Thursday, September 02, 2004

Alternative Energy Giant
Seeing alternative energy as still largely the purview of small, aggressive start-ups may be an artifact of the late dot-com boom, or a consequence of its marginal contribution to the international energy majors, which still earn essentially all their profits from oil and gas. But there is another mammoth enterprise that seems quite interested in the potential of alternative energy. Over the last couple of years, General Electric has made an impressive series of acquisitions in this sector, including the purchase of Enron Wind in 2002, its acquisition earlier this year of AstroPower, and its recent purchase of ChevronTexaco's gasification technology. GE also recently opened a research facility in Germany devoted to alternative energy.

The combination of these businesses creates a very respectable alternative energy portfolio, in the hands of a company with both deep pockets and a track record of moving new technology into the market. I hesitate to say "synergies", but there may be genuine cross-benefits between these businesses and GE's other lines.

Even before these acquisitions, GE was an important player in this space. Although it may seem quite mainstream now, the successful domination of the power generation business by aero-derivative gas turbines, starting in the 1980s, is one of the most dramatic energy shifts of recent times, and GE was one of the prime movers and major beneficiaries of this change. So here is a company that has already had a hand in a major energy transition, investing in an array of technologies that could be as important in the next decade as the gas turbine was in the last.

In particular, the combination of gasification, which turns coal or other environmentally less desirable fuels into a clean synthetic gas, with GE's gas turbine expertise could be a big winner in a market that is hungry for clean electricity but facing the prospect of high natural gas prices for years to come. Gasification also has another nice feature, with concerns about climate change growing, at least in Europe. The carbon dioxide that comes out of the process is much more concentrated than the flue gas from a conventional coal plant or gas turbine, lending itself to easier handling should CO2 disposal become attractive.

All of this is both good news and bad news for other alternative energy developers, given GE's past strategy of "1, 2 or out." They bring momentum and credibility to this market, but they are also a heck of a competitor.

By the way, the blog will be on holiday until Wednesay, September 8.

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