Despite their lofty green energy goals, Big Oil majors are unlikely to become Big Renewable Energy, at least according to an International Energy Agency official who was among the authors of the agency’s Renewable Energy Market Update.
Big Oil has been very vocal about its renewable energy goals. It has also been quite actively expanding in the area through acquisitions and participation in various renewable energy tenders. Still, the IEA’s Heymi Bahar believes this won’t make them major players in the solar and wind power generation business.
“Today, our numbers show that only 0.5%, or even less than that, (of) renewable capacity installed is owned or contracted by oil companies, oil majors,” the IEA senior renewable energy analyst told CNBC this week.
“However, we expect the investment of oil companies in renewable electricity to increase by tenfold in the next five years,” Bahar said, adding, “This is an important trend. Will they become the major investors of renewable technology? The answer is no. Will they increase their pace? Yes, for sure.”
One reason Big Oil won’t become the major investors of renewable energy technology is probably the fact that the place is already taken by other companies, some of them exclusively dedicated to renewable power capacity construction and operation. Others are dedicated to financing such projects. ESG investment has been gathering pace and is likely to continue growing at a quick clip.
These companies have a lot going for them right now with all the government support for more wind and solar, and they are hardly likely to welcome Big Oil among their ranks with open arms. The IEA reported this week that renewable power generation capacity additions last year hit a record high, up 45 percent on the year, and forecast that this year and next, wind and solar will account for as much as 90 percent of global new generation capacity additions.
Yet Big Oil seems about to only get a small chunk of these massive capacity additions. That’s not just because there is already a burgeoning solar and wind power industry. It is also because Big Oil already has a business, and its shareholders are still predominantly people who bought into oil rather than solar.
A very recent proof of that was BP’s shareholder meeting this week. During the meeting, shareholders rejected a resolution filed by Dutch activist investment group Follow This that demanded that BP increase its emission reduction targets. Related: Panic Buying And Gas Shortages Sweep The East Coast
Media reports on the news focused on the fact that the resolution got a lot more support than last year’s attempt to force the supermajor into greater emission-related commitments. However, the fact remains that even with that increased support—20.6 percent of shareholders voted in favor of the resolution—the other four-fifths of BP’s shareholders appear to not be all too concerned with emission-cutting targets and the related investments in wind and solar power.
Shareholder pressure on Big Oil to go green will undoubtedly increase, driven by the ESG trend and government policies that reward renewables and penalize oil and gas. But for all its ambitions to become Big Power, Big Oil may be too late to the renewable party. There are already many big companies there, and they are quite unlikely to willingly surrender market share and growth prospects to the supermajors.
The supermajors themselves have no particular motivation to do that: oil demand will stay strong for at least another decade and will then start declining gradually rather than suddenly. And that’s only contingent on the continued government pressure for emission reduction. Right now, the continuation and growth of that pressure seem all but inevitable, but surprises are still possible.
By Irina Slav for Oilprice.com
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