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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Statoil Branches Out Into Renewables With Wind Investment

For all of the excitement over renewable energy, one of the ironies in the space is that the vast majority of attention is being focused on solar power rather than an “all of the above” approach that may be more likely to bear fruit. For that reason, it’s good to see a major energy company like Statoil taking a different approach.

Statoil has been wisely starting to diversify its business lines outside of traditional oil and gas over the last year with a particular acceleration in activity in 2016. Eldar Saetre, Statoil’s CEO has shown a rare degree of vision (for the O&G space) in this regard since taking over Norway’s largest oil and gas company early in 2015.

Related: Oil Back On Track As Markets Dismiss Doha

One of Saetre’s first acts as CEO was to start looking into alternative business lines for the company. Last May, he set up a renewable power unit to invest $200 million in a variety of startups in the renewable energy space. Statoil is investing up to $20 million into individual startups targeting opportunities in wind power, energy storage, smart grids, and other energy-related tech.

Last month, Statoil took its first steps toward that commitment to diversification by forming a partnership with United Wind to look for small-scale energy solutions in the U.S. The investment gives Statoil a foothold into the distributed wind market in the U.S. – an area that is nascent and underdeveloped but that has substantial potential. United Wind has built its business around offering leases for wind turbines to rural property owners along the same lines as the popular solar rooftop leasing model being used by Solar City and others.

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While wind power is arguably a bit more difficult to capture than solar energy and turbines are more intrusive than solar arrays, there is definitely a market for the concept. Wind power is moving closer to parity with conventional energy sources according to U.S. government estimates, and in some areas like Wyoming for instance, wind power makes more sense than any other form of energy.

Renewable energy advocates have generally behaved as though solar is the solution to all energy needs rather than accepting the reality that different technologies work better in different areas. Solar is a great technology in Southern California, but an abysmal one in Maine for instance. Statoil’s investments suggest that the firm understands this reality. That’s probably because in many respects Norway is the Wyoming of Europe (natural resource rich, sparsely populated, and rocky) while Spain acts as the Southern California of that continent.

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The Statoil investment in United Wind gives it a seat on United Wind’s Board of Directors, which should help UW immensely. As one of the largest energy companies in the world, Statoil brings a wealth of operational experience which will be invaluable as UW seeks to scale up. United Wind markets its 20-year fixed lease terms as a major opportunity for rural property owners. And that is probably true. But to really capture major share in the fast growing wind business, UW needs to scale its marketing and operations capacity considerably. SolarCity is growing because it seeks out customers, not the other way around. And that’s typical in the vast majority of businesses.

Overall the Statoil investment deal is significant for both conventional energy and renewables. It is a sign that renewable energy is starting to become attractive enough as an investment opportunity that conventional profit driven energy companies see the sector as an opportunity. That in turn should mean greater access to capital and funding which will help drive growth and efficiency improvements across the renewables sector.

By Michael McDonald of Oilprice.com

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