General Electric’s profitability collapse over the past few years can be largely attributed to the company’s inability to judge the accelerating pace of the global energy transition away from fossil fuels and toward renewables, a new study claims.
The analysis comes from the Institute for Energy Economics and Financial Analysis (IEEFA), which says that “GE made a massive bet on the future of natural gas and thermal coal, and lost,” concluding:
GE destroyed an almost unprecedented US$193 billion (bn)1 or 74% of its market capitalization over 2016-2018.
IEEFA acknowledges a number of “other management missteps,” but claims that “this value destruction was driven in large measure by the collapse of the new thermal power construction market globally—a collapse which caught GE entirely by surprise.”
GE’s investors have lost billions as well, as the formerly most valuable company in the world now has a current market capitalization of $87 billion. IEEFA hits another few key points early in its study:
GE has lost more than a half-trillion dollars in market value since its all-time high of $600bn, back in 2000.
Much of GE’s precipitous drop came in 2016-2018, when it badly misjudged the acceleration of the energy transition post-Paris Agreement.
GE assumed wrongly that demand for natural gas and coal would continue to track global economic growth.
The full report delves into the timeline of how GE’s Power division doubled down on natural gas and coal, and how quickly it fell apart within the past three years, before concluding that global investments must be rapidly and dramatically aligned to match the goals of the Paris Agreement.
While renewable energy costs hit new lows in 2018, the International Energy Agency found that installations stalled worldwide, adding about the same capacity as in 2017.
IEEFA’s report is presented as a cautionary tale, and the organization has an obvious focus of “accelerating the transition to a diverse, sustainable and profitable energy economy” — a noble goal — and it makes a number of good points. GE has had a number of costly issues, but the focus here is on its Power division, in particular. (GE does have a Renewables division, which is working on projects like the massive Haliade-X offshore wind turbine, pictured above the headline.)
One big takeaway for us is how a situation like this doesn’t have to be limited to one corporation. It behooves other companies to stay ahead of the curve on the energy transition, as opposed to clinging desperately to fossil fuels.
We’re seeing a number of oil and gas giants dip their toes in renewable waters, if not ramp up investments considerably, and some shareholders are pushing companies to divest in fossil fuels or to align their goals with the Paris Agreement.
There is still a long, long way to go on all counts, but some corporations are beginning to see at least a sliver of light that can be found in embracing the global energy transition — even if they’ve been dragged kicking and screaming to get to that point.
For those who continue to take a short-term view, however, it may be too late, even if they don’t realize it yet.