Utilities investing strongly in renewable energy — NextEra Energy, Xcel Energy and Duke Energy among them — have outperformed their peers, returning 33.7 percent, 31.1 percent and 17.6 percent, respectively, compared to the industry’s 13.3 percent return in the past year, according to a report from OilPrice.com.
The suggested lesson appears to be lost on Big Oil, which is currently spending less than 1 percent of capital expense dollars on zero-carbon renewables, according to a January report from the International Energy Agency. To give you some idea, The Economist reported that some $80 billion in capital expenditures by Europe’s seven biggest listed energy companies during 2019 saw only 7.4 percent (less than $1 billion each on average) go to clean energy. UBS has calculated that capital spending on renewable energy, power grids and batteries will need to rise globally to $1.2 trillion a year on average from now until 2050, which is more than double the $500 billion spent annually on oil and gas.
“No energy company will be unaffected by clean energy transitions,” says Fatih Birol, executive director of the IEA. “Also, with their extensive know-how and deep pockets, oil and gas companies can play a crucial role in accelerating deployment of key renewable options. Without the industry’s input, these technologies may simply not achieve the scale needed for them to move the dial on emissions.”
Yes, fossil fuels are currently driving oil and gas companies’ most generous returns, but failure to address growing calls to reduce greenhouse gas emissions might come at a steep long-term cost. OilPrice.com points to growing concern among shareholders that governments and activists have begun viewing Big Oil as the next Big Tobacco — its holdings becoming “toxic” and triggering a wave of divestments by investors and investment funds. Getting serious about investing in the transition to clean energy might be just what oil companies need to alleviate investor and shareholder pressure.
Already, Larry Fink, CEO of BlackRock, the world’s largest fund manager, wrote in a Jan. 14 letter to corporate CEOs that climate change would cause a significant shift in capital toward sustainable investing.
Mike Consol (firstname.lastname@example.org) is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.