European oil and gas majors have indicated they will be evaluating renewable projects with a strict financial hurdle rate. They also believe they can improve base level renewable project returns through a combination of their operational expertise, financing structures, integrated operations, and portfolio rationalisation (i.e. farmdowns), as appropriate.<\/p>\n
BP<\/h3>\n
In 2020,\u00a0BP outlined its\u00a0goal\u00a0to transition\u00a0into an Integrated Energy Company\u00a0(IEC),\u00a0with\u00a0an overview of its\u00a0\u201cLow\u00a0Carbon\u00a0Energy\u201d\u00a0business.\u00a0The ambition is\u00a0to develop (to FID) 20\u00a0GW and 50 GW of\u00a0renewable\u00a0capacity by 2025 and 2030 respectively, from an installed base of\u00a0c. 3.3 GW\u00a0at the end of 2020, which we assume to be primarily focused on wind and solar projects.\u00a0The company has indicated that\u00a0these targets are underpinned by\u00a0a pipeline of 11\u00a0GW net capacity (c. 80% solar and 20% offshore wind) and over 20 GW of active projects in its renewable hopper.\u00a0While BP has been active in onshore wind (USA) and\u00a0solar (via\u00a0Lightsource) for\u00a0a while; the\u00a0recent\u00a0strategic partnership with Equinor\u00a0is key to\u00a0its foray into offshore wind\u00a0projects\u00a0\u2013\u00a0Empire Wind One and Two, Beacon One and Two (USA).<\/p>\n
BP believes that\u00a0it can\u00a0improve\u00a0unlevered projects returns from c. 5 –\u00a06% to c. 8-10%, with further upside potential from farm down optionality.\u00a0Worth noting is that Lightsource\u00a0project returns are at the higher\u00a0end\u00a0of the indicated range.\u00a0The focus will be on high margin (EBITDA \/ MWH) renewable projects, as opposed to volume \u2013 which implies that the business\u00a0will be continually\u00a0reviewing and rationalising its renewable generation portfolio.<\/p>\n
Shell<\/h3>\n
Renewables and Energy Solutions is part of the Growth Pillar (The Future of Energy), as per Shell\u2019s recent 2021 Strategy Day Presentation. Some of the key considerations within this pillar are project level IRR of c. 15-25%, capital recycling and payback of 4 \u2013 8 years. Shell believes the minimum cash Capex required to deliver its strategy is $19 -$22 bn per annum, with Renewables and Energy Solutions accounting for $2 – $3 bn. In line with net debt reduction (below $65 bn), the company aims to increase cash capex to $23 – $27bn per annum, with c. 50% of incremental capex expected to be allocated to the Growth Pillar.<\/p>\n
A key milestone for Shell by 2030 is to deliver the equivalent of more than 50 million households with renewable electricity. The company has indicated that its current share of renewable generating capacity includes c. 1 GW (operational) and c. 3.9 GW (under development), via a mix of solar, offshore and onshore wind projects. Key offshore wind projects in development include CrossWind and Blauwwind (Netherlands), Atlantic Shores and Mayflower (offshore USA).\u00a0 Contrary to its peers, Shell has so far not articulated its renewable generation (wind and solar) targets by 2025\/2030\/2035.<\/p>\n
Total<\/h3>\n
During a strategy presentation in 2020, Total indicated its ambition to become\u00a0a world leader in renewables, in line with the company\u2019s strategy to transition into an increasingly\u00a0broader energy company\u00a0by 2030.\u00a0\u00a0Over the 2016\u00a0\u2013 2020 period,\u00a0Total invested $8bn\u00a0in renewables\u00a0& power, whilst increasing its\u00a0gross renewable capacity to c.7 GW[1]<\/a><\/strong>.\u00a0Looking forward the company has set\u00a0itself a target of 35 GW\u00a0gross renewable capacity by 2025\u00a0with\u00a0equity returns > 10%. A significant proportion of the capacity additions are already in construction or in development.\u00a0From a strong foundation in solar\u00a0and onshore wind, Total entered the offshore wind market\u00a0through the\u00a0Seagreen\u00a0project in partnership with SSE.\u00a0Beyond 2025, Total has recently announced ambition is to increase capacity to c. 100 GW gross renewable capacity in 2030 (if successful).<\/p>\n Total is involved across the entire\u00a0PV\u00a0solar value chain\u00a0\u2013 all the way from cell\u00a0manufacturing to\u00a0developing and operating solar power plants, power storage and sales.\u00a0\u00a0The company is pursuing with Blue Energy and Macquarie\u00a0c. 2.4 GW (cumulative) of floating offshore wind capacity in the UK and South Korea.\u00a0\u00a0The floor for\u00a0capital investments in renewables and electricity has been set at c. $2bn\/year\u00a0and\u00a0is expected to\u00a0account for\u00a0>\u00a015% of\u00a0Group Capex\u00a0over the 2021 \u2013 2025 period.\u00a0The proportion\u00a0is likely to\u00a0be increased to over 20% of Group Capex over the 2026\u00a0\u2013\u00a02030 period, to meet capacity\u00a0addition targets.<\/p>\n As at end of Q3\u201920, ENI\u2019s installed renewable capacity was\u00a00.27 GW (80% – solar PV and 17% –\u00a0onshore\u00a0wind).\u00a0Capacity under construction\u00a0was 0.17 GW \u2013 focused on\u00a0the\u00a0Badamsha\u00a02 wind project and\u00a0Shaulder\u00a0PV project\u00a0in Kazakhstan\u00a0amongst others.\u00a0As per the company\u2019s articulated plan: (i)\u00a0short\u00a0to medium\u00a0term\u00a0installed renewable capacity targets are 3 GW\u00a0in\u00a02023 and 5 GW\u00a0in\u00a02025, (ii)\u00a0long term targets are 15 GW\u00a0in\u00a02030, 25 GW\u00a0in\u00a02035 and > 55 GW\u00a0by\u00a02050.\u00a0One of the key highlights\u00a0in 2020,\u00a0was ENI entering the offshore wind sector\u00a0with\u00a0the\u00a0acquisition of a 20% stake in Dogger Bank.<\/p>\n Like its European peers, ENI is now active across solar, onshore and offshore wind markets. However, it is perhaps unique in setting both short (2023) and long term renewable capacity targets. The company has indicated that its Capex for the green businesses (i.e. bio-refineries, renewables, and retail customers) over the 2020 \u2013 2023 period, will increase by c. \u20ac800mm while upstream oil and gas Capex will reduce by \u20ac6 bn. This will result in Green Capex amounting to c. 26% of Group Capex by 2023.<\/p>\n Profitable growth in renewables is one of the key levers that Equinor will use to achieve its ambition of net-zero emissions by 2050.\u00a0\u00a0The company\u2019s goal is to increase its net installed offshore wind capacity to c. 4 \u2013 6 GW by 2026.\u00a0That is c. 10x the installed capacity of 0.5\u00a0GW in\u00a02019.\u00a0There is a desire to increase the installed base to 12 \u2013 16 GW by 2035, contingent on the availability of attractive renewable investment\u00a0opportunities.\u00a0Equinor has indicated its desire to\u00a0commercialise floating wind solutions by 2030.\u00a0Equinor\u00a0is also\u00a0investing in solar projects, via its partnership with\u00a0Scatec Solar.<\/p>\n Repsol was the first oil and gas company to set a target to become a net zero emissions company by 2050, with \u201clow-emissions businesses\u201d as one of the five key pillars to reduce its carbon footprint. Renewable Electricity generation is the third component of this pillar alongside bio-fuels and chemicals. The company\u2019s current renewable installed capacity is c. 1 GW, focused on hydro and wind which includes the Delta 1 onshore wind farm (0.3 GW) and a 5 MW share in WindFloat Atlantic, the world\u2019s first semisubmersible floating wind farm. Within its project pipeline the company has an additional c.1 GW of onshore wind and 0.6 GW of solar capacity, either under construction and\/or advanced development. WindFloat Atlantic was Repsol\u2019s first investment into the clean energy market outside its home market of Spain and was followed by its entry into Chile\u2019s renewables market through a 50\/50 JV with Ibereolica, adding c.0.8 GW of net capacity to Repsol\u2019s portfolio by 2025. Repsol has set out its renewable generation targets of 7.5 GW by 2025 and 15 GW by 2030.<\/p>\n The focus\u00a0at the moment\u00a0is\u00a0on\u00a0wind and solar\u00a0\u2013 two markets with\u00a0exceptionally high\u00a0growth\u00a0trajectories, partly due to\u00a0considerable cost deflation over the last decade.\u00a0Execution\u00a0risk,\u00a0however,\u00a0remains a key consideration. \u00a0In the coming years\u00a0stakeholders will expect detailed\u00a0disclosures\u00a0 on renewable\u00a0capital investment projects and their operational and financial performance.<\/p>\n <\/p>\n The oil and gas companies may have been grabbing the recent Energy Transition headlines, but the \u2018clean energy supermajors\u2019 like Enel, Iberdrola, \u00d8rsted and NextEra have already gone through their own transition and have c. 118 GW of installed renewable capacity.<\/p>\n These companies have their beginnings in fossil fuels (mostly coal and natural gas), and have pivoted to renewables as their business models were disrupted by various market and regulatory forces. \u00d8rsted has shed fossil fuels completely and is focused solely on renewable energy generation, whilst \u00a0natural gas fuelled power generation still plays an important role some of the \u2018clean energy supermajors\u2019. Iberdrola only recently decommissioned its last two coal power plants in 2020, and Enel still has around 9 GW of coal capacity.<\/p>\n A key difference is that the renewable supermajors typically made the transition earlier than oil & gas companies. They have built portfolios that took advantage of early regulatory support (such as subsidies) and built (often global) positions and project pipelines, from which they have a strong platform to grow. These businesses are also the incumbents in the electricity market, with positions across the value chain, which the oil and gas majors are now looking to grow into.<\/p>\n Italy\u2019s Enel positions itself as a global leader in the energy transition, having built a business across renewable generation, power networks, and customer solutions. Current renewables capacity of 46 GW is just over half of its generation portfolio, of which 60% is hydro, and the remainder split between onshore wind, solar, and others such as geothermal. It has the largest clean energy portfolio in the world (except for China Energy Investment).<\/p>\n Enel described itself as a \u201crenewables supermajor\u201d during its 2020 investor day, and in targeting net-zero emissions by 2050 it will shed its remaining (9 GW) coal generation business by 2027 and transform its power generation capacity to 80% renewables (from c. 55% today). 80-90% of its capex over the next few years will be aligned to the EU taxonomy[3]<\/a><\/strong> guidance. Almost half of all capex is aimed at renewables, with Enel targeting 60 GW of renewables by 2023 and 145 GW by 2030 \u2013 focusing largely on expanding solar and onshore wind, and spending \u20ac70bn over the next decade. Of the 145 GW target, 120 GW will be fully owned by Enel, while the remaining 25 GW will be managed by Enel but includes a portion of investment from third parties. The total scale of targeted investment is the biggest of the peer group.<\/p>\n A key growth enabler is the already healthy pipeline of projects and global reach that Enel has. A further value driver for Enel is the concept of \u2018hybridization\u2019 of up to 40% of its renewables capacity, integrating batteries and hydrogen (c. 90 kton per year) with renewables to manage intermittency, and creating the potential for higher margins.<\/p>\n Like Enel, Spain\u2019s Iberdrola has a business strategy that is underpinned by building strength across renewable generation, networks and customers, together with geographical diversification. Its current renewables portfolio of c. 34 GW is dominated by Hydro at c. 40%, followed by onshore wind, and smaller positions in other renewable technologies. A key difference between Enel and Iberdrola is that it has a 1 GW foothold position in offshore wind \u2013 held mostly through its ScottishPower subsidiary in the UK.<\/p>\n Iberdrola divested its coal business (whilst retaining 15.5 GW of CCGTs) and is targeting net-zero emissions by 2050 and \u00a075% of future capex will\u00a0 be aligned to the EU taxonomy guidance. Renewables will be core to this \u2013 targeting 60 GW in 2025 and 95 GW by 2030. and similar to Enel, renewables will be increasingly coupled with batteries and green hydrogen with the aim to scale to 85kton per year by 2030, similar to Enel\u2019s ambitions).<\/p>\n Near term growth will be most significant in Solar (1 GW to 15 GW by 2025), while after 2025 all technologies are targeted for growth, and for offshore wind to play a key role. For Offshore Wind the next 5 years should see projects developed in the UK, Europe (e.g. Baltic Eagle in Germany) and also the USA (e.g. Vineyard I). The longer term Offshore Wind pipeline, which includes new geographies such as Japan, already sits at 17.6 GW.<\/p>\n Recently unseating Exxon Mobil as the USA\u2019s most valuable energy company, NextEra Energy has added more clean energy capacity to the US grid than any other business \u2013 reaching around 25 GW at the end of last year. Thisonshore wind and solar portfolio was built over the last two decades as wholesale markets were deregulated.<\/p>\n Over this period NextEra has also maintained a regulated utility business in which natural gas continues to play an important part (c. 75% of generation), and it still owns c.1.1 GW of coal assets. It is also one of the only major power producers that has not set itself a net-zero emissions target, instead focusing on reducing its carbon intensity by 67% by 2025, from a 2005 baseline.<\/p>\n In January 2021 NextEra Energy set itself a target of building up to an additional 30 GW of renewables capacity by the end of 2024, significantly expanding its clean energy portfolio. The expansion plan is larger than any of its European peers. An estimated 13.5 GW pipeline together with a strong balance sheet and active capital recycling programme is expected to support the aggressive growth. NextEra is likely to continue focusing on onshore wind and solar in North America, having previously labelled Offshore Wind as \u201cterrible energy policy\u201d. NextEra is also looking to diversify offerings linked to its renewables by spending $1bn on battery storage in 2021 and investing in green hydrogen.<\/p>\n The transformation of the \u2018Danish Oil and Natural Gas\u2019 (DONG) company into \u00d8rsted (labelled as the \u2018World\u2019s most sustainable company\u2019 in global corporate rankings is an oft cited example of how a business can re-orientate from fossil fuels business to clean energy.\u00a0 The company\u2019s upstream oil and gas business was sold to Ineos in 2017, with other hydrocarbon infrastructure being sold off incrementally. The last remnant is the phasing out of coal from its Danish power stations (due for 2023). All future financing needs are assessed under its green financing framework and are focused on expanding \u2018green\u2019 investment.<\/p>\n \u00d8rsted\u2019s focus is Offshore Wind \u2013 a business which it started in 1991 \u2013 and is the driver of growth for the company. Its early mover advantage has given it an opportunity to build a strong business foundation of c. 11 GW of capacity. It is now seen as the world\u2019s largest \u2018pure play\u2019 renewables business (unlike Enel etc, with large network businesses and fossil fuel generation assets).<\/p>\n \u00d8rsted is now targeting 15 GW of renewables capacity by 2025 and 30 GW for 2030. The primary focus will remain in its area of core strength \u2013 Offshore Wind. \u00a0Capacity is now mainly focused in the maturing European market (the UK accounts for over 50% capacity), so \u00d8rsted will look for new geographies where it can gain a competitive edge in, including the US and Asia. As Offshore Wind is capital-intensive, it will farm down assets to enable growth that is set to include diversification into onshore wind and solar PV, while also coupling its renewables with green hydrogen.<\/p>\n Solar and onshore wind will be the focus technologies underpinning the growth of the Renewables Supermajors. Only \u00d8rsted and Iberdrola are currently expanding offshore wind investment \u2013 partly down to the size of the market being smaller, but also because of the more capital-intensive nature of the sector.<\/p>\n Collectively the six European oil & gas majors have an ambition to grow their renewable capacity to c.189 GW by 2030, compared to c.505 GW by the Clean Energy Supermajors. This amounts to less than (15%) of the target renewable capacity (solar PV and wind) as per the IEA\u2019s Sustainable Development scenario. Whilst the Clean Energy supermajors have a higher target, the growth for oil & gas is higher, at almost 15 the times current capacity, as they start from a lower base.<\/p>\n <\/p>\n Both the European Oil & Gas Majors and Clean Energy Supermajors have significant growth aspirations in renewable power \u2013 taking advantage of a fast-expanding market to diversify and transition their energy portfolios. The targeted growth by the Oil and Gas Majors is particularly spectacular, given they are starting from a lower base.<\/p>\n The combined scale of ambition of these companies, together with their focus on onshore Wind and Solar will see them overlap and compete against one another in high growth markets such as Spain, India and the US.<\/p>\n One of the areas of differentiation for Oil and Gas companies is likely to be in the more capital-intensive offshore wind sector; where the skill and knowledge transfer from oil to renewables is clearest, as exemplified by the transition of DONG to \u00d8rsted. There will also be some geographies, with a historic link to hydrocarbon exploration, where the Oil and Gas Majors can leverage local relationships for competitive advantage in renewables.<\/p>\n As technologies, markets and companies evolve, the boundaries are becoming more blurred and collaboration will be an increasingly important part of the modus operandi. Collaboration is already happening between Oil and Gas Majors (such as Equinor\u2019s US offshore wind strategic partnership with BP) and between the sectors, especially in areas such as green hydrogen. \u00a0Examples here include BP partnering with \u00d8rsted to leverage its Offshore wind portfolio to produce hydrogen for the Lingen Refinery.<\/p>\n The share price performance of the Clean Energy Supermajors has been the antithesis of the European Oil and Gas Majors over the last year. It is not clear is how the growing renewables portfolio of oil and gas companies will be perceived and valued by the investment community going forward. In the next decade oil companies are still expected be underpinned by sizable fossil fuel businesses. Can the renewables portion of their portfolio become of material scale and deliver stable, low risk returns that investors will accept?\u00a0 Or do investors still expect higher risk, higher returns? The answer to these questions will have a great bearing on the Energy Transition and the Oil and Gas Majors role in it.<\/p>\n <\/p>\n Kathryn Symes<\/strong>, Manager Consulting<\/em> Arindam Das<\/strong>, Head of Consulting<\/em> David Linden<\/strong>, Head of Energy Transition<\/em> <\/p>\n <\/p>\n [1]<\/a> Gross capacity. Excludes the recent acquisition of a 20% interest in Adani Green Energy Limited<\/p>\nENI<\/h3>\n
Equinor<\/h3>\n
Repsol<\/h3>\n
![\"\"](\"https:\/\/www.westwoodenergy.com\/wp-content\/uploads\/2021\/02\/European-Oil-Gas-Majors-Current-Renewables-Installed-Capacity-and-Targets-1024x781.png\")
\nFigure 1: European Oil & Gas Majors Current Renewables Installed Capacity (GW) and Future Targets[2]<\/a>
\n<\/u>Source: IEA, Company announcements, investor and conference presentations
\nAll targets are assumed to be \u2018net\u2019 unless otherwise stated by the company. For Total, the current capacity and targets shown are gross as per the company\u2019s disclosures.<\/h6>\n[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_direction_desktop=”default” column_element_spacing=”default” desktop_text_alignment=”default” tablet_text_alignment=”default” phone_text_alignment=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_backdrop_filter=”none” column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][vc_column_text]The renewable capacity targets of European Oil & Gas majors are only a small fraction (c.4%) of the overall renewable capacity (solar PV and wind) targets as per the IEA\u2019s 2030 Sustainable Development scenario. However, it is worth bearing in mind that these companies are at the early stages of their transition into broader Energy companies. These targets could be revised and \/ or upgraded, as they gain more experience and improve their understanding of the underlying markets and participants.<\/p>\nThe Clean Energy Supermajors<\/h2>\n
Enel<\/h3>\n
Iberdrola<\/h3>\n
NextEra Energy<\/h3>\n
\u00d8rsted<\/h3>\n
![\"\"](\"https:\/\/www.westwoodenergy.com\/wp-content\/uploads\/2021\/02\/Clean-Energy-Super-Majors-Current-Renewables-Installed-and-Targetrs-1024x721.png\")
\nFigure 2: Clean Energy Super Majors Current Renewables Installed Capacity (GW) and Future Targets
\n<\/u>Source: IEA, Company announcements, investor and conference presentations.
\nAll targets are assumed to be \u2018net\u2019 unless otherwise stated by the company. For Enel, 25 GW of the 145 GW target will be developed under a stewardship model, where Enel w ill part own but manage the generation asset<\/h6>\n[\/vc_column_text][\/vc_column][\/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” column_margin=”default” column_direction=”default” column_direction_tablet=”default” column_direction_phone=”default” scene_position=”center” text_color=”dark” text_align=”left” row_border_radius=”none” row_border_radius_applies=”bg” overflow=”visible” overlay_strength=”0.3″ gradient_direction=”left_to_right” shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_tablet=”inherit” column_padding_phone=”inherit” column_padding_position=”all” column_element_direction_desktop=”default” column_element_spacing=”default” desktop_text_alignment=”default” tablet_text_alignment=”default” phone_text_alignment=”default” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_backdrop_filter=”none” column_shadow=”none” column_border_radius=”none” column_link_target=”_self” column_position=”default” gradient_direction=”left_to_right” overlay_strength=”0.3″ width=”1\/1″ tablet_width_inherit=”default” animation_type=”default” bg_image_animation=”none” border_type=”simple” column_border_width=”none” column_border_style=”solid”][divider line_type=”Full Width Line” line_thickness=”1″ divider_color=”default” custom_height=”20″]![\"\"](\"https:\/\/www.westwoodenergy.com\/wp-content\/uploads\/2021\/02\/Combined-Bubble-Chart-Final-Infographic-WEB-EDIT-169x300.png\")
<\/div>Submit your email to download a combined infographic.<\/h4>\n <\/div>
![\"\"](\"https:\/\/www.westwoodenergy.com\/wp-content\/uploads\/2021\/02\/Proportion-of-IEA-SDS-Forecast-Accounted-for-by-the-European-Oil-Gas-Majors-and-Clean-Energy-Supermajors-2030-Targets-1024x433.png\")
\nFigure 3: Proportion of IEA SDS Forecast (2030) accounted for by the European Oil & Gas majors\u2019 and Clean Energy Supermajors\u2019 2030 Targets
\nSource: IEA, Company announcements, investor and conference presentations. SDS: Sustainable Development Scenario<\/h6>\nSimilar but different<\/h2>\n
\nksymes@westwoodenergy.com<\/p>\n
\nadas@westwoodenergy.com<\/p>\n
\ndlinden@westwoodenergy.com<\/p>\n
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