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General Electric Wins Two Major Wind Energy Contracts in New Strategy
Posted by: Muhammad Bazil (IP Logged)
Date: July 30, 2012 10:25AM
A major point of focus for General Electric Company (GE) has been the energy business. Over 100,000 people are employed by GE in this area, and it is responsible for almost US$50 billion per year in GE's revenue. It is one of the reasons that GE has been a very steady performer: The energy business accounted for more than one-third of GE's gross revenue last year. GE's stock has been a very steady performer during the past several years, generally meeting or slightly exceeding market expectations, but its performance has not been spectacular. However, under CEO Jeffrey Immelt's plan for stepping up the stock's value, there is a new focus on energy production, especially of the renewable or green kind.
One of GE's leading products for the production of green energy is wind turbines. The turbines, often organized in "farms"— or vast arrays of turbines grouped together on a mountain, or in a desert, or at sea — can produce significant amounts of energy for a large population that would otherwise have to depend on fossil fuels or other non-sustainable resources. Two new wind generation projects are showing that GE is ready and able to pursue this line of business.
On July 25, GE announced that its partnership with Turkish energy company Gama Holding A.S. (US OTC: GAMF) had succeeded in bringing online a large wind power plant in Turkey. The new Karadag Wind Power Plan began actively producing electricity for consumer use on July 4, 2012 and is capable of producing 10MW. The farm uses four GE wind turbines. It is the second project for the two companies to open this year. The much larger 22 wind turbine, 22.5MW wind farm at Sares, Turkey began producing power for consumer use in March of last year.
One day later, GE announced that it had entered into a contract with Comexhidro (privately owned), Mexico's leading hydroelectric power company, to build eight 2.5MW wind turbines at a wind farm in Nuevo Leon Province in Mexico. The wind farm will supply clean energy for all public lighting in the city of Santa Catarina, Nuevo Leon. The city and province were primarily interested in using wind-generated energy because GE had estimated that using the wind farm would reduce greenhouse gas emissions in the area by the equivalent of 10,000 cars per year. GE stated that the "project is a breakthrough for [Mexico]" and, with other GE-built wind farms in the company's current pipeline, will be generating enough wind power to supply 22 million households in Mexico. GE expects the Mexican market to be a leading source of the company's growth.
GE's suppliers and contractors for wind turbine construction are also looking forward to the company's continued growth in this area. One of these contractors is Kaydon Corporation (KDN). Kaydon is a major manufacturer of customer engineered mechanical devices and materials used in large construction and mechanical projects. For GE's wind turbines, KDN makes all the specialty ball bearings necessary to work the apparatus. The Michigan-based company expects to benefit from GE's push in wind energy as almost ten percent of the KDN's revenues come from its wind turbine contracts with GE.
Broadwind Energy Inc. (BWEN) should also experience a significant boost from GE's renewed emphasis on wind energy. BWEN, based in Nashville, Tenn., builds the towers that support GE's turbines, as well as the gear systems used by the turbines. BWEN also earns approximately ten percent of its gross revenue from its contracts with GE. However, BWEN stands to benefit more significantly from new wind turbine construction as the company is one of the major suppliers of physical and mechanical maintenance services to win farm developers and operators throughout the world.
While some analysts question the long-term viability of many green energy technologies, GE has a relatively long, successful history in this sector. Further, it is an important sector in GE's strategic plan for the future. As GE is currently demonstrating that it will aggressively pursue large wind energy projects, I expect that the company will increase its value — as well as that of its contractors and suppliers — as it expands in this sector.
Stocks Discussed: GE, GAMF, KDN, BWEN,
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