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GE Is Building the Electricity Grid of the Future. Here’s What We Found on a Tour.

GE wants to be a player in the electricity grid of the future. That will benefit its coming Vernova business.

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NISKAYUNA, N. Y–In General Electric ’s sprawling research center here, you will find two Nobel Prizes won by GE scientists, Thomas Edison’s desk, and current research that could help create the electricity grid of the future.

The research center in upstate New York works on everything, from electric flight to the electric grid. The grid is where some of the center’s most interesting technology might be impacting businesses the soonest.

It starts with transformers. Electric power is transmitted at high voltages to maximize efficiency. Voltage coming out of a power plant can be easily north of 100,000 volts. A transformer–essentially a big box with iron, copper and some oil–steps voltage up or down.

That high voltage entering another part of the system, like a substation, might be stepped down by a big transformer to a few thousand volts for transmission to homes. The much smaller transformers humming on telephone poles take that voltage and step it down to levels consumers are familiar with–about 240 volts.

GE showed Barron’s what it calls a flexible transformer It’s a massive piece of electrical equipment–the first of its kind–that would be purchased by utilities.

The flexible transformer comes with a “knob” that allows operators to alter the transformer’s impedance–a technical term partly describing electrical resistance. Variable impedance will be helpful as renewable power generation proliferates. The power output from solar arrays can very minute by minute. Having a flexible transformer can make managing power transmission from an source like that easier.

The flexibility also comes in how this new transformer can be deployed. It’s a little like a universal spare for utilities. Utilities, of course, have to have back up transformers in case one goes down. Transformers can take a year to build. No one wants a blackout for a year. What’s more, it turns out these massive transformers are all, essentially, bespoke. They are built for a specific location and configuration.

The flexible transformer offers a big a benefit for the utility industry. Instead of having 10 backups for 10 substations using 10 different voltage ratios, now one or perhaps two backup transformers can do the job.

There are other benefits and improvements represented by the flexible transformer. It’s smarter. It can react better to different conditions such as heat, lightning and storms, which helps the grid to be more robust. When the power goes out these days, it often because a transformer fails. GE says its new generation of transformer will fail less often.

GE scientists tell an engineering joke that if the inventors of the transformer came back today they would recognize the tech. Not much has changed. (Engineers love that joke.)

That can’t remain the case forever though as the grid gets more complex with the proliferation of generating sources such as wind, solar as well as battery backup power and all the solar roofs people are installing.

The grid of the future will require better, more flexible hardware. It will also required software to manage all the growing complexity. GE scientists are working on that too.

GE has a mini-grid of the future operating at the campus. Solar arrays are providing power and charging huge batteries that provide energy when the sun isn’t shining. All of that is being managed by GE hardware and software.

All this grid R&D benefits GE’s coming Vernova business. GE is breaking apart into three companies: One dedicated to aviation, another to healthcare and the remaining business, Vernova, will house GE’s gas power, renewables along with GE’s digital- and grid-technology businesses.

In essence, Vernova will contain the original power-generation business that goes all the way back to Thomas Edison. These days, GE makes everything from transformers to wind turbines. It even has a nuclear business. GE products are involved in about a third of worldwide electricity production.

Vernova is the business that investors have the toughest time valuing. GE is one of the leading producers of gas turbines, the giant engines that use natural gas to produce electricity. If your local utility, needs power quickly, it’s probably turning on a gas turbine to get the juice.

Investors wonder if natural-gas-powered electricity generation will decline as governments try to cut out fossil fuels. GE’s renewable business isn’t making money right now. And its digital and grid businesses aren’t reported as separate segments.

Barron’s believes Vernova could be worth in the range of $25 billion to $30 billion. That is based on valuations for comparable companies such as Vestas Wind Systems (VWS. Denmark) and Mitsubishi Heavy Industries (7011. Japan), which also makes gas turbines for power generation.

It’s also based on a belief that gas turbines will be with the world for a generation to come. Renewable transitions can’t happen overnight, and gas turbines can also burn hydrogen gas some day.

Barron’s valuation is probably higher than the business will trade for immediately after it becomes independent in 2024. Investor sentiment is pretty low right now.

But things could turn around. And the need to invest in the grid, making it smarter with software and more flexible with new hardware, represents some hidden upside for the coming Vernova business.

Just how big remains to be seen, but electrical power isn’t going away.

Write to Al Root at [email protected]

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