Sparks

Oil majors and the world of utilities

 By Nicholas Newman

Facing the prospect of a 25 percent increase in global electricity consumption, with bigger roles for gas, renewable power, and electric vehicles gradually replacing petrol and diesel, big oil companies are now diversifying into Europe’s power sector…

BP, Eni, Shell, Statoil and Total are taking steps to compete in Europe’s power sector, a market that has seen little real competition for decades. This is a move that should be welcomed by electricity consumers.

Why the interest?

Growing interest in power generation and delivery owes much to big oil company’s need to find new customers, as peak oil is forecast to arrive as early as the late 2030s by BP’s Energy Outlook 2018. The rate of increase in demand for oil is already beginning to slow as energy efficiency takes hold, renewable energy increases its market penetration and electric vehicles (EV) increase from around 3 million today. The falling cost of wind, solar and energy storage together with international commitment to cut greenhouse gases is turning renewable energy investment into a normal commercial proposition. Indeed, investment into fossil fuels is losing its luster to renewable energy, as seen by investors such as the New York Pension Fund, World Bank and Norway’s $1 trillion sovereign wealth fund announce planned divestments in fossil fuels.

Examples of Power Generation Investment

A few examples of recent investment in Europe’s power sector are outlined below, starting with Royal Dutch Shell with the highest presence in Europe’s power markets.

Royal Dutch Shell
Present in 14 of Europe’s power markets, Shell Energy Europe is continuing its market penetration into renewable power by way of a series of acquisitions. It already offtakes renewable power from wind farms and solar parks in Great Britain and mainland Europe but has increased its presence with the $217 million purchase of a 44 percent stake in Silicon Ranch Corporation, which operates solar and wind farms across the U.S. The company has also acquired a 20 percent share in the 731.5 MW Borssele offshore wind farm off the Dutch coast. In anticipation of growth in charge cards Shell recently bought New Motion, which operates more than 30,000 private electric charge points for homes and businesses in the Netherlands, Germany, France and the U.K. as well as access to some 50,000 public charge points across 25 European countries, serving more than 100,000 registered charge cards.

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New Motion's EV charge point (zap-map.com)

However, last year Shell acquired First Utility, the U.K.’s seventh-largest power provider with 825,000 customers for £240 million. This acquisition marks Shell’s debut as an established power provider and competitor to the country’s largest power providers, Centrica and Scottish and Southern Electricity. The purchase also marks entry into the German household energy sector in which First Utility operates under a licensing agreement signed in 2015.
These acquisitions form an essential ingredient in Shell’s commitment to invest between $1 billion to $2 billion a year until 2020 in “new energy” of which some 80 percent would be channeled into the power sector.

BP
In the U.K., BP invested $200m for a 43 percent stake in Lightsource, Europe’s biggest solar developer. Dev Sanyal, BP’s chief executive for alternative energy was quoted by the Guardian saying, “BP was returning to solar because the sector had matured and the model had shifted from manufacturing panels to developing solar farms.“ It [solar] will constitute around 10 percent of global power in the next 20 years and is growing around 15 percent per annum. BP has acquired a ‘internet of things’ software developer Ubiworx to create a digital system combining a solar panel, battery and electric vehicle charger responsive to real-time changes in power, which would allow customers to always consume the cheapest power. This digital energy system could also create ‘virtual power plants‘ by simultaneously releasing stored power from groups of batteries to help the National Grid meet customer demand reports, The Sunday Telegraph.

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Europe's largest floating solar farm by Lightsource Renewable Energy (lightsourcebp.com)

Eni
An oil company that pioneered producing power and heat from its gas power plants in its home country, is Italian oil giant Eni, which in 2017 also began selling electricity in France. To ensure the company’s future growth, Eni has announced plans to invest almost £1.3 billion over the next four years into increasing its wind and solar energy capacity by adding 1 GW by 2021 rising to 5 GW by 2025. Commenting on this investment, Claudio Descalzi, CEO of Eni, acknowledged the growing contribution of renewables and said that he expected a yield of around 10 percent from this new investment.

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Eni's solar farm "Progetto Italia" in Sardinia

Equinor
In May, Norwegian oil major Statoil, announced that it was planning to change its name to Equinor to reflect a major investment program of around €10.36 billion in new renewable energy towards 2030. Like its peers, Statoil has shown increasing investment interest in renewable power generation across Europe including Britain, Germany, Norway and Poland. The last involves two projects with a planned capacity of 1200 MW sufficient to power more than 2 million Polish households. In the North Sea, Statoil is pioneering the development of Europe’s 30 MW Hywind Scotland floating wind farm.

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Hywind Scotland floating wind farm (businessinsider.com)

Total
Last but not least, French oil company Total, is in the early stages of creating a domestic utility with its acquisition of a 23 percent stake in Eren Renewable Energy for €237.5 million with an option for majority control in five years. Previously, Total invested $2 billion in French battery maker Saft and SunPower, a U.S. solar panel maker for homes, business and solar farms.

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Eren's Puyloubier photovoltaic plant (eren-groupe.com)

Oil majors’ interest in the power sector goes beyond Europe and extends into North America, Australia and Asia. Energy customers could benefit from real competition and market innovation in the delivery of energy goods and services initiated by oil majors. It might even mean lower energy prices. The term ‘oil major’ masks a quiet evolution from oil, to gas, to renewables and now power, making them truly ‘energy majors’.

READ MORE: Oil majors invest into renewable energy by Mike Scott

about the author
Nicholas Newman
Freelance energy journalist and copywriter who regularly writes for AFRELEC, Economist, Energy World, EER, Petroleum Review, PGJ, E&P, Oil Review Africa, Oil Review Middle East. Shale Gas Guide. https://nicholasnewman.contently.com/