GE Invests in Ecomagination R&D - Analyst Blog

General Electric Co. (GE) met its $5 billion investment target for ecomagination research and development one year ahead of schedule in 2009. The company plans to invest up to $10 billion in the next five years.

The ecomagination research and development project was started by General Electric in 2005 with a goal of producing energy efficient and environment-friendly products. The project has provided huge returns for the company with over $18 billion of revenue derived from these products in 2009. The company intends to further increase its 2010 revenue from ecomagination products.

These products have proved to be quite friendly to the environment due to their economical consumption of water and effective waste water management. Usage of water declined by 30% compared with 2006, outperforming the original target of 20% by 2012.

Emission of greenhouse gases by various combustion projects has been a matter of great concern. These gases greatly affect the temperature of the Earth, leading to global warming. General Electric’s ecomagination products aid in the reduction of greenhouse gas release and also in efficient use of energy. By employing these products, it has reduced the release of greenhouse gases from its plants by about 22% in comparison with 2004.

The success of such projects largely depends on public awareness. Therefore, General Electric plans to increase its interactions with the public. In the near term, the company will launch a website, which will enable people to put forward their questions and queries.

Recently, GE Energy Financial Services, a unit of GE, entered into an agreement with a Spanish company, Abengoa, to develop a power generation plant in Mexico. The companies will invest $180 million in the project, which is expected to help the government in reducing greenhouse gas emissions by 50% in comparison with 2002 by 2050. This will be the largest cogeneration power plant in Mexico .

A number of companies, such as Abbott Laboratories (ABT), Advanced Micro Devices Inc. (AMD), Merck & Co. Inc. (MRK), and Xerox Corporation (XRX), have been working on projects to employ processes and products that would decrease greenhouse gas emissions from their plants. According to a global survey by McKinsey in March 2010, more than 50% of companies consider sustainable use of resources as an important part of any corporate plan, but only 30% are actually investing in business plans concentrating on sustainable use of resources.

Operating in more than 100 countries globally and employing about 300,000 people worldwide, General Electric Co. is a diversified infrastructure, finance and media company. Within the energy sector, the company aims to develop and install technology for the efficient use of natural resources. The major competitors of General Electric are Honeywell International Inc. Co (HON), Siemens AG (SI), and United Technologies Corp. (UTX).

We currently maintain our Neutral recommendation on General Electric.