A series of acquisitions among major suppliers in the gas turbine market over the past couple of years has changed much of the global landscape for gas-fired power. Several long-standing firms have been swallowed up, while others have gained new prominence thanks to conditions laid on the big deals by regulators. What this means for generators and developers remains to be seen, but some trends are beginning to emerge.
In the space of about a year, the global gas turbine landscape underwent some significant changes as an array of smaller firms were snapped up by heavyweights GE and Siemens, and regulators charged with scrutinizing and approving the acquisitions forced additional shuffling of business units. What that means for those working in the gas turbine space remains to be seen, but it’s clear things are no longer what they were.
GE and Alstom
The biggest shift came with GE’s $10.6 billion acquisition of most of Alstom’s power and grid business units. Begun in early 2014, the deal was originally going to be even bigger, encompassing all of Alstom’s gas turbine, wind, hydro, nuclear, and grid businesses. That bid alarmed many in the French government, who were concerned about foreign ownership of some of the nation’s most important manufacturing elements. As of 2013, Alstom’s energy division had $15 billion in worldwide sales and employed 46,000 people globally, while its transmission and distribution division generated $5.2 billion in sales and employed 18,000. The deal also comprised the sale of GE’s rail signaling business to Alstom for $800 million.
The bid sparked concern in rival Siemens, which hurriedly drafted a competing offer that was ultimately never submitted, despite invitations from French bureaucrats. Shortly after the GE bid was announced, the French energy and economic ministry issued a decree revising a 2005 law, originally covering the defense industry, that gave it the power to block foreign acquisitions in the energy sector—a move designed to slow things down until the acquisition could be thoroughly reviewed.
Alstom’s board formally accepted the GE offer in June (Figure 1), but things were far from done. The European Commission (EC) also needed to sign off on the deal, a process that took more than a year. The EC was concerned that the acquisition would eliminate one of GE’s main competitors, and the antitrust investigation ultimately forced some significant changes.
Among the largest was that, rather than selling the entirety of its gas turbine unit to GE, Alstom would instead sell portions of it to Italian firm Ansaldo Energia. This comprised Alstom’s 50-hertz GT26 and GT36 turbine technology, existing upgrades and pipeline technology for future upgrades, a large number of Alstom engineers, and two test facilities for the turbine models in Birr, Switzerland.
GE said when the deal—its largest ever despite the reduced scope—closed in November 2015 that it represented a major step in the firm’s strategy to become a “simpler, more focused” company by concentrating on its core industrial units and spinning off other elements such as its home appliance division and financial services business GE Capital. As part of the acquisition, GE Power and Water was combined with Alstom Power to become simply GE Power.
“The completion of the Alstom power and grid acquisition is another significant step in GE’s transformation,” said Chairman and CEO Jeffrey Immelt. “The complementary technology, global capability, installed base, and talent of Alstom will further our core industrial growth. We are open for business and ready to deliver one of the most comprehensive technology offerings in the energy sector for our customers.”
Siemens, Rolls Royce, and Dresser-Rand
The prospect of facing a company that would command more than half the world market for industrial gas turbines spurred predictable reactions from GE competitors, most notably Siemens. But the request from French regulators for a rival bid drew only a draft proposal from the company’s board that never coalesced into a formal offer. That was likely because the synergy between Siemens and Alstom was considerably less than that between Alstom and GE. Under the proposal, Siemens would have taken Alstom’s energy division while transferring its transportation division to the French company. But major strategic differences between the two firms and considerable overlap between their operations presented substantial obstacles to such a deal, according to observers—something Siemens’ CEO Joe Kaeser appeared to recognize a week later when he said the company would not be pressured into a “hasty” deal that could result in a bidding war.
Despite having lost out on Alstom, Siemens was already in the midst of a series of acquisitions of its own. In May 2014, it announced that it was picking up Rolls-Royce’s aeroderivative gas turbine and compressor business for $1.3 billion. The deal included exclusive access to future Rolls-Royce aeroturbine technology developments in the 4-MW to 85-MW power range as well as preferred access to supply and engineering services over the next 25 years. Siemens said the deal would “close a technology gap” in its gas turbine portfolio. The deal closed in December 2014 as the EC was still vetting the GE-Alstom acquisition.
Siemens further bolstered its small turbine and compressor business the following year with its $7.8 billion acquisition of oil and gas equipment supplier Dresser-Rand, which Siemens said would be combined with its existing compressor unit and its related service business to become a new unit within its Power and Gas division.
Lisa Davis, the head of Siemens’ energy division (Figure 2), said when the deal closed in June 2015, “With Dresser-Rand on board, we now have a comprehensive portfolio of equipment and capability for the oil and gas industry and a much expanded installed base, allowing us to address the needs of the market with world-class products, solutions and services.”
That, however, would be it for the time being, Davis said a few months later, noting that Siemens needed to focus on integrating the two new businesses into its operations.
Ansaldo Energia and Asian Agreements
Italy’s largest generation equipment supplier was a minor player in the gas turbine market until recently. Beginning with technology it licensed from Siemens in the early 1990s, it had installed only 100 gas turbines by 2008. That license deal ended in 2004, though Ansaldo was allowed to use and improve the designs it had already developed. When owner Fondo Strategico Italiano began seeking partners in the early 2010s, one bid it drew came from Siemens. That €1.3 billion bid for the entire firm in 2012 was not accepted, and a subsequent deal with Korean firm Doosan was blocked by the Italian government.
Chinese firm Shanghai Electric Group finally purchased a 40% share of the company in 2014. Immediately after the deal, Ansaldo announced cooperation agreements with Shanghai Electric and Doosan. With the Chinese firm, it would produce gas turbines in China for Asian markets, while the Doosan agreement would cover 60-Hz models for North America, Brazil, Saudi Arabia, and South Korea. In response, Siemens filed an arbitration action with the International Chamber of Commerce (ICC) Arbitral Tribunal to block the agreements and terminate the 1991 license.
In scrutinizing GE’s move to acquire Alstom, the EC was deeply concerned about the 50-Hz gas turbine market being dominated by two firms—GE and Siemens—should the acquisition go through as intended. Spinning off that business would preserve the status quo, which meant another firm needed to acquire it. With third-largest manufacturer Mitsubishi Hitachi Power Systems (MHPS) being based in Asia, Ansaldo’s base in Italy made it a natural option, all the more so because, the EC noted, the firm had “more limited R&D capabilities, a narrower product range and a more limited geographic reach.” Taking on Alstom’s 50-Hz products would change that.
Said EC Commissioner Margrethe Vestager, in charge of competition policy, “Divestment of Alstom’s key technology to produce heavy duty gas turbines to Ansaldo will ensure that European business and consumers continue to benefit from this innovation and know how.”
In addition to divesting itself of Alstom’s GT26 and GT36 product lines and their research and development assets, the EC also required GE to spin off Alstom’s Power System Manufacturing (PSM) subsidiary, which provides aftermarket turbine services for many GE customers. The prospect of GE swallowing up PSM’s business, and the potential impact on competition in the service market, was concerning enough for EC regulators to require that PSM be sold instead to Ansaldo.
The move makes Ansaldo a major player in the global 50-Hz market, with significant manufacturing and service capabilities it did not previously possess. Its position was further strengthened in August 2016, when the ICC rejected Siemens’ challenge to the 1991 license agreement.
“Ansaldo Energia today becomes a more important global player,” CEO Giuseppe Zampini said when the GE deal closed in February 2016, “with an even broader product portfolio and a unique service technology platform covering several gas turbines produced by other OEMs, including the most advanced models. This would not be possible without new skills, new vision and new enthusiasm.”
Implications of Recent and Future Acquisitions
With the Alstom acquisition, GE Power became GE’s largest industrial business, with estimated future annual revenues of $30 billion. That includes a lot more than gas turbines, which fall under the Gas Power Systems division.
For the time being, GE intends to continue offering separate upgrade packages for its GE and Alstom turbine lines. It’s already contracted for several turbine upgrades using Alstom’s legacy MLX2 solution at plants in the UK and Vietnam. GE Power Services Vice President Joe Anis said in a blog post that the company “will support operators with spare parts, repairs, upgrades and multi-year agreements for all existing Alstom and GE products, regardless of technology,” including Alstom GT13E2, GT24, and GT26 turbines.
A little over a year after the deal closed, it’s clear GE plans to exploit Alstom’s expertise in steam and balance-of-plant equipment to offer “bumper-to-bumper” services to plant owners (Figure 3). That’s something GE wasn’t able to do before. By the end of 2016, GE Power Services CEO Paul McElhinney said the company had closed “hundreds of millions of dollars in new contracts worldwide to service gas and steam turbines.”
One new offering, announced in June 2016, integrates GE’s 60-Hz Enhanced Steam Path upgrade with Alstom tech to bring the upgrade to the 50-Hz market. GE has made the “digital power plant” a major focus of its future (see “Big Data and the Industrial Internet Meet the Power Plant” in the January 2016 issue), and being able to leverage Alstom’s expertise means being able to bring digitization to steam-side components in addition to gas turbines, McElhinney said. GE sold the first installation of its Operations Optimization software for a GT26-based plant in December.
Unlike Siemens, GE is not done with acquisitions to further build out its gas turbine business. GE Power CEO Steve Bolze told Bloomberg last June that it’s still on the hunt for smaller firms that can help improve its offerings in service and digital capabilities. One of these was NeuCo, a software firm GE acquired in April 2016 to leverage its expertise in power plant optimization. (See “Using Neural Network Combustion Optimization for MATS Compliance” in the February 2014 issue or at powermag.com.)
Siemens’ acquisition of Dresser-Rand hasn’t proven quite so promising. Though energy operations head Davis insists the long-term view is still positive, the division has been hit hard by the collapse in oil prices since the deal closed, something that’s meant a major contraction of the oilfield services market, Dresser-Rand’s core business.
GE’s ambitions of acquiring rival services firm Baker Hughes could present another challenge. Still, Davis remains optimistic. She told the Wall Street Journalin November that Siemens, like GE, has big plans for digitizing its energy offerings, leveraging the company’s deep experience with electronics and control technology. In addition, it is also seeking to acquire software firm Mentor Graphics, which sells industrial applications for design and testing, while moving to spin off its $15 billion health-care division.
In April the company announced its “Digital Services for Energy,” powered by Sinalytics. Siemens describes the services as “ ‘intelligent knowledge systems’ that are enabled by advanced algorithms, sophisticated data analytics and pioneering machine-learning, combined with domain know-how, to create new business models that are continuously fed by as-operated and as-maintained fleet and unit-specific data.”
Ansaldo, meanwhile, made its first GT26 sale less than a month after closing the deal with GE. The eight-turbine deal with a consortium led by Mitsui for two plants slated for service in Oman by 2019 makes clear that the firm intends to aggressively compete with GE, Siemens, and MHPS for business outside of Europe. ■
—Thomas W. Overton, JD is a POWER associate editor.