Could Ansaldo/ Shanghai Electric be the inheritors of Alstom’s sequential combustion gas turbine technology

There are reports that GE may have offered to sell off some of Alstom’s sequential combustion gas turbine technology to Ansaldo /Shanghai Electric:

PowerTechnology:

US-based General Electric (GE) has confirmed it is prepared to sell parts of Alstom’s gas turbine assets to Italian Ansaldo Energia in order to gain European Union approval for the proposed $17bn acquisition of Alstom’s power business.

Sources have been quoted by Bloomberg as saying that GE informed the EU that it is willing to divest some of Alstom’s sale and servicing activities to the Italian firm, along with certain intellectual property.

Alstom has also agreed to lower the prices of its energy assets to support GE’s efforts to win anti-trust clearance from the European authorities.

Even with Shanghai Electric’s deep pockets I don’t see that Ansaldo could come out with a sequential combustion engine in less than 5 years and perhaps not for a decade. Ansaldo does not have a tradition of breakthrough innovation and neither does Shanghai Electric. The current Ansaldo engines could not be easily modified to cater for sequential combustion. They would have to come out with a completely new machine. More importantly they would need new compressors for the higher pressure ratio that sequential combustion demands. And I don’t see either Ansaldo or Shanghai Electric developing – or even having the capability to develop –  a brand new compressor anytime soon.

However if the EC’s requirements are seen as helping the Chinese (via Ansaldo) gaining a clear foothold in Europe, the EC will not be very popular in France or even with Siemens. In fact this is the argument being used by the French government to urge the EC to approve the deal quickly.

In any event GE’s “remedies” must contain two elements I think

  1. a “sale” of some IP or of that IP being made open source – and this might well involve the sale of some IP to Ansaldo /Shanghai Electric,
  2. a divestment of some of Alstom’s service business and this could be either by a divestment of a small part (not more than 10 installed engines in my estimation) of the service business for Alstom’s GT26 (probably not GT24) fleet, or by a complete or partial divestment of Alstom’s service business for non-Alstom machines.

It is conceivable that Alstom (not GE) has agreed to exclude their subsidiary PSM from the GE deal and then to sell this unit to a 3rd party. But a buyer other than Ansaldo could probably pay much more for this unit which offers an entry into the US marketplace. I am not sure that GE would be party to allowing the Chinese into the US market place to service “GE Frame 6B, 7E/EA, 9E and 7FA machines, the Siemens/Westinghouse 501F (SGT6-5000F) engine and the Mitsubishi 501F engine.”

Whatever actually transpires, the heavy duty gas turbine playing field is seeing upheavals of a kind not seen since ABB divested to Alstom in 2000. With a GT market cycle of 7-8 years, that was two market cycles ago. The next 2 decades (3 market cycles) will probably be dominated by an era of relatively low gas prices. A gas glut and a gas turbine boom could well see the market grow such that entry barriers are reduced and we may see some new players being able to break in.

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4 Responses to “Could Ansaldo/ Shanghai Electric be the inheritors of Alstom’s sequential combustion gas turbine technology”

  1. AP Says:

    It’s in Italian but add substantial amount of info:

    http://www.ilsole24ore.com/art/finanza-e-mercati/2015-07-30/ge-cede-turbine-alstom-ad-ansaldo-063826.shtml?uuid=ACzvJ2Z

  2. ktwop Says:

    Interesting.
    The article seems to suggest that some of Alstom’s products or part of their products (and not just IP) could go to Ansaldo with GE receiving €(?) 500 million. More interesting is the idea that the R & D facilities at “Baden” could go to Ansaldo. The old BBC (later ABB, later Alstom) R & D was at Birr rather than Baden. This might be good news for jobs at Baden/ Birr since they would probably have been heavily downsized under GE ownership. And certainly the people who know the most about the challenges of sequential combustion are currently in Birr/Baden.
    In one sense it would be disappointing for the technology. I am somewhat doubtful about Ansaldo’s R & D capability. Sequential combustion is a very tough tiger to have by the tail. GE or Siemens or Mitsubishi would have the technological “machismo” to ride that tiger. I am not sure that Ansaldo and Shanghai Electric could.
    It could also be possible that either or both the GT11N2 or the GT13E2 could be sold as products. Neither has sequential combustion and GE can do without them, though they do provide some benefits in some niche markets.
    The article also mentions Doosan for 60 Hz but Doosan has little technology to bring to Ansaldo’s table. They do have cash to bring but they are themselves struggling to integrate all their recent acquisitions. They are essentially a boiler maker trying to leap into rotating machinery – and as history has shown turbine development (both gas and steam) needs to lead and not lag behind the boiler.
    It could well be that the EC see Ansaldo as a way of maintaining the level of competition (at least in a few years if not immediately), but access to the European market for Shanghai Electric is the “price” to be payed.

  3. anonymous Says:

    deleted at commenter’s request./ktwop

  4. ktwop Says:

    I can imagine the apprehensions at PSM.
    There are two different service businesses involved here. One is the service of the Alstom fleet of engines and the other is the service of non-Alstom engines. Even the service business of the Alstom fleet could be split into the service of the conventional engines and the service of the sequential combustion machines.
    Logic says that if Ansaldo is getting some of Alstom’s IP then it makes sense to also get some of the service business associated with that IP. That would be service on some of Alstom’s existing fleet. As I have understood matters, PSM only deals with non-Alstom engines. Owning PSM would not then help Ansaldo develop the Alstom IP further.
    The EC’s concerns for competition in the service business of non-Alstom engines might be satisfied by ownership from any 3rd party (including Ansaldo but also by anybody other than GE or Alstom). I suspect the EC would not like PSM to be owned by Siemens or Turbocare – but that’s just my guess.
    In the closing stages of a mega-deal, perceptions might have a bigger impact than logic.
    Good Luck.

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