The oil majors have had a love-hate relationship with renewable energy over the past decade. Some (BP (NYSE: BP)) once saw it as a key to their future, only to divest from the business, and others (Total (NYSE: TOT)) have been slowly wading into renewables without taking any big risks. But it's become clear that renewable energy isn't going anywhere, and it might be the biggest threat facing the oil business long-term.
Not only is renewable energy eating away at traditional fossil fuel consumption at utilities, it's becoming a fuel for transportation as millions of electric vehicles hit the road around the world. Royal Dutch Shell plc (NYSE: RDS-A)(NYSE: RDS-B) is the latest to realize it needs a foot in the renewable energy business, buying a 44% stake in renewable energy developer Silicon Ranch for up to $217 million in cash. And Shell may still be getting started building out its renewables strategy.
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Shell joins the renewables business
Silicon Ranch is a solar developer that has about 880 MW of projects under contract in the U.S. with a 1 GW pipeline of projects. It's not the biggest developer in the country, but it has a growing footprint and can leverage Shell's capital to grow. In 2021, Shell can increase the ownership stake beyond 44%.
Shell also acquired MP2 Energy last year, an owner of natural gas and distributed solar assets like demand-response and solar.
While these two deals don't make Shell a leader in renewable energy just yet, it could show a shifting attitude to renewable energy, a transition other companies have already gone through. And if Shell pushes both companies to grow it could build a sizable renewables business.
Old energy companies are making plays for new energy assets
Shell isn't the first oil company to make a move into renewables. The oil major making the most news in renewable energy is Total, the majority owner of solar manufacturer SunPower (NASDAQ: SPWR). Total has also acquired a stake in developer EREN Renewable Energy and acquired energy efficiency company GreenFlex, among others. Total has also begun to buy renewable energy projects on its own, essentially building an energy generating business under the Total banner.
Utility AES (NYSE: AES) spent $853 million last year to buy sPower, developer of utility-scale solar systems. The company is in the midst of a strategy to sell off coal and other legacy fossil fuel assets and double down on renewable energy and energy storage.
After divesting a solar manufacturing business a few years ago, BP has even gotten back in the renewable energy game with a $200 million investment in renewable developer Lightsource.
You may notice a trend: oil and utility companies are beginning to invest in renewable energy developers rather than manufacturers. This is partly because asset ownership in the energy industry is a more stable business for them to invest in, but it also allows them to leverage their own development expertise and access to capital in renewables, rather than develop a new technology understanding in renewable manufacturing.
The holdout in renewable energy
One oil company's name is notably absent from the renewable energy business: ExxonMobil (NYSE: XOM). The company has intentionally stayed out of wind and solar, and has focused investment in alternative energy in fuels and carbon sequestration, although with very little commercial success.
With major competitors Total, Shell, and BP investing billions in renewable energy to transition their business, ExxonMobil may eventually see that's where the future is. Shell is finally coming around and maybe just in time to build a sustainable renewable energy business to replace the aging oil business.
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