The Immelt Plan for Energy

Jun. 7.11 | About: General Electric (GE)

A lot was written a few years ago about the “Pickens Plan” for energy independence.

Some friends in West Texas were hosed by this nonsense. They really thought Boone Pickens was serious about building out the area's wind capacity and shipping it, via power lines, to distant cities. Turned out that was just PR. His money was invested in the “interim” step he wasn't talking about, retrofitting trucks and buses to run on “clean” natural gas.

The Jeff Immelt plan at General Electric Corp. (NYSE:GE) is similar. Whatever renewables can do now, at utility scale, he will enable them to do. But he, too, is a gas guy. And he will not be a technology leader, but step a few steps behind the leaders, where financial strength and distribution channels matter.

GE Energy's plans for this decade is thus to solve the intermittent problem of renewable energy by having natural gas as a stable, ready back-up.

The company's investment in eSolar is strategic, unlike the small “investments” being loudly touted by other mainline companies. The business of eSolar is heliostats, a bunch of mirrors pointed at a central point, where something is heated and the heat is harvested as electricity. It is not cutting edge. It is decades-old. But it's something utilities can understand. Small GE natural gas plants then take up the slack when the resource goes away, solving a problem that otherwise requires new technology. All this keeps eSolar from being a mere licensor of technology to China and India.

This is baseline power, a real-world concept utilities take seriously. The big money for GE here is in its FlexEfficiency gas turbine, which you can think of as a stereo tuner for electricity, with a knob that can be finely adjusted, just as a sound system can be adjusted.

The solar investment itself is not huge. A Turkish company is joining in the eSolar play. This is a means to gain more share in the natural gas turbine market. GE's own investment in thin film solar panels is also not huge, just 400 megawatts starting in 2013.

None of these moves, even the gas turbine play, is material to GE's overall results. They're part of a larger strategy, to make the stock less of a bet on the finance sector and more of a bet on the industrial sector, less Jack Welch's GE and more Tom Edison's. What's important to remember in all of this is that it's not airy-fairy green and gold, which is how the media tends to play it. It's hard-headed realism.

Disclosure: My retirement plan has a few hundred shares of GE common, both several years ago near the current price.