American conglomerate GE announced last week that it would begin mass layoffs as the business struggles to cope with disruptions to the energy supply industry.
All up, the company has announced that it will fire around 12,000 staff, which represent approximately 18% of its total workforce.
The layoffs will primarily affect the company’s GE Power division and will be mostly focused on operations in Europe.
According to GE, the job losses have been precipitated by changes in global energy generation, particularly the shift towards renewable energy.
“This decision was painful but necessary for GE Power to respond to the disruption in the power market, which is driving significantly lower volumes in products and services,” said Russell Stokes, president and CEO, GE Power.
“Power will remain a work in progress in 2018. We expect market challenges to continue, but this plan will position us for 2019 and beyond.”
As well, the job cuts are to play a role in a larger commitment by GE Power to find $1bn in cost savings in 2018, which in itself plays into efforts by the wider GE conglomerate to find $3.5bn in structural cost reductions over the 2017-2018 period.
The announcement also follows similar moves by competitor Siemens which cut 6,000 jobs global as it faces similar market pressure.
Renewable energy disruptions
The primary problem for companies like GE Power and Siemens is that they have overinvested in machinery like turbines which primarily service coal and gas power plants.
While the vast majority of the world’s electricity supplies are being generated still from these fossil fuels, power generation is in a period of rapid change.
An ever-rising number of new power plants under construction are instead using renewable energy sources such as solar, wind and hydroelectric power.
These renewable plants, which are making up a significant fraction of new construction in the energy sector, use different machinery to what GE and Siemens are optimized to build, and thus these companies find themselves with a supply glut for items like large turbines.
This glut, and the subsequent loss of income it represents, is causing problems for these business and forcing them to rapidly remake themselves for this new era. Unfortunately for these companies’ workers, this process involves painful job cuts.