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In 2015, the French company Alstom sold the world's largest nuclear steam turbine to General Electric. The French government controversially approved the sale, then spent nearly a decade trying to buy it back in today's video that time when France sold off the world's biggest nuclear steam turbine. Today's video is brought to you by the Asian Armitage Patreon. When we talk about nuclear energy, we usually focus on the nuclear reactor. Power plants have two sections. The reactor is in what we call the nuclear island. The nuclear island is where the reactor produces heat and hot steam. It is provided by a company like Westinghouse or General Electric. The other major part of the plant is the conventional or turbine island as the name implies. The conventional island contains the turbines, generators and condensers that turn that hot steam into electricity. The nuclear steam turbine sits at the heart of the conventional island. The plant literally does not work without it. Nuclear reactors produce a different steam than their thermal plant cousins. The steam produced by fossil fuel fired thermal stations and is very hot and dry. Inside the plant. Steam is run through pipes at temperatures as high as 1000 degrees Celsius to dump even more heat into it. This superheating evaporates any remaining water droplets in the steam and also adds thermal margin to prevent condensation back into water. The steam can reach temperatures of 540 to maybe even 600 degrees Celsius. Nuclear steam, on the other hand, is not as hot, about 265 to 290 degrees Celsius. It is also less pressurized than thermal plant steam. And that is for obvious safety reasons. Reactor temperatures can only get so high before the metal cladding holding its uranium fuel starts to oxidize or produce potentially explosive hydrogen gas. Thus, a nuclear reactor cannot superheat its steam. You can try to introduce fossil fuel heat to do it, but that is unusual. Without the additional thermal energy margin, the nuclear steam gets quite wet as it passes through the nuclear turbine. By the time it reaches the later stage low pressure blades, the steam has condensed and expanded in volume a great deal. The consequence of this is that we must make the blades physically longer to keep get the surface area necessary to extract as much energy as possible. Such longer, heavier blades exert stronger centrifugal forces. And that is why many modern nuclear steam turbines run at 1500 or 1800 RPM, a setting known as half speed. Wet steam poses multiple risks. It worsens turbine stage efficiency by impeding aerodynamics and over time, water droplets can cause mechanical damage to the blades like erosion Fatigue, corrosion, pitting or oxidation. Within this niche world of nuclear steam turbines, Alstom is the world leader with about 30 to 40% market share and 136 units in operation around the world, including their flagship turbine, the Arabelle. The Arabelle is the largest and most powerful nuclear steam turbine in the world. The turbine emerged out of France's N4 program, a plan started in the late 1970s to develop a new generation of larger nuclear reactors. These bigger reactors, about 1,500 megawatt electric or so, needed a bigger turbine to pair with. So Alstom built what it labeled the most powerful steam engine in the world. The Shu B1 Aerovel turbine, started up in 1996 and capable of producing 1,550 megawatts, weighs 3,700 tons and is 50 meters long. It boasts a maximum blade length of 1.45 meters. The Arabelle's high and intermediate pressure sections are housed inside a single casing. Steam flows through those stages in a single flow to reduce leakage. After exiting the intermediate stage, the expanded steam passes through reheaters and moisture separators, the intention being to reheat and dry out the steam. Then the steam enters the massive low pressure stage with the blades made as large as possible to squeeze out the last bit of energy. In 2012, Alstom announced the LP75 last stage blade. At 75 inches, or 1.9 meters long. Alstom called them the world's longest turbine blades. The rotor is a beautiful example of the Arabelle's mechanical craftsmanship. It's 14 meters long, 140 tons, and is machined to tolerances of just 1/100th of a millimeter. The Arabelle is one of the major turbines of choice for modern large nuclear plants, competing with slightly smaller but similarly sized turbines from Siemens and and Mitsubishi, like, for instance, the Taisan nuclear power plant in the Guangdong province of mainland China. Taisan is the first third generation EPR plant to enter commercial operations and remains one of the world's biggest nuclear plants. The Erlebow turbine remains one of France's proudest technical achievements. It is a key national strategic asset. However, those things do not always translate to business and economic success. The company now known as Alstom, descends from a long lineage, beginning with the French licensee of the Thompson Houston company. But we should start our timeline in 1989 with GEC Alstom, a 5050 joint venture between Britain's GEC and France's Alcatel Alstom. They would later drop the H in Alstom. The new company contained the two parents power transmission, generation and railway assets. In 1998, the company was floated on the Paris and London stock exchanges with both parents extracting a big dividend and selling down their stakes. By the way, GEC took all the money they earned from this transaction and more and set it on fire. Going YOLO on US Telecom companies epic collapse As a newly public company, Alstom management wanted to grow their core power and rail businesses to a size where they can compete against giants like General Electric, Siemens and Mitsubishi. So they started buying businesses in those areas. In the 1990s, deregulating energy markets in both the United States and United Kingdom created a new industry of independent energy producers which built new plants to sell power into wholesale markets. Gas fired turbines, especially combined cycle turbines that pair it with a steam turbine, suited this industry well. Producers rushed to build these plants, sparking a turbine boom. New gas fired power plants were being announced left and right. In 1999, Alstom struck a joint venture with ABB's Turbine Division and then bought the whole thing the following year. This Transaction cost about 2.7 billion euro in total and ended up crippling them. They discovered that ABB had previously sold GT24 GT26 heavy gas turbines, turbines that never met their contractual requirements in numerous plants across the United States, Europe and Asia, triggering substantial litigation and compensation. The timing was also impeccably terrible. They closed just as the gas turbine boom plunged into a bust. Intensive overbuild led to 90 gigawatts of announced projects in the United States alone put on hold between 2000 and 2002. The nuclear turbine industry was also in the dumps. France completed their N4 nuclear program in 2000 after building just four reactors at two plants, Schoux and Savo, the last starting operations in 2002. These were delivered late and the French domestic market was already oversupplied. Neighboring Germany also committed to its denuclearization in 2000 with a legislative exit. This all pushed Alstom to the brink. After complex negotiations with the European Commission, the French government organized a 2.5 billion euro rescue package in 2004. As part of that, they got a 21% stake in Alstom for about 772 million euro. This stake was eventually sold to the engineering and mobile network operator Buig Sample. Yet the troubles did not go away. Alstom then suffered from both the global financial crisis in 2008 and the 2011 Fukushima tragedy, the latter triggering a devastating downturn in the nuclear industry across the world. By 2014, most people acknowledged that Alstom had no path forward in its current state as an unwieldy, overleveraged conglomerate in the important gas fired turbines market, Alstom was hopelessly behind. They were fourth place with 7% share behind GE, Siemens and Mitsubishi. GE alone had something like half the market. Alstom CEO Patrick Kron summed it up in a single when the American company sells 150 gas turbines in a year, Alstom sells only about 10. Alstom did not have the money to invest in R and D to keep up with GE or even Siemens. And and major shareholder Buig refused to invest anymore. In November 2013, KRON announced a plan to sell 2 billion euros of assets, including a stake in their TGV train division. But then a much bigger opportunity came calling. Alstom, with the support of major shareholder Buig SA, first approached GE about buying their energy and grid assets. In February 2014, after having a dinner, GE studied the assets and got the ball rolling on an acquisition. But then, on April 24, 2014, Bloomberg broke the news about the acquisition. The article triggered a storm as talks had been in secret. On April 30, 2014, GE formally offered $17 billion for Alstom's energy assets, including the gas, wind, thermal, steam and nuclear steam turbines. This got the whole mess started. The French economic minister at the time was Arnaud Montebourg. Known as an economic nationalist, he inherently did not like the idea of selling to ge. Moreover, he had met with Kron while talks were underway and wasn't informed, so he felt very misled. The French government had tools to nix this. Back in 2005, amidst speculation that Pepsi would do a hostile takeover of the French company Dannon, the government passed the Dannon Decree, which granted veto power over acquisitions in certain sensitive areas. Monteburg thusly in 2014 passed the Alstom decree, which vastly expanded the government's foreign investment veto to sectors such as water, energy, transport and more. Though I note the European Commission would have probably challenged it had France bluntly tried to nix the deal on purely economic nationalist grounds. In May 2014, Monteburg publicly mulled a homegrown French Plan C. Another investment like what happened in 2003. 4 Most people in the government were fishing for alternative bidders. Almost reluctantly, one European bidder emerged. In June 2014, Siemens and Mitsubishi joined together for a bid. But that bid was quite complicated. Siemens would get just the gas turbine division, while Mitsubishi would set up a joint venture for the steam turbine division. The cash component was also not as high. Siemens also did not pledge to retain jobs as GE did and Patrick Kron, for whatever reason, just did not like working with Siemens. An analyst interviewed by Bloomberg at the time said Siemens will make an offer to Alstom. But let's be honest, GE is going to win this battle. GE has the best projects for Alstom. And there is one issue when we look at the Siemens one that actually there are more overlaps and problems for jobs. But the pressure eventually pushed GE and Alstom into revising the transaction to a 80:20 joint venture with a series of sub joint ventures beneath it. GE owned the majority and ran the business. But the CEO, CTO and half the board of directors would be French. The French government also retained a Golden Share veto if it felt IP control of the conventional island was threatened. The final domino to fall was Monteberg himself, who even before all this, clashed with the president, Francois Hollande, over the direction of economic policy. In late August 2014, after making public comments disparaging policy, the rebel minister was made to resign. The guy who replaced him was someone named Emmanuel Macron. Yes, that same Macron. Macron probably shared Montaborg's views in terms of Alstom's importance, but was more of a pragmatist. He was quoted as saying during an internal argument, we have no legitimate grounds to intervene. We do not have a command economy. We're not in Venezuela. The French newspaper Le Mans reported that sources close to Hollande said that they needed an industrial solution. The government's hands were tied. So in November 2014, Macron approved the revised joint venture. It was a very complex transaction, like I said, involving three subjoint ventures, nuclear operational agreements and more. And of all that, GE paid about 9.7 billion euro, or 10.6 billion USD. The controversy around the transaction dug up new reasons for why General Electric was the winner. In 2010, the United States Department of Justice began probing Alstom for violating the Foreign Corrupt practices Act of 1977, in particular, bribing Indonesian officials for a 2003 deal that earned $118 million. This law prohibits American citizens and companies from bribing foreign government officials for business gain. Yes, Alstom is a French company, but they do business in the United States and have securities are listed in the US So they see it as counting. At first, Alstom refused to cooperate, but caved in 2012-2013 when the US government arrested and extracted guilty pleas from several top Alstom executives. This included Frederic Perucci, then VP of Global Boiler Sales. He was arrested in the United States and charged for signing off on payments to consultants used for channeling bribes. He was held in high security detention for several months before being released on bail in June 2014, a few weeks after news of the GE Alstom deal first emerged in late 2014, Alstom pled guilty for violating the FCPA and paid fines of $772 million, the largest fine ever levied under this act. At the time, a 2008 fine paid by Siemens was larger if you count additional profit money paid to the sec. So Alstom's sale to GE was negotiated under the specter of this DOJ investigation. Critics have intimated that Alstom and its management were being forced into selling its energy business to the Americans to avoid legal persecution by the US Government, or that the investigation had at least impacted their thinking somewhat. Macron himself testified as such to members of the French parliament in March 2015, saying, Personally, I was indeed convinced myself of the causal link between this investigation and and Mr. Kron's decision, but we have no proof. Perucci later wrote a book titled American Trap, alleging that he had gotten caught up in an economic war by the United States to dismantle its economic competitors and maintain global corporate dominance. The book became quite popular in China, especially after the Huawei thing. For what it is worth, the DOJ's Anti Corruption Team chief Daniel Kahn denied this allegation, telling the BBC, we certainly didn't force Alstom to plead guilty in order to help out ge. That never entered into consideration. Alstom CEO Cron also denied them, dismissing it as conspiracy theories and insisting that the power assets were sold for business reasons only, saying we absolutely did not make this transaction in response to any direct pressure on myself or anyone else. I don't think Kron needed such a stick. He believed that the market was at a high and this was his only window to get a good sales price. Considering what happened next, you can argue that he made a savvy call economically. Jeffrey immelt, who was GE's CEO at the time of the acquisition, bought the Alstom energy assets because he thought they were good assets. In his 2021 book Hot Seat, Immelt wrote a fair bit about the Alstom deal, rightly recognizing that it is a key part of his legacy. He wrote that the deal was initiated within GE Power and he then publicly backed it for a few reasons. First, it took a competitor off the field and he thought that his team could integrate and run it better than how it was being run then. Second, Alstom had a profitable turbine service business as well as a significant presence in wind and renewable turbines that GE did not have that became a billion dollar business for them later. And third, GE was then coming off a strong 2014 with nearly $110 billion in industrial revenue, 7% organic growth and a very strong power generation business. Buying Alstom felt like a solid bet, even if they had to overpay a little. But after the French government got involved, things slowed down. The deal got increasingly complicated as concession after concession had to be made. Such a long close time meant everything got held up in limbo. Then after the deal closed, bad luck. In 2015, there was the United Nations Climate Change Conference which drafted the Paris Agreement. The agreement sought to coordinate a global pivot away from fossil fuels to limit global warming to below 2 degrees Celsius. This shift to renewables, along with the general oversupply situation, triggered a new downturn. In 2016 there were 181 gas fired turbines larger than 100 megawatts sold in 2017 that drastically fell to 122. GE sales declined in proportion. The downturn sucked, but IML insists that does not properly explain GE Power's downfall. GE survived plenty of downturns before. The difference this time was how it reacted. I am reminded of this line from the movie Margin Call. The firm's CEO, played by the wonderful Jeremy Irons, says, do you care to know why I'm in this chair? Why I earned the big bucks? I'm here for one reason and one reason alone. I'm here to guess what the music might do a week, a month, a year from now. GE's leaders failed to hear that the music was ending and doubled down on thermal plants right into the downturn. An Investor presentation dated March 2017 with the Downturn already underway, forecasted new plant orders of about 68 to 78 gigawatts per year. Depends on how you interpret a slide. At their 4Q 2017 earnings call, they revised the overall market for new plant orders in 2017 to under 35 gigawatts, with 2018 being even worse. To his credit, Immelt blamed himself first for not cutting costs fast enough. But he also pointed at GE Power's head Steve Boles, saying that Bolles did not execute on integrating the Alstom assets and instead spent most of his time angling to get promoted. Immelt eventually stepped down as GE CEO, and in October 2017, sooner than planned, he was replaced by 30 year veteran John Flannery. Flannery tried to turn things around with asset sales spinoffs and laying off 12,000 people from the power division, but he barely lasted a year. In October 2018. GE announced that it would take a $23 billion goodwill. Write down a public admission that the company had vastly overpaid for the alsTom assets. In 2000, General Electric was worth $600 billion. At its peak in December 2015, they were still worth 300 billion market cap. By 2018, it was worth just $65 billion, a phantasmagoric destruction of value. Flannery was unceremoniously sacked and replaced with a turnaround expert from the outside. And GE embarked on a new multi year weight loss journey. GE Power's struggle presented an opportunity for the French government to buy back the Arabelle turbine, an idea pushed by Perucci and others. The division's natural buyer would be the French power utility. At first, they were not super excited. They were a utility after all, not a turbine maker. And their finances were already stretched. EDF CEO Jean Bernard Levy was reported to have said to someone in 2020, when it comes to turbines, I can source them from China. But the French government really wanted its turbines back. At a Senate hearing in November 2021, Levy confirmed that the national government had started discussions and that EDF might take the division on. To help things along, the government threw in a sweetener. If EDF took in Arabel, then the government will greenlight several billion euros worth of new turbines for new plants and and renew several older nuclear plants. A French nuclear renaissance. Thus, on February 10, 2022, French President Macron announced the Aerobel turbine buyback at the Aerobel turbine factory in the city of Belfort, alongside a big nuclear buildout to hit climate goals and retain energy independence. It was something of a redemption story. Macron, who years ago approved the turbine's sale to General Electric, now gets to bring it back and with it rebuild France's once stalled nuclear industry. Even so, the sale took about two years to negotiate and close, apparently due to geopolitical concerns. Aerobel turbines were sold to Russia and the US government was unsure about letting those go. But the end closed, with GE being paid 175 million euros for the business whilst retaining certain IP assets. Now things are much better for everyone. Well, almost everyone. In 2021, GE announced a split into three companies. The energy entity GE Vernova has been enjoying a massive gas turbine boom thanks to AI Data Centers. Their market cap, as of this writing, is $288 billion. The now smaller Alstom refocused on trains and is benefiting from strong organic growth in high speed rail and metro markets around the world. Perhaps the one uncertain ending here is Arabelle Solutions, the newly created division within edf. The massive Arabelle turbine is still a marvel, but the company has suffered from the changes in ownership and lack of stability. EDF had complained in 2017 about quality, defects in parts received and drops in performance metrics. Work must be done to revitalize the division and in the near future, Arabelle would need extensive investment in R and D supply chain and more to retain leadership in the competitive nuclear turbine space. A national strategic asset. But can France do what's necessary to keep it as such? Alright everyone, that's it for tonight. Thanks for watching. Subscribe to the Channel, sign up for the Patreon and I'll see you guys next time.