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    Oil Majors' Green Transition Spurring Growth In Renewables


    June 27, 2022 - Fitch Solutions Sector Intelligence

     

      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      Oil Majors' Green Transition Spurring Growth In Renewables

      • 17 Jun 2022
      • Global
      • Power
      • BP

      Key View

      • Commitments to a low carbon energy transition among many oil majors is accelerating, with emission reduction pledges and renewable energy targets mounting, shifting company profiles.
      • Major oil and gas companies are transitioning into broader energy companies with increasing levels of investment.
      • This transition by oil and gas companies is spurring growth in the renewables sector as they develop increasing levels capacity in house or utilise subsidiaries.

      Commitments to a low carbon energy transition among many oil majors is accelerating, with emission reduction pledges and renewable energy targets mounting, shifting company profiles. As the topic of climate change gains traction globally, reinforced by numerous economies announcing their carbon reduction targets, companies are being driven to change their business strategies and adopt low carbon practices. More stringent government environmental policies, increasing regulatory requirements, rising carbon taxes and growing adoption of carbon pricing mechanisms will pose climate-related risks for high carbon emitters. Ultimately, the demand for emissions-intensive products will fall and companies will face shrinking demand pools and lower price levels, leading to weaker profitability, degraded balance sheets and potential asset stranding. As a result, oil majors have recognised this risk and are pivoting to the renewable energy sectors. This is evident through their transition plans as part of their climate action ambitions. Subsequently we expect this to bring these companies ever more into the role of an energy company, fundamentally changing their business strategy.

      Oil Majors Are Targeting Renewables As Part Of Emission Reduction Plans
      Net Zero Target Key Interim Targets Power Transition Plans
      B.P. 2050 Zero net growth in emissions to 2025 Invest in renewables, targeting 20GW renewables capacity by 2025 and 50GW by 2030
      Chevron 2050 Reduce overall carbon intensity by >5% (2028) Grow hydrogen production to 150,000 tonnes per year by 2030 (this includes hydrogen produced from renewable and non-renewable methods)
      Eni S.p.A 2050 15% reduction in carbon intensity vs. 2018 (2030) Invest in renewables generation capacity, reaching 20GW by 2030 and 60GW by 2050
      Equinor 2050 20% reduction in net carbon intensity by 2030 and 40% by 2035 vs. 2019 Develop 4-6GW's of renewable capacity by 2026 and 12-16GW by 2035.
      Repsol 2050 Reduce Carbon Intensity Indicator by 15% (2025), 28% (2030) and 55% (2040) Invest in renewables, targeting 50GW net generating capacity by 2030 Invest in biofuels and take early positions in CCUS and hydrogen
      Royal Dutch Shell 2050 Reduce carbon intensity of energy products supplied by 20% by 2030 and 45% by 2035 Increase the proportion of lower-carbon products (e.g. gas, biofuels, electricity and hydrogen) in products sold
      TotalEnergies 2050 Reduce net carbon intensity of products supplied by 15% vs. 2015 (2030) Increase share of renewable electricity targeting 100GW by 2030
      Source: Various company sources, Fitch Solutions

      Major oil and gas companies are transitioning into broader energy companies with increasing levels of investment. Our Key Projects Data (KPD) confirms our view that many companies are making the switch from a traditional fossil fuels supplier to one that supplies electricity generated from grid connected renewables. In order to facilitate this transition, the renewable energy sector has experienced capital injection from oil majors. This has taken the form of them being sponsors of renewable power projects globally. One such example is BP's acquisition of a 40.5% stake in the 26GW Asian Renewable Energy Hub (which will have a mix of solar and wind power projects) in Australia. In total, we register in KPD that oil majors are involved across USD25.6bn worth of renewable power projects that are currently in the pre-construction and construction stages, although this value is likely higher as not all firms publicly announce project value.

      French Multinational Company, Total, Leads Involvement In Renewable Power Projects
      Global - Oil Majors' Involvement In Non-Hydropower Renewables by Sector, USDmn

      Note: PV = photovoltaics; CSP = concentrated solar power. Source: Fitch Solutions Key Project Database

      This transition by oil and gas companies is spurring growth in the renewables sector as they develop increasing levels capacity in house or utilise subsidiaries. We expect that growth in the renewables sector to be supported by this ramping up of investment and pivoting to renewables by oil majors. This expansion will be evident over the coming years as oil majors commission a 70GW strong pipeline of non-hydropower renewables projects, as captured in our KPD. Notably, the project pipeline for offshore wind power projects is the strongest among other types, at about 48GW. We believe that this is largely attributed to the synergistic expertise that oil majors have in the construction of offshore projects.

      Apart from the wind power sector, the solar power sector also has a strong pipeline of projects. While the engineering expertise of oil rigs differs much from the construction of solar photovoltaic (PV) projects, oil majors have the capital to make mergers, acquisitions and partnerships with companies to develop solar power. Prominently, BP has also taken to acquiring its own renewable energy developer, Lightsource BP, to aid in its renewable’s agenda. According to the company, it has developed a total of 5.4GW across 18 markets worldwide. We expect this trend of oil majors supporting growth in the renewable power sector to continue growing over the coming years, with the offshore wind and solar PV sub-sectors experiencing the largest growth.

      Offshore Wind Takes Up 70% Of Renewable Capacity Planned By Oil Majors
      Global - Pipeline of Non-Hydropower Renewables Projects Involving Oil Majors, GW

      Source: Fitch Solutions Key Project Database

      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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