Does General Electric Know What It Is Doing?

General Electric, a giant company with 280,000 employees and $120 billion in revenue, has run into extreme problems during the last few years. The price of its stock has crashed and the dividend has been reduced to practically nothing. This is, I think, the result of very bad management in previous years. Of its major divisions, Aviation (jet engines) and Healthcare (equipment) seem to be doing well. Renewable Energy and Power are more problematic. Both these divisions support the delivery of electricity. Renewable Energy makes wind turbines and Power makes gas and steam turbines.  Together these two divisions lost about $500 million on $36 billion sales in 2018.

In GE’s 2018 10-K report, the poor performance of the Power segment is blamed on “renewable energy penetration.” The implication is that GE is unable to sell as many gas and steam turbines because these are being replaced by renewable energy, meaning wind or solar power. But wind and solar power require backup plants that provide power when the erratic wind or solar is sleeping. Those plants almost always require gas or steam turbines. Wind and solar can’t displace fossil fuel plants, because those plants are needed to carry the full load when wind or solar is not generating electricity.

In the 10-K report, GE claims that “Renewable energy is in a rapid transition period and is on track to become a fully commercialized, unsubsidized source of energy, successfully competing in the marketplace against conventional energy sources.” This claim is hilariously ignorant. GE is repeating the propaganda of the wind and solar industries. GE is part of the wind industry, but it should not substitute propaganda for facts in its 10-K.

Wind or solar would become competitive if the price per kilowatt were reduced by approximately 70%. A 70% reduction is not remotely possible in the foreseeable future. The National Renewable Energy Laboratory projects that the cost of wind power will decline by 8% over the next 10 years.

Wind or solar is supplementary and erratic power. Large wind installations with thousands of turbines erratically increase and decrease power output. Output of less than 5% of capacity is common in the Texas wind system. Solar power does not work at night or when it is cloudy, and often it dies in the early evening, just as power demand reaches a maximum. If aliens suddenly carried away all the wind turbines in the United States, the electric grid would carry on without a ripple, using the backup plants. The economic contribution of wind or solar is a reduction in fuel consumption in the backup plants when the wind or solar is generating electricity. In a natural-gas plant the fuel to generate a kilowatt hour of electricity costs about two cents. But to generate a kilowatt hour with wind or solar costs about seven cents in favorable locations. (The cost for wind and solar is almost the same.) The cost is seven cents, the benefit is two cents, so the subsidy is five cents per kilowatt hour. Wind or solar would be competitive only if the seven-cent cost per kilowatt hour could be reduced to two cents, a 70% reduction.

Where does the five cent per kilowatt hour subsidy for wind come from? About two cents comes from the production tax credit, a 10-year, 2.4 cents per kilowatt hour federal subsidy. About 1.5 cents comes from tax equity financing, a complicated tax scheme authorized by the government that transfers money from the federal treasury to the wind developers. The remaining 1.5 cent subsidy comes from a variety of sources, including higher electric bills. These are approximate numbers given the diversity of wind installations and state policies. The cost of wind power is based on the initial capital cost of construction and the cost of ongoing maintenance.

These numbers and the competitiveness of wind or solar power are not mysterious. All serious analysts come to the same conclusions with minor differences. But the industry is prone to quote the cost of renewable electricity at the plant fence, often quoting an unsubsidized number that still includes some of the subsidies. The cost at the plant fence cannot be compared to the cost of fossil fuel electricity because erratic renewable energy cannot be counted on and has to be backed up by fossil fuel plants. Wind and solar impose additional costs that I am ignoring here. For example, special power lines are often needed. In Texas $8 billion was spent on power lines to bring wind energy from west Texas to East Texas. The backup plants often require investment to make them more agile in order to respond to the rapid changes in renewable energy, and are stressed by rapid changes in output, resulting in more maintenance. They have a lower duty cycle, increasing the capital component of the cost per kilowatt hour.

Among the pie-in-the-sky miracles touted by the industry is using electricity storage schemes to smooth out the erratic power from wind or solar. There are two semi-practical schemes for storing electricity: lithium batteries and pumped storage. Batteries have a place for short-term storage of power, say 10 minutes. Batteries to smooth the 17,000-megawatt Texas wind system would cost more than 10 times what the entire system cost. Pumped storage involves upper and lower lakes connected by a reversible hydroelectric system. Suitable natural lakes are rare. Pumped storage might be used to store cheap power at night and release it during the day. It is not practical for smoothing wind or solar due to the large lakes required and the cost of the hydroelectric installations.

It is not encouraging that General Electric cannot get well-known facts straight. This suggests that the people who write their 10-K reports don’t know what they are doing and don’t know what they don’t know, so they don’t bother to have experts within GE review their claims.

Norman Rogers writes often about renewable energy and climate change. Information about his book is here.

General Electric, a giant company with 280,000 employees and $120 billion in revenue, has run into extreme problems during the last few years. The price of its stock has crashed and the dividend has been reduced to practically nothing. This is, I think, the result of very bad management in previous years. Of its major divisions, Aviation (jet engines) and Healthcare (equipment) seem to be doing well. Renewable Energy and Power are more problematic. Both these divisions support the delivery of electricity. Renewable Energy makes wind turbines and Power makes gas and steam turbines.  Together these two divisions lost about $500 million on $36 billion sales in 2018.

In GE’s 2018 10-K report, the poor performance of the Power segment is blamed on “renewable energy penetration.” The implication is that GE is unable to sell as many gas and steam turbines because these are being replaced by renewable energy, meaning wind or solar power. But wind and solar power require backup plants that provide power when the erratic wind or solar is sleeping. Those plants almost always require gas or steam turbines. Wind and solar can’t displace fossil fuel plants, because those plants are needed to carry the full load when wind or solar is not generating electricity.

In the 10-K report, GE claims that “Renewable energy is in a rapid transition period and is on track to become a fully commercialized, unsubsidized source of energy, successfully competing in the marketplace against conventional energy sources.” This claim is hilariously ignorant. GE is repeating the propaganda of the wind and solar industries. GE is part of the wind industry, but it should not substitute propaganda for facts in its 10-K.

Wind or solar would become competitive if the price per kilowatt were reduced by approximately 70%. A 70% reduction is not remotely possible in the foreseeable future. The National Renewable Energy Laboratory projects that the cost of wind power will decline by 8% over the next 10 years.

Wind or solar is supplementary and erratic power. Large wind installations with thousands of turbines erratically increase and decrease power output. Output of less than 5% of capacity is common in the Texas wind system. Solar power does not work at night or when it is cloudy, and often it dies in the early evening, just as power demand reaches a maximum. If aliens suddenly carried away all the wind turbines in the United States, the electric grid would carry on without a ripple, using the backup plants. The economic contribution of wind or solar is a reduction in fuel consumption in the backup plants when the wind or solar is generating electricity. In a natural-gas plant the fuel to generate a kilowatt hour of electricity costs about two cents. But to generate a kilowatt hour with wind or solar costs about seven cents in favorable locations. (The cost for wind and solar is almost the same.) The cost is seven cents, the benefit is two cents, so the subsidy is five cents per kilowatt hour. Wind or solar would be competitive only if the seven-cent cost per kilowatt hour could be reduced to two cents, a 70% reduction.

Where does the five cent per kilowatt hour subsidy for wind come from? About two cents comes from the production tax credit, a 10-year, 2.4 cents per kilowatt hour federal subsidy. About 1.5 cents comes from tax equity financing, a complicated tax scheme authorized by the government that transfers money from the federal treasury to the wind developers. The remaining 1.5 cent subsidy comes from a variety of sources, including higher electric bills. These are approximate numbers given the diversity of wind installations and state policies. The cost of wind power is based on the initial capital cost of construction and the cost of ongoing maintenance.

These numbers and the competitiveness of wind or solar power are not mysterious. All serious analysts come to the same conclusions with minor differences. But the industry is prone to quote the cost of renewable electricity at the plant fence, often quoting an unsubsidized number that still includes some of the subsidies. The cost at the plant fence cannot be compared to the cost of fossil fuel electricity because erratic renewable energy cannot be counted on and has to be backed up by fossil fuel plants. Wind and solar impose additional costs that I am ignoring here. For example, special power lines are often needed. In Texas $8 billion was spent on power lines to bring wind energy from west Texas to East Texas. The backup plants often require investment to make them more agile in order to respond to the rapid changes in renewable energy, and are stressed by rapid changes in output, resulting in more maintenance. They have a lower duty cycle, increasing the capital component of the cost per kilowatt hour.

Among the pie-in-the-sky miracles touted by the industry is using electricity storage schemes to smooth out the erratic power from wind or solar. There are two semi-practical schemes for storing electricity: lithium batteries and pumped storage. Batteries have a place for short-term storage of power, say 10 minutes. Batteries to smooth the 17,000-megawatt Texas wind system would cost more than 10 times what the entire system cost. Pumped storage involves upper and lower lakes connected by a reversible hydroelectric system. Suitable natural lakes are rare. Pumped storage might be used to store cheap power at night and release it during the day. It is not practical for smoothing wind or solar due to the large lakes required and the cost of the hydroelectric installations.

It is not encouraging that General Electric cannot get well-known facts straight. This suggests that the people who write their 10-K reports don’t know what they are doing and don’t know what they don’t know, so they don’t bother to have experts within GE review their claims.

Norman Rogers writes often about renewable energy and climate change. Information about his book is here.