How many differences could you list between the economy of 2015 and that of 1892? Quite a few, I'll bet. But one thing has remained constant: the endless stream of innovation in energy from General Electric Company (NYSE:GE) that has and will continue to power the global economy to new heights. What's the significance of those two dates?
The company was formed in 1892, when banker-tycoon J.P. Morgan arranged a megamerger between Edison General Electric, a company powered by the inventions of Thomas Edison, and Thomson-Houston Electric, a leading competitor. At the time, General Electric was focused on creating and developing the industries responsible for generating and distributing electricity -- the first time it became commercially and economically feasible for the masses to benefit from electric power.
Today, in 2015, the company isn't an electric utility, but it plays a direct role in enabling power generation from every major energy source used globally. Whether manufacturing super efficient gas turbines, designing the world's largest wind turbines, or developing next-generation nuclear power plants, General Electric is still powering the future of energy just as it did 123 years ago. That's great news for individual investors like you.
"Holy Grail" of gas turbine efficiency
When it comes to generating power from natural gas, efficiency is king. The reasons are obvious. A power plant that maximizes energy production from a unit of fuel will realize lower production costs and monetize more energy for its owners. But there has been one major drawback weighing on gas power plant efficiency: energy that escapes as waste heat.
The race has been on to build gas turbines that allow power generators to capture as much waste heat as possible, feed it to a steam turbine, and generate electricity in side-by-side fashion to boost the overall efficiency of a power plant. These combined power cycles should be capable of achieving or besting the "Holy Grail" of the power generation industry, the journalism-friendly term for 61% power efficiency. The race isn't over, but the front runners are emerging.
General Electric spent more than $1 billion developing HArriet (the 9HA), the largest and most efficient gas turbine in the world. When used in a combined power cycle, it can achieve power efficiencies greater than 61%, generate 600 MW of power (enough to power 600,000 homes), and, if similar to a competing design from Siemens, reduce natural gas consumption and carbon dioxide emissions of a power plant by 33% each.
The first 9HA gas turbine will be put into service in France in 2016. In the meantime, General Electric will be busy keeping up with 15 backlog orders from around the world with a value of $1.8 billion. That includes four smaller units with a combined capacity of 2,000 MW sold to Exelon (NASDAQ:EXC), which will deploy the fleet to steady the grid in Texas. Investors can bet that these orders are only the beginning of a big growth opportunity.
World-leading wind turbine manufacturer
As initial sales of next-generation gas turbines seed a new opportunity, investors can rely on more established growth opportunities to keep churning out profits, too. Along with Vestas and Siemens, General Electric is one of the "Big Three" wind turbine manufacturers selling into the American market. While the group accounted for 95% of all 4,850-MW of installations in 2014, General Electric led the pack with 2,750 MW, followed by a distant Siemens (1,241 MW) and Vestas (584 MW).
Over its lifetime as a wind turbine manufacturer, General Electric has installed more than 18,000 turbines worldwide, with a combined power capacity of 28,000 MW. At the end of 2013, that represented nearly 9% of the world's total installed wind capacity, which is growing at an eye-opening clip. In fact, the world adds more wind power capacity every year than it had installed in 2002, a trend that has held since 2009.
General Electric is well-positioned to capitalize on the growing momentum represented in the chart above. The current portfolio offers power generators such as NextEra Energy and Ivenergy wind turbines that range from 1.7 MW to 3.2 MW apiece. Spread a few dozen out over a large enough area, and boom, you get a wind farm with several hundred megawatts of renewable power capacity that can rival the output of most fossil fuel power plants.
Next-generation nuclear reactors
How's this for irony? Exelon, the nation's largest nuclear power generator, has slowly watched wind farms in the Midwest erode the competitiveness and profitability of its nuclear assets with their sporadic supply of power. Mounting pressure to insulate margins and boost profitability was a driving factor in Exelon's decision to purchase General Electric's next-generation gas turbines, which can be turned on and off relatively easily to cope with instability in the electricity grid and are accompanied by higher-margin power generation.
Well, by next decade, General Electric could offer Exelon a more direct solution to its nuclear woes. Large, centralized nuclear power plants are simply not well adapted to an electricity grid chocked full of intermittent renewable energy generation. But small, distributed nuclear power plants could offer added flexibility. Powered by small modular reactors such as General Electric's PRISM, future nuclear facilities could be built for a fraction of the cost of their supersized predecessors -- one of the major drawbacks of traditional nuclear power.
General Electric's PRISM offers more advantages than size. The Generation IV reactor can consume used nuclear fuels to generate carbon-free power while offering a long-term solution to nuclear waste, in addition to transforming global plutonium stockpiles into nonproliferation-friendly atomic elements. While PRISM is still being developed and has yet to receive a green light to be commercially deployed, the first reactors could go into service before 2030. The next time you hear the phrase "nuclear is dead," be sure to remember to clarify the differences between traditional nuclear and next-generation technologies.
What does it mean for investors?
Despite being formed over 120 years ago, General Electric remains at the forefront of established and emerging energy industries. The company is poised to capture amazing growth for years to come after investing billions of dollars developing world-leading gas turbines, wind turbines, and next-generation nuclear reactors that will power the future of energy. As it turns out, one of the biggest differences between 1892 and 2015 is that you don't need to be J.P. Morgan to enjoy the growth and earnings machine that is General Electric.