As I've said numerous times this issue will be self resolving because the energy system is integral to our lifestyle and people wont accept a crap lifestyle.
The transition will keep happening, just not as smoothly as some might think IMO.
BP and Shell led Big Oil’s push into renewable energy. Now they are leading the retreat.
From the article:
BP and Shell led Big Oil’s push into renewable energy. Now they are leading the retreat.
Last week BP announced that it had sold its offshore wind assets into a joint venture with Japan’s JERA, itself a joint venture between Tokyo Electric Power and Chubu Electric Power, to create one of the world’s largest offshore wind businesses.
That followed an earlier BP announcement, in September, that it planned to sell its US onshore wind farms.
Under former chief executive, Bernard Loomey, BP had been building its wind farm portfolio as part of an ambition strategy to cut its hydrocarbon production by 40 per cent by 2030, reduce its emission and those of its customers by 35 to 40 per cent by the end of this decade and become a “net zero” emissions company by 2050.
Last year it started backing away from those commitments, saying it would cut production by only 25 per cent by 2030 and its emissions by 20 to 30 per cent.
This year, under a new chief executive, Murray Auchincloss, it now appears even those reduced targets are being wound back.
It’s not just BP.
Shell has scaled back its investment in renewables, including offshore wind and hydrogen; it has reduced its emissions’ intensity targets and it has abandoned its objective of becoming the world’s largest electricity company. Norway’s energy giant, Equinor, has also announced plans to shrink its renewable energy division.
The commercial logic in what they are doing is clear. BP generates returns of 15 to 20 per cent on its fossil fuel investments but only 6 to 8 per cent from its renewable assets, with wind’s returns inferior to solar’s.
Ploughing billions each year into wind, solar and hydrogen dilutes the overall returns on capital and reduces the returns to shareholders, making them most unhappy. Having invested about $US18 billion over the past five years in lower-returning renewables between them, BP and Shell investors have become increasingly unhappy.
Moreover, the UK and European energy majors are always compared with their US counterparts.
By moving its offshore wind assets into a joint venture vehicle and off its own balance sheet BP will keep an exposure to wind but significantly reduce the amounts of capital devoted to it and the levels of debt supporting it.
Between them, BP and JERA plan to spend up to $US5.8 billion on their combined portfolios (which includes the proposed Blue Mackerel offshore wind farm in Bass Strait) by the end of 2030. With shared investment and non-recourse funding, BP’s capital commitment will be modest relative to what it would otherwise have been.
Both BP and Shell still seem committed to solar, which is less capital intensive than wind, but that won’t help them escape the criticism from climate activist groups and ESG (environmental, social and governance) investors, who are particularly vocal and litigious in Europe and the UK.
The problem, of course, is that the companies can’t satisfy both constituencies and in a contest between emissions and returns is one that ultimately shareholders will always win.
Those who invest purely in renewables appear unconcerned about the gradual withdrawal of the oil majors who gatecrashed their sector and, seeking to gain scale rapidly, drove up the costs of developing greenfields projects.
There are a lot of environmentally-sensitive and patient investment funds available from sources other than the oil majors that are willing to trade off returns for their convictions and/or consistent long-term returns, so losing some investment from the oil companies shouldn’t retard renewables developments
It has been particularly difficult for the UK and Europeans, with their lower returns but better environmental credentials, to attract investors in the US. There’s been a backlash against ESG investing in the US where, because there is no significant stigma associated with the oil and gas industry, valuation metrics tend to be higher.
If BP and Shell want better access to those more attractive metrics, improved share price performances and access to cheaper capital, they have no realistic option but to shed, and invest less in, low-returning assets. That’s what they are now doing.