By Daisuke Wakabayashi BOSTON, Oct 11 (Reuters) – Profits and sales at General Electric's (GE.N: Quote, Profile, Research) energy division have fallen for seven straight quarters, but high oil prices and tougher regulatory standards might be the catalysts needed for an earnings rebound.
GE has been touting the benefits of renewable energies for years, but technological improvements and lower prices are making the cost advantage argument for solar, wind and other alternative energies more convincing.
The company reported third-quarter earnings last Friday and said its energy division profits fell 35 percent and revenues declined 5 percent.
GE is banking on clean energy demand to drive a 10 percent to 15 percent revenue rise in 2005.
"This is a real business generating real profits," said John Rice, head of GE's energy business, which accounted for 14 percent of the company's sales in 2003.
The business has suffered from a downturn in the wholesale U.S. electricity market and the collapse of Enron Corp.
The Stella Group Ltd, a Washington D.C.-based strategic marketing firm that advises on alternative energy, forecasts that renewable energies could account for 20 percent to 25 percent of electricity supply by 2025 from 6 percent in 2003.
"As the technology improves, the regulatory factors start to ease and more states get on the bandwagon. It's going to be parallel actions that bring the tide of renewable energies into play," said Scott Sklar, president of The Stella Group.
Hydropower and biomass — the burning of organic matter to produce energy — are the most prevalent renewable energies, but GE is making inroads into the small but rapidly-growing solar and wind power markets.
Already well-established in hydropower, GE bought Enron's wind turbine business in 2002 and solar products manufacturer AstroPower this year.
Revenue from GE's wind power business more than doubled to $1.2 billion in 2003, but growth has slowed this year as new projects came to a halt after a U.S. tax credit expired. The credits are expected to be renewed later this month.
Earlier in October, GE won an order for 660 wind turbines for a project in Canada. Those turbines will generate 990 megawatts of energy, enough to power more than 300,000 households.
SOAKING UP RAYS
GE is a relative newcomer to solar energy, a field currently dominated by semiconductor manufacturers since solar cells and microchips are made from silicon.
Global output of solar energy is forecast to be 3,500 megawatts in 2013, nearly six times the output in 2003, according to GE Energy.
GE, based in Fairfield, Connecticut, was wary of the high-volume, capital intensive business of solar cell production, but it recognized the potential in servicing, packaging and distributing solar panels.
"I don't think, long-term, the advantage we bring to the solar industry is to win the wafer game," said GE's Rice, adding there is the possibility of partnering with a solar cell manufacturer.
But no matter how popular renewable energies become, Rice said coal-burning will not end in the near future.
As a result, GE is aggressively marketing power plants that burn coal more cleanly than conventional coal-fired plants.
GE's integrated combined-cycle gasification systems, which convert coal into a synthetic gas that can be used as fuel for a turbine, often carry a 20 percent premium to traditional pulverized coal-fired plants, but can reduce harmful emissions by 50 percent.
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