So far, the relationships between big energy companies and alternative energy technologies have been a lot like the marriages that unite Hollywood stars. Begun amid lofty promise and swooning media attention, all too often they soon descend into dysfunction and divorce.
Take two companies that "tied the knot" with alternative energy ventures following the 1973 oil shock, when the Organization of Petroleum Exporting Countries imposed an embargo that sent world prices soaring. Mobil Corp. and Chevron Corp. embraced photovoltaics, only to dump the projects when oil prices crashed and OPEC's power waned a decade later.
Five years ago, oil giant British Petroleum parlayed its corporate abbreviation into a catchphrase promise to go "Beyond Petroleum," having acquired a sizable photovoltaics subsidiary. But two years later, it ditched production of the next-generation thin-film photovoltaic panels it had been developing, abandoning a key effort to finally make solar cells widely affordable--and raising further doubts as to whether it would be moving beyond petroleum any time soon.
Now, into this boulevard of broken marriages comes General Electric Co., a pioneer of the fossil-fired and nuclear technologies that powered the 20th century--but also, thanks to a legacy of pollution stemming from its use of polychlorinated biphenyls (PCBs), a symbol of corporate denial. After largely ignoring alternative energy for most of its existence, GE has jumped in headfirst.
Over the past five years, the company, based in Fairfield, Conn., has begun manufacturing wind turbines and photovoltaics, invested in hydrogen fuel cells, and become a leader in the development of gasification equipment that could double the efficiency of coal-fired power plants and even capture their greenhouse gases. Pulling all those strands together in a high-profile speech delivered in Washington, D.C., on 9 May, GE's chief executive, Jeffrey R. Immelt, unfurled what the company is calling its "ecomagination" initiative. Immelt described it as "a growth strategy, driven by our belief that applying technology to solving problems is good business....We are launching ecomagination not because it is trendy or moral but because it will accelerate our growth and make us more competitive."
Immelt called on the U.S. government as well to take a stronger lead on energy and the environment, including global warming. "America is the leading consumer of energy. However, we are not the technical leader," Immelt complained. "Europe today is the major force for environmental innovation." By focusing on wind, solar energy, and advanced coal technologies, GE plans to start changing that.
One of GE's new 3.6-megawatt wind turbines, off the coast of Arklow, Ireland, is part of a 25-MW installation owned and operated by GE Energy as a demonstration of the technology.
Ge Is Leaning Particularly Hard into the wind market, the strongest of its clean energy businesses, and it is redrawing the industry in the process. With its financial might, power engineering connections, and global reach, the company has set off a scramble for market share in the consolidating wind industry. Just last year, Siemens AG, in Munich, Germany--GE's main rival in the gas turbine business--snapped up one of GE's increasingly beleaguered competitors, Denmark's second-largest wind power manufacturer, Bonus Energy A/S, in Brande.
While Denmark's Vestas Wind Systems A/S, in Ringkobing, is still the world's biggest wind turbine manufacturer, GE is the player with the greatest potential clout. From that point of view, it stands "head and shoulders above everybody else in the wind business," says Andreas Willi, a London-based analyst for investment banker JP Morgan Chase & Co. who tracks European power equipment firms.
But is GE's embrace of renewables evidence of a long-term commitment to the industry? Or is it just the latest example of "greenwashing" on the part of yet another corporate titan eager to divert attention from its past environmental misdeeds? It's hard to say now, but even die-hard renewable-energy advocates agree that GE has a compelling business model for making wind turbines and photovoltaics and may actually persevere, unlike some predecessors.
"There couldn't be anything more different than selling devices to make electricity on rooftops and selling gas at the pump," says Christopher Flavin, president of the Worldwatch Institute, a Washington, D.C., think tank. "Technologies that generate electricity are really a better fit for a GE [than for oil companies]," he says.
That's how GE executives see it, too. "Renewables are a growing segment of the power-generation market, and we want to be able to participate," says John Rice, CEO of GE Energy, in Atlanta. The power-equipment business unit has revenues exceeding US $17 billion a year. The market numbers support Rice's case for going where the action is. Sales of gas turbines--GE Energy's mainstay in the 1990s--have hit the dumps in recent years, thanks to overcapacity and spiking fuel prices. GE and its competitors sold more than 1400 large gas turbines between June 1999 and May 2002 but only about 300 over the next two years, according to estimates by Cambridge Energy Research Associates (CERA), a consultancy in Massachusetts.
Wind power, the most commercially viable of the renewable energy technologies, is blowing strongly in the other direction. CERA estimates that more than $7.2 billion worth of wind turbines were installed last year, roughly equaling global sales of gas turbines.
What remains to be seen is whether power equipment behemoths like GE and Siemens will stay committed to their clean-energy investments and, if they do, whether they will have any more success than their predecessors in profiting from them. Five years ago, the Swiss power equipment firm ABB Ltd., in Zurich, sold its gas turbine division, which had been its main operation, and plunged headlong into alternative energy.
At that point, ABB seemed to be in a neck-and-neck competition with GE, its chief executive officers regularly ranking in business surveys as the world's most admired. Today, ABB has little to show for what seemed to be a bold strategy, thanks in part to technical troubles and slower than expected growth in demand. In the global power business, the once-mighty company is marginalized.
GE'S Embrace Of Wind began opportunistically, with the bankruptcy of Houston's Enron Corp. GE snapped up Enron Wind, the only U.S. manufacturer of utility-scale wind turbines, and by the end of 2003 had more than doubled the company's annual sales, to $1.2 billion.
Suddenly, GE Energy's wind unit looked set to become an industry leader. That year it was second only to Denmark's Vestas, though it would take a dip in the rankings in 2004 with a contraction in the U.S. market[see chart, "Worldwide Wind Energy Sales"]. One deal with utility Florida Power and Light Co. (FPL), headquartered in Juno Beach, clinched within months of the Enron Wind acquisition, showed what a company with GE's resources might be able to accomplish in wind.
Worldwide Wind Energy Sales
FPL had ordered gas turbines from GE in the late 1990s but no longer needed them. GE, faced with the challenge in 2003 of getting its new wind business on track, saw an opportunity. In exchange for letting FPL off the hook for the gas turbines, it agreed to sell FPL 450 of its 1.5-megawatt wind turbines, each worth over $1 million. The bargain was a bellwether of big changes in the way the U.S. utility industry looked at wind. Once of interest mainly to small, independent power producers who sold their output to utilities, wind power now is attracting the attention of major utilities like American Electric Power Co., in Columbus, Ohio, and PacifiCorp, in Portland, Ore.
Unlike the highly specialized wind-turbine manufacturers that traditionally dominated the market, a company like GE or Siemens has an inside track with these big utilities. They are also better equipped financially to manage the larger scale of today's wind farms, which may have dozens or even hundreds of turbines. "Warranty obligations are getting more stringent and are now five years instead of two to three, as in the past," says Steven Taub, research director of emerging generation technologies at CERA. "This assurance is becoming more important as projects get larger and more complex."
Market heft may, however, be the least significant of GE's advantages. According to Steve Zwolinski--the GE executive who led the launch of GE Energy's wind operations and served as its president until March--the unit's technical staff more than tripled following the acquisition, as the wind group absorbed engineers from other GE businesses who had expertise in areas such as materials, aerodynamics, and gearboxes.
The results, he said, are improvements in every major subsystem in the 1.5-MW turbine that was Enron Wind's mainstay, as well as the accelerated development of two new turbines. One is a 2- to 3-MW machine with beefier power electronics and a simplified asynchronous generator that should yield more megawatthours of energy than the 1.5-MW machine. The other is a 3.6-MW turbine hardened for the corrosive offshore wind environment [see photo, "The Latest"," and diagram, "].
Zwolinski added that plugging into GE's supply chain has helped cut manufacturing costs, another factor that pleases analysts. The company's global supply chain could also make GE Energy's wind operations more nimble in new markets like China.
In the U.S. market, GE's wind turbine sales dropped last year with the 31 December 2003 expiration of the U.S. Production Tax Credit, a 1.8 cent per kilowatthour tax write-off that underpins the U.S. wind power industry. However, since Congress reinstated the tax credit last October, U.S. demand for wind turbines has come roaring back, and GE expects to sell $2 billion worth of turbines this year, lifting its global market share to 20 percent.
In Sharp Contrast to GE's charge into the wind business is its measured stroll into the photovoltaics market. Here, too, GE got its start by finding a bargain in the bankruptcy courts, but that's where the comparison ends. GE Energy's solar technology group was cobbled together last year from the assets of AstroPower Inc., in Newark, Del., which was ranked 14th worldwide in 2003 in solar energy sales. AstroPower had less than a tenth of the sales of the market leader, Japan's Sharp Corp., in Osaka, and less than a quarter of the sales of each of the next three biggest players--Royal Dutch/Shell, Kyocera, and BP Solar. A shortage of recycled silicon wafers and silicon scrap when the semiconductor industry took a dive was a blow to AstroPower, and its polycrystalline cells were not meeting reliability standards. The firm was further weakened by an accounting scandal by the time GE bought its assets.
The real challenge in solar is long-term, which goes a long way toward explaining GE's investment. Solar power sales have been growing 30 to 35 percent per year for the past five years. The problem is that compared with wind, the market is split among more players, none of which have been making much money.
"[Photovoltaic] manufacturing has not been a profitable business until pretty recently, meaning last year," says CERA's Taub. But it may soon get more profitable, if GE's ambitions are realized. Its Global Research Center, in Niskayuna, N.Y., has next-generation technology that it hopes will slash manufacturing and installation costs, boosting the profitability of photovoltaics and unleashing solar energy's potential as a mainstream energy source.
Getting into photovoltaics manufacturing is a way for GE to get on-the-job training in solar marketing while it perfects its product. "What an acquisition brings us, even one as small-scale as this one, is a way to learn the industry from inside," says GE solar technology's CEO, Ali Iz.
Researchers at the Niskayuna research center are competing in the race to boost the efficiency of organic photovoltaics, which rely on carbon-based dyes and polymers rather than inorganic semiconductors to absorb light and generate an electric current [see "Can Organics Replace Silicon in PV?" IEEE Spectrum, January 2004]. GE's technology is an offshoot of its work on high-efficiency, large-area lighting panels that rely on organic light-emitting diodes--devices with materials similar to those in organic photovoltaics but optimized to turn an electric current into light instead of vice versa. Thanks to cheap materials and processing, organic photovoltaics could cut the cost of production by half or more--if R&D can boost power output and durability.
While the researchers fine-tune organic photovoltaic technology, GE execs believe they can fashion GE's solar technology group into a market leader by replicating what they have done to grow GE Energy's wind operations. They plan to leverage other businesses to ramp up product design and exercise market muscle, thereby building a better widget and stealing market share. Rice, GE Energy's CEO, predicts that GE solar technologies, currently estimated to have perhaps $100 million to $200 million in revenues this year, will be making $500 million to $1 billion per year by 2010.
The company's basic strategy is straightforward: innovate relentlessly. GE solar's Iz sees inverters, which convert a solar panel's dc output into ac, as a key target of opportunity. Today, a photovoltaic panel is durable enough to come with a 20- to 30-year warranty. But an inverter typically carries a measly 5-year warranty.
The problem is with transformers and insulated gate bipolar transistors (IGBTs), the switching devices that synthesize ac power from the photovoltaics' dc output. Both are susceptible to overheating and damage from power spikes. By next year Iz hopes to roll out a GE solar inverter with no transformer and robust, higher-rated IGBTs.
To do it, he'll draw on the expertise of GE's power electronics group, which makes high-power inverters for industrial applications, and the $52 million European Global Research Center, in Garching, near Munich, that GE opened a year ago. At the Garching center, electrical systems for renewable energy were identified as one of the lab's four main research areas.
Of course, GE isn't the only company hard at work on improving the reliability of photovoltaic systems. BP Solar, in Linthicum, Md., has been establishing a network of authorized dealers and installers to increase buyer confidence in rooftop photovoltaic systems made with its conventional crystalline-silicon cells.
And last fall, BP gave GE a comeuppance of sorts by extending that network to The Home Depot Inc., based in Atlanta, snatching away a crucial marketing partnership initiated by AstroPower that installs rooftop solar power systems available through Home Depot's stores. As a Home Depot spokeswoman explains it, the chain wanted to take the program nationwide and selected BP to do it because "BP Solar is the leader" (despite its withdrawal from next-generation thin-film manufacturing). For a company like GE that puts a premium on being first or second in each market it plays, that has to grate [see photographs, " "].
There's No Question that big firms such as GE, BP Solar, and Siemens can have a huge impact on clean-energy markets, cutting costs and expanding sales. But will they stay in the picture? Alternative energy has always been a tough place to make money. Dozens of start-ups in wind power, photovoltaics, fuel cells, and other technologies have hit technological walls, run out of cash, or withered when political support and government incentives dried up. Experience shows that major power-equipment manufacturers like GE, Siemens, and ABB are by no means immune to these threats.
Even GE has had its flops in alternative energy. In the 1970s, the U.S. Department of Energy engaged major aerospace players in an ill-fated crash program to design utility-scale wind turbines. Boeing, Westinghouse, and GE built multimegawatt machines 10 times as large as the commercial wind turbines of the day. Oversized but unreliable, they were all technological dead ends.
A more recent episode of note was ABB's Windformer, a scheme for integrating wind turbine generators with high-voltage dc transmission that failed to deliver on ABB's promise to boost power generation from wind farms by 20 percent. Brian McNiff, president of wind engineering consulting firm McNiff Light Industry, in Harborside, Maine, says a power engineering giant's technical expertise does not translate directly to wind and other alternative energy fields. "None of those guys are any further along than we as an industry are in understanding the state of the art," says McNiff.
Then there was the fuel-cell fiasco. In the late 1990s, GE entered into an agreement with Plug Power Inc., in Latham, N.Y., to distribute a combination generator and water heater based on Plug Power's proton-exchange fuel cells. GE planned to begin selling the units to homeowners in 2001. But soon after Plug Power's promising initial public offering in November 1999, the value of its stock plummeted when the company disclosed that it would not be able to meet development targets for its units.
It might not have mattered even if they had been perfect. Joseph J. Romm, a top energy official in the Clinton administration, concluded in his book The Hype About Hydrogen that there was no viable business model for home-based fuel cells. "That shows that even GE is not infallible," says Romm.
Of course, with wind and solar, the business model appears to be based on sound fundamentals. "We think that no matter what happens, whether the U.S. signs the Kyoto Protocol or not, there's going to be more pressure on companies to reduce emissions, to reduce greenhouse gases," says GE Energy's Rice.
If they do stick it out, major power equipment companies such as GE and Siemens could not only redraw the markets for clean energy but also help tilt the politics that determine which energy options--clean-fossil, nuclear, or renewables--get critical government support. While fossil fuels and nuclear energy continue to get the lion's share of government subsidies, in straight dollar terms, investments by major players such as GE could convince Washington that renewables are viable alternatives.
There are signs that it's already happening. For example, renewable energy advocates say GE's lobbyists helped convince Congress to revive the wind industry's tax incentives last fall. And GE executives are pushing for an assortment of policies that could help push clean energy closer to the mainstream in the United States, including standardized rules for connecting rooftop solar panels and other distributed energy systems to the grid. Some GE execs even advocate policies to put a price on carbon dioxide emissions, without which utilities cannot justify to their shareholders the higher capital cost of next-generation coal-fired power plants, such as GE's gasification plants.
At the very least, says Flavin of the Worldwatch Institute, the United States finally has a clean-energy player that can withstand this nation's erratic energy policies. "We were dominant in these technologies in the 1980s, and now we're barely in the game," he says. "We've bankrupted as many renewable companies as we've created. We've really made a complete mess. GE is picking up the pieces."
About the Author
Peter Fairley writes about energy, technology, and the environment from Victoria, B.C., Canada. His article "Lighting Up the Andes" appeared in the December 2004 IEEE Spectrum.
To Probe Further
The GE Energy Web site is at http://www.gepower.com.
BP Solar's Web offerings are extensive, including a trove of research papers at http://www.bpsolar.com.
A recent report by the National Commission on Energy Policy--issued by what The Economist called "a bipartisan group of heavyweights from business, government, environmental groups and academia"--shows that GE's alternative energy technologies are going mainstream in the policy realm, too. The commission's report, "Ending the Energy Stalemate: A Bipartisan Strategy to Address America's Energy Challenges," endorses wind and solar power and coal gasification. See http://www.energycommission.org.
For more information on how power electronics mesh with wind power, see "Steady as She Blows," IEEE Spectrum, August 2003, at http://www.spectrum.ieee.org/WEBONLY/publicfeature/aug03/wind.html.