News came out of France last week that, although net 2017 profit rose, EDF saw its revenue slide from $88.3 billion to $86.7 billion, a decline that occurred largely in its traditional energy sectors such as nuclear. This was combined with an announcement that the French energy giant would invest more than $31 billion in solar in the coming years.
Other large energy companies appear to finally be reading the writing on the wall: that the traditional electricity generation strategy of burning fuels (or creating fission) and boiling water is giving way to the sustainable and cost-effective harvesting of photons and Aeolian currents. In other words: Renewables (and storage) are where the future growth opportunities lie.
Many European Energy Giants Seeing the Light
In fact, a number of the larger European energy companies are making moves to embrace and propel the sustainable emerging energy economy. Consider these recent activities:
Orsted — the former DONG (Danish Oil and Natural Gas) — sold off its oil and gas business last year to become a renewables energy company with a great degree of expertise in offshore wind (it has developed 25% of the world’s offshore wind capacity).
BP recently announced it would invest about $0.5 billion of its annual capital expenditures on clean energy (not huge by any stretch of the imagination, but not trivial either — the key will be to see whether it is followed up by additional activity). Although the company’s CEO, Bob Dudley, indicated hydrocarbons were still core to the company’s strategy, the company’s deputy chief executive, Lamar McKay, was quoted as saying “Our industry is changing faster than any of us can remember, certainly in my career.” The company recently plunked down $200 million for a 43% of LightSource, a big solar developer, and is said to be evaluating additional such investments.
Meanwhile, Shell recently bought electric vehicle charging company NewMotion, picking up 30,000 charging stations in Europe in the bargain, with plans to install charging installations at its retail stations in the U.K, the Netherlands, Norway and the Philippines. It also bought a 44% piece of Silicon Ranch, an owner/operator of U.S. solar plants, with 880 MW either under contract, in construction, or operating and nearly 1,000 MW in the development pipeline. Shell currently spends between $1 and $2 billion dollars on clean energy..
For its part, France’s Total recently took a 23% stake in the renewable energy firm Eren (which owns a portfolio of 650 MW of solar, wind and hydro assets) for $294.5 million. Total also owns a majority stake in U.S. solar manufacturer and developer SunPower.
One reason for the oil and gas company diversification into renewables is the fact that while returns can be lower than for oil and gas investments, they are often also fixed by long-term contract. They thus provide a more attractive investment and risk profile.
Conventional Generation Equipment Manufacturers Suffer
Even as the oil and gas companies are increasingly making forays into the space, the traditional generators are having to cope with rapidly evolving global power markets and a decline in the market for hydrocarbon power generation. GE, which currently generates one-third of the world’s electricity, suffered a big miss last quarter, with power earnings down by 88%. It expects an already soft market of 35,000 MW of new generation in 2017 to decline even further to 30,000 MW this year. As a consequence, GE announced lay-offs of 12,000 from its GE Power business (4% of its total workforce and 18% of it GE Power team).
GE is not alone: late last year Germany’s Siemens AG announced the planned elimination of 6,900 jobs in response to softening demand for its power generating equipment.
Then There’s Exxon Mobile
While many of the oil and gas companies are investing in projects, companies, and infrastructure, Exxon Mobil is taking an entirely different approach, investing over $1 billion annually in hundreds of research and development projects looking into alternative forms of energy such as algae and fuel cells. Instead of acquisitions, the company is teaming with approximately 80 universities to find the energy technologies of the future. Its goal is to identify new technologies that can be dramatically scaled, aided by Exxon’s global reach and extensive resources. However, Exxon's lead researcher Vijay Swarup was recently quoted as saying that some of these technologies were still at least ten years away. Given the dramatic pace of change, continued technological advancement and falling costs of wind, solar, and storage/EV technologies, who knows what the world will look like then?
One thing is clear: the pace of change is accelerating and the major players know they need to have at least some chips on the board, else they risk being left behind in the emerging trillion dollar new energy economy.
Peter Kelly-Detwiler is a principal at NorthBridge Energy Partners, a consulting firm providing expertise and market intelligence to companies navigating today's complex energy landscape.