As energy use surges, GE makes once-a-decade bet on big turbines

NEW YORK: General Electric’s industrial overhaul rests in part on a piece of machinery that’s larger than a Winnebago and weighs as much as a Boeing 747. Now, it just needs to work.
GE plans to deliver its newest gas turbine in July, a decade after the rollout of an earlier model that was hindered by performance issues and sold poorly.
The company is investing $2 billion developing the new 433-ton unit, which can churn out enough electricity to power 400,000 homes.
That investment reflects the turbine’s importance to CEO Jeffrey Immelt’s plan to strengthen GE’s industrial business while shrinking the volatile lending arm.
It’s also needed to fend off rivals Siemens AG and Mitsubishi Hitachi Power Systems Ltd. as global population growth drives greater demand for electricity.
“This is one of the main events for GE,” said Victor Abate, 50, CEO of power generation for GE Power & Water.
“Eighteen months ago, the machine wasn’t in our catalog. Today, we have $1 billion worth of orders.”
GE hopes to sell as many as 500 of the new turbines by 2030, according to Abate, speaking in an interview at GE’s turbine testing and manufacturing facility in Greenville, South Carolina. In addition to 15 unit orders already on the books, the Fairfield, Connecticut-based company is bidding or in talks on another $11 billion worth of equipment, he said. GE will ship the first unit this summer to French utility Electricite de France SA.
GE’s Power & Water unit is the company’s largest non- finance business, with sales last year of $27.6 billion, accounting for about 26 percent of its industrial revenue.
The introduction comes as GE, which sells half of the world’s gas turbines, attempts to win approval to buy Alstom’s energy assets for 12.4 billion euros ($13.3 billion). The European Commission said in February it would open a probe to determine whether combining the two turbine makers would limit competition. Regulators plan to rule by Aug. 6.
The new turbine, known as the HA, is an air-cooled version of GE’s earlier H-class model, which was cooled by a more complicated steam system. It incorporates technology borrowed from GE’s jet-engine unit to help it withstand internal temperatures in excess of 2,600 degrees Fahrenheit (1,427 degrees Celsius), improving its efficiency in converting natural gas to electricity.
“The material advances that GE has done have been very significant,” said Meherwan Boyce, managing partner of the Boyce Consultancy Group LLC and author of several books on power-plant equipment.
“GE, in my opinion, is among the leaders in this field.”
In a so-called combined-cycle power plant, where a steam turbine is paired with a gas turbine to improve electricity output, the HA unit can achieve net efficiency greater than 61 percent, a key benchmark, GE says.
Exelon Corp. was the first US company to buy the new turbine in an order worth more than $500 million. Ed Lesh, project director for construction of Exelon’s new Texas power plant, said GE’s air-cooled technology was important to its decision, given the area’s drought conditions. Exelon expects to begin using the turbine in 2017.
The early interest in the HA contrasts with the anemic demand for its previous heavy-duty gas turbine, which went into commercial service between 2003 and 2008. The company said it sold just six of the steam-cooled units.
“The product was a disaster; it was just failing,” said Scott Davis, an analyst with Barclays Plc. “They had to go back to the drawing board, and test and retest. It took them a long, long time.”
One unit installed at the Inland Empire Energy Center in California suffered “a pretty massive failure” before it was hooked up to the energy grid, said Matthew Layton, a supervising mechanical engineer with the California Energy Commission.
“We’ve seen very few catastrophic failures like that,” he said.
GE’s global market share for gas turbine sales by megawatt capacity fell to a three-year average as low as 43 percent in 2011 from 61 percent in 2001, according to data from Richmond, Virginia-based McCoy Power Reports.
Abate acknowledged past issues, saying the steam-cooling mechanism was overly complicated, making maintenance difficult and costly.
“The serviceability was a little bit of a shortcoming,” he said. “When you would take a power plant offline, it would take weeks just to get it where you could go in and do the maintenance you wanted.”
GE was also encumbered by its testing procedures, which took place mostly at customer sites. The company has since expanded its Greenville facility, where real-world conditions can now be approximated before delivery.
GE has boosted its market share in recent years in part through the enduring popularity of its smaller F-class unit, Davis said.
GE accounted for 51 percent of the gas-turbine megawatts ordered globally last year, according to McCoy data.
Siemens, including newly acquired assets from Rolls-Royce Holdings, sold about 23 percent of the 2014 capacity, followed by Mitsubishi’s 13 percent share and Alstom’s 7 percent.
Siemens now lags GE in turbine efficiency and pricing, and it may take several years to catch up, according to a Siemens manager with knowledge of internal evaluations.
The Munich-based company is facing declining orders and profitability in its turbine segment, which it hopes to reverse in part through the Rolls-Royce acquisition. A Siemens spokesman declined to comment.
Based on the early demand, GE expects the units to account for as much as half of its gas-turbine sales by the end of the next decade.
“I was skeptical,” said Barclays’s Davis. “I thought they would be behind in technology. They pulled a rabbit out of their hat and I’m impressed.”