Visibility key to GE Vernova's wind power revival: Abate

GE Vernova has onshore wind turbine order backlog visibility beyond the first half of 2025, a sign its strategy to restructure the business for long-term, profitable growth after a planned 2 April spin-off is making progress, according to the head of the wind business.

The OEM’s equipment backlog is both growing and getting more valuable, he said, noting that it stood at $9.3bn at the start of this year versus $6.5bn on 1 January 2023.

This year’s backlog is about 70% from the US, up significantly from around 45% a year earlier, reflecting greater demand driven by federal tax credits available to projects in the Inflation Reduction Act (IRA), the landmark US climate law.

GE Vernova defines its backlog on a remaining performance obligation (RPO) basis, which is a financial metric that refers to total contracted revenue from products yet to be delivered to customers and not yet recognised as revenue.

This deferred and unbilled revenue affords visibility into future earnings and supports financial planning.

Abate told investment analysts that the backlog is not only growing, but as important is the 10 percentage points higher profit margin embedded within it. “So, we say margin expansion in sight, that’s what we’re talking about,” he said.

Last month, GE Vernova in a regulatory filing said it expects Wind to return to profitability in 2024, “driven by lower costs, better pricing, and more product standardisation and selectivity,” as well as other impacts spurred by IRA.

The OEM aims to achieve a $2bn swing in earnings before interest, taxes, depreciation and amortisation (Ebitda) at the end of this year from 2022.

Key to that effort is lean manufacturing and using it to drive structural productivity, while moving toward a more simplified product suite with three “workhorse” turbine platforms, which simplifies and focuses R&D spend.

Other moves include consolidating GE Vernova’s footprint, reducing employee layers to bring its teams closer to customers, and repositioning manufacturing resources closer to strategic markets, according to Abate.

Lean manufacturing is a production method that cuts waste, creates customer value, and seeks continuous improvement. Anything that doesn’t add value that customers are willing to pay for is waste, according to the lean concept.

“Our fixed cost as a percentage of our revenue has dropped six points, and this has reduced our breakeven point of our business to less than 1,000 units a year,” he said. US projects installed 2,726 GE Vernova onshore turbines in 2023, according to American Clean Power Association, a national trade group. The OEM did not provide a number for additions elsewhere.

With lean driving improved standard work and moving production lines, GE Vernova could flex its manufacturing capacity as it sees IRA and other impacts in the markets, said Abate, adding, “As that volume goes up, we can flex our capacity up with minimal investment.”

With the new breakeven point, “We can maintain the commercial selectivity, and we don’t have to chase volume to be profitable and drive our margins,” he said.

GE Vernova, until now a division of General Electric, comprises three businesses: Electrification including grid and storage with $6.4bn in 2023 revenue, Power that encompasses gas, hydro, nuclear, and steam technologies ($17.4bn), and Wind both offshore and onshore turbines, and LM Wind Power, which designs and manufacturers rotor blades ($9.9bn).

Following the spin-off, parent GE will operate as GE Aerospace, ending almost 132 years of operation as perhaps America’s best-known conglomerate.