Shell, a global oil & gas major, recently announced accelerated goals in a mission to become zero energy business. The company is seeking to completely eliminate all emissions from its manufacturing business by 2050 and also wants to reduce emissions for all energy products sold by it by 65% by 2050. Forced to take some drastic decisions in wake of the COVID-19 demand shock, the company also announced significant reduction in total capex (down USD 5 billion) and dividend (66%). But tellingly, it has kept capex plans for clean energy intact.
- So far, the oil & gas companies have been testing waters by acquiring minority stakes in disparate clean energy businesses;
- But they would want to play a more central role as their primary businesses shrink and clean energy grows in scale and prominence;
- For India, entry of oil & gas companies with their deep pockets and strong technology expertise in the renewable sector is highly welcome;
Shell is aggressively expanding presence in the clean energy business internationally across technologies (solar, wind, biofuels, storage, electric mobility and hydrogen) and value chain. In India, the company has already acquired stakes in two distributed energy ventures: 49% in Cleantech Solar, a market leader in C&I renewables, and 20% in Orb Energy, a rooftop solar company focused on SME and residential consumers. It is also believed to be looking actively at round-the-clock and hybrid schemes announced by MNRE.
Shell is not alone amongst the oil & gas majors to try to pivot to clean energy. France’s Total recently acquired 50% stake in Adani’s 2,148 MW operational solar portfolio. BP has set itself a target of building 10 GW renewable capacity by 2023 and has acquired interests in Ayana and Radiance Renewables through its 50:50 JV with Everstone. Petronas bought out complete control in Amplus, another leading C&I renewable company, in April last year.
We expect involvement of oil & gas companies in Indian renewables to grow significantly in the mid to long term. Most of them have sat out the exuberant bidding phase as risk-return was not deemed favourable; and there was little synergistic benefit in vanilla renewable projects. But as the sector grows in scale, procurement schemes become more complex and interlinkages with conventional energy businesses grow, these companies would want to play a central role. Growing complexity of procurement schemes – MNRE stated this week that it may hold auctions for only round-the-clock and hybrid projects in future – would also play to their advantage.
For India, entry of oil & gas companies in the renewable sector is highly welcome. The global majors bring deep pockets, strong technology expertise and international best practices besides more discipline and patience. Other developers, particularly financial investor backed platforms, should take note.
