC), which provides incentives for installing renewable power. The on-again, off-again nature of the PTC is the result of approvals and delayed approvals in government. According to the Energy Information Administration (EIA), the timing of the PTC extension in 2013 "contributed to wind capacity additions falling from an all-time high of 13 gigawatts (GW) in 2012 to less than 1 GW in 2013."
Clearly, the PTC plays a big part in the U.S. wind industry. So, on the surface, it was good news that 2014 saw an extension of the PTC. The only problem is that it was passed by Congress on December 14 and lasted until... wait for it... December 31. Now that's bold action! It's no wonder the American Wind Energy Association had at one point called such a move "essentially worthless." (It dutifully praised Congress for taking action after the extension was enacted, however.)
GE takes it on the chin?
This could be a big deal for General Electric. The industrial giant is the largest player in its home market, taking the biggest piece of the market share pie each year between 2005 and 2013. To be fair, 2007 might have tipped just slightly in VESTAS WIND's favor, and Siemens AG (ADR) is also a notable player in the U.S. market, but neither of them can hold a candle to GE's long-term win rate.
It's also notable that GE's market share of new installations in 2013 was 90%. But getting 90% of a market that tanked from 13 gigawatts in 2012 to around 1 gigawatt in 2013 isn't really such good news. So, the PTC has a disproportionate impact on GE's wind business even when the company wins "big."
A tough year for sales
2015 shouldn't be a bad year for GE's wind business. It ended 2014 on a solid note, delivering roughly 20% more turbines year over year in the fourth quarter. That helped push the company's Power and Water group's revenues up 22% year over year. The company expects to deliver between 3,000 and 3,200 wind turbines in 2015 -- about the same number as it delivered in all of 2014.
But that just means 2015 is likely to be flat, year over year, in the company's wind turbine business. Not bad, but certainly not good. The bigger issue, however, will be orders. Since the PTC expired at the end of last year, a whole two weeks or so after it was extended, it's unlikely that new orders for wind turbines are going to start piling up until the PTC is fought over, and passed, again. And that's a big deal for GE's wind business. For example, it fell from second place globally to to sixth place in market share in 2013 largely because of the huge drop seen in the U.S. market, where it's the dominant player.
So, while 2015 should be OK on the delivery front, bookings could be a notable weak spot. That could turn 2016 deliveries into a major issue (think 2013), particularly in the second half of the year, when current projects start to peter out, if the PTC isn't extended again in short order.
Watch the PTC
GE is much larger than its wind business, but if 2016 wind turbine installations look like 2013's, it could be a big headwind for the company to overcome. And that's true throughout the wind power industry, since GE is hardly the only participant -- it's just that GE is likely to be most affected by government action, or inaction, on the PTC in its home market.