GE Gas Turbine Blade Issue Concerns Analyst

Lead analyst Stephen Tusa lowered J.P. Morgan’s rating on GE stock after “checks on two initial U.S. installations revealed failures of the first stage blade of GE’s H-frame gas turbine,” reported on September 20.

Tusa—who has long been critical of GE’s prospects—reportedly wrote, “The impact on ‘asset value’ from a failure at GE’s U.S. H-frame launch customer, which tough to estimate, represents a negative development for a company that has little wiggle room for more ‘shoes to drop.’ ”

GE Power President and CEO Russell Stokes posted an article to LinkedIn on September 19, presumably in an effort to rebuff the anticipated J.P. Morgan downgrade. “[T]he process of making better power plants doesn’t end when our technology leaves our factories,” Stokes wrote.

“Teething problems inevitably, and almost necessarily, occur, and our engineers and technicians are working closely with our customers to solve them,” Stokes said. “Every new product introduction includes a period after its launch where experts fine-tune and adjust the technology. This is normal. What counts is how one works and communicates with customers. We strive to always stay transparent, open to joint problem solving, and committed to delivering on our promises.

“The HA is no exception,” Stokes said, as he went on to mention delays at a project in Pakistan as one example of growing pains. “More recently, we identified an issue that we expect to impact our HA units. It involves an oxidation issue that affects the lifespan of a single blade component,” Stokes continued. “Obviously, this was a frustrating development, for us, as well as for our customers. But we have identified a fix and have been working proactively with HA operators to address impacted turbines. The minor adjustments that we need to make do not make the HA any less of a record setting turbine – they are meeting – and in many cases exceeding – their performance goals at every customer site today.”

The first GE HA gas turbine began commercial operation in July 2016 at the EDF Bouchain combined cycle plant in France. (The plant was selected as a POWER Top Plant in 2017, see “World’s Most-Efficient Combined Cycle Plant: EDF Bouchain.”) Stokes said GE has received orders for more than 80 HA turbines, more than half of which have already shipped to customers in the U.S., Europe, and Asia. Today, 30 HA gas turbines are in operation, with more than 175,000 fired hours of operation accumulated.

The HA turbine in combined cycle mode has proven to be a very efficient unit. The French plant was recognized in 2016 by Guinness World Records as the world’s most-efficient combined-cycle power station in the 50-Hz configuration, delivering net efficiency of 62.22%. This year, the Nishi Nagoya plant in Japan achieved 63.08% efficiency—a 60-Hz world record. Stokes said GE believes it will break the 64% efficiency mark “sometime around 2020.”

Yet, the achievements haven’t convinced J.P. Morgan’s Tusa that the company is on track for a turnaround.

“While the debate can rage around the structural versus cyclical nature of the power industry downturn is as bad as it seems, we believe there should be no longer any doubt that GE Power has company-specific issues,” Tusa reportedly wrote.

Aaron Larson is POWER’s executive editor (@AaronL_Power, @POWERmagazine).

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