GE forecasts a profitable renewable energy business in 2024

General Electric Co. expects its renewable energy business to be profitable in 2024 as the conglomerate's power segment works through a $6 billion backlog and benefits from higher U.S. federal tax credits for wind production.

The business, which GE will spin off as GE Vernova in 2024, lost $2.24 billion in 2022 due to macroeconomic headwinds. The company in January announced that it would lay off 20% of its workers in onshore wind. Meanwhile, it said inflation ate into profits from sales of its Haliade-X offshore wind turbine, one of its signature products.

GE Chairman and CEO Larry Culp acknowledged March 9 that the company's renewables segment has "a couple of quarters ... that are still going to be sloppy," but incoming GE Vernova CEO Scott Strazik reassured shareholders that even the offshore wind business will turn a profit starting in 2025.

"There's not a ton of cash or profitability dynamics assumed for new activity" in 2023, 2024 and 2025, Strazik said during GE's 2023 investor conference. "The way we should think about this is we've got a $6 billion backlog, we're going to contain and manage what we've got [and] will work to make it better with both product costs and project costs."

Even though there is a "night and day difference" in wind customers' appetite for equipment compared to a year ago, thanks to the U.S. Inflation Reduction Act, 2023 will be offshore wind's "toughest year, especially on cash," Strazik added.

GE's onshore wind business, on the other hand, should become profitable in 2023 and shed $500 million in costs coming into 2024, according to Senior Vice President and Chief Technology Officer Vic Abate, who is also the company's onshore wind CEO.

"If you look at the last three to five years in a market with declining [power purchase agreements], the [production tax credit] on its way to zero, [original equipment manufacturers] have been really trying with faster product launches, more variants, more product derivatives to offset that and the reality is the result of that was more complexity, lower quality and higher costs," Abate said.

GE shares gained 5% on March 9, settling at $91.56.

Industry analysts at Wolfe Research told clients March 10 that "management (just about) gave us enough stepping stones" for renewables to turn a profit in 2024, but Jefferies analysts wrote March 9 that "we do believe a healthy amount of skepticism is appropriate given past forecast misses, especially as it relates to renewables."

GE's offshore wind business also ran into legal troubles when a Massachusetts jury ruled in June 2022 that GE Renewable Energy's Haliade-X offshore wind turbine infringed upon a patent held by Siemens Gamesa Renewable Energy SA. A U.S. judge later ordered the GE subsidiary to pay a royalty rate of $60,000/MW for Haliade-X offshore wind turbines used at the proposed 1,100-MW Ocean Wind 1 offshore wind farm off New Jersey.

While the U.S. ruling effectively bans sale and use of the turbine design in the American market, except for a few special carve-outs for offshore wind projects already underway in New England, a U.K. court ruled that it does not infringe on patents held by Siemens, a major victory for GE.