How Are Fossil Fuel Giants Impacting The Cleantech Sector?

It is neither new nor news that large multinational companies invest in innovative, disruptive start-ups. Examples are littered across the sectors including technology, agriculture, pharmaceuticals and consumer goods. Similarly, in the oil and gas sector, mergers and acquisitions are a common, unnoteworthy feature, although their frequency can be used to indicate the strength, and growth potential, of the market. What is a remarkable feature of several acquisitions of the oil and gas giants in the last couple years, however, is the fact they have not been in the traditional fossil fuel realm, rather they have actively invested in (relatively) small renewable, or cleantech, companies. 

According to Bloomberg New Energy Finance (BNEF), in the last 15 years, big oil firms have completed 428 transactions and spent US$6.2bn building stakes in clean energy companies and according to analysts at Bernstein over US$3bn of that was in the last five years. As the Figure below shows, solar energy took the largest share of these investments followed by (offshore) wind.  In regard to wind, oil companies have been using their knowledge in extracting fossil fuels from seabeds to install turbines in similarly challenging climates.

Oil companies have historically dabbled in other forms of energy. This includes an almost unified backing of solar after the 1973 oil crisis, Exxon’s promotion of nuclear in the 1980s and Shell’s vow to spearhead renewables ahead of the landmark Kyoto Protocol on climate change in 1997.
However, these forays into cleantech were short lived and heavily dependent on a high oil price. The more recent string of investments described below appear to signify a genuine attempt by ‘big oil’ to diversify their business and accelerate growth among green technologies.  
In addition to the below, Shell, BP and Total are members of the Oil and Gas Climate Initiative, a group of ten major oil and gas companies which aims to increase the ambition, speed and scale of the cleantech initiatives. In November 2016, OGCI launched a billion-dollar investment vehicle, Climate Investments. The vehicle has a strong focus Carbon Capture, Utilisation and Storage (CCUS) technologies and has invested in CCUS start-ups including Econic Technologies, Solidia Technologies and Clean Gas Project.

BP
Although one of the world’s most well know petroleum companies, BP was a relatively early renewables adopter, establishing BP Solar back in 1981.  BP acquired several solar companies including Lucas Energy Systems and Solarex as well as establishing Tata BP Solar, a joint venture with Tata Power in 1989. However, by 2011 BP announced its departure from the solar energy business. 

Six years later, in December 2017, the company saw the solar light (again) and announced that it would invest US$200m in a 43% stake in the solar PV company now known as Lightsource BP.
In BP’s own announcement, it noted that global installed solar generating capacity more than tripled in the past four years and grew by over 30% in 2016 alone. Following this, BP’s Energy Outlook 2018, released in February, predicts that solar will be widely competitive by the mid-2020s. To indicate just how quickly the solar boom has grown, the level of global solar capacity predicted by 2035 is 150% higher than in the base case of its own 2015 Energy Outlook. 

The report also predicts that renewable energy as a whole will grow five-fold over the next two decades and the company has declared it is looking to spend around US$500m on green energy (primarily solar) firms this year.

Shell 
Shell has committed to invest as much as US$1bn a year in ‘new energy’ by 2020 and in late 2017 and early 2018 Shell undertook what can only be described as a spending spree in green energy companies, with a focus on companies which support the clean transportation revolution. 
In December 2017 Shell agreed to acquire independent British power provider First Utility for a reported US$200m in what can, at least partially, be explained as the firm hedging its bets on electric vehicles (EVs) becoming dominant. This theory is furthered by its acquisition of NewMotion, Europe’s largest electric charging points operator with a network of 80,000 sites. The Anglo-Dutch oil and gas group has also partnered with a charging network operator called IONITY to offer EV charging at 80 of its biggest roadside service stations across Europe. 

In addition to EVs, in mid-2017 the company bought the development and licensing rights to SBI BioEnergy’s biofuel technology, a patented process that converts waste oils, greases and sustainable vegetable oils into lower carbon replacements for diesel, jet fuel and gasoline. 
Outside of transport, in January 2018 the company ventured back into solar after a 12-year hiatus when buying a 44% stake in Silicon Ranch Corporation for US$217m. Furthermore, Shell has a stake in the Borssele III and IV wind projects in the Dutch North Sea.  It has also signed agreements to buy solar power in Britain and develop renewables power grids in Asia and Africa.

Total
According to BNEF, since 2010, Total has made the highest number of acquisitions and joint ventures out of all the companies discussed. It also appears to be investing in the most diverse range of technologies. Additions include the 2011majority stake investment in SunPower Corp, makers of reportedly the most efficiency solar photovoltaic panels in the world; the 2016 buyout of battery maker Saft Groupe SA for US$1bn ; and a 23% share in EREN RE for US$293m in 2017. 

Founded in 2012, EREN RE has a diversified asset base (notably wind, solar and hydro) representing a global installed gross capacity of 650MW in operation or under construction. It has an ambition to achieve a global installed capacity of more than 3GW within five years, coincidentally the agreement signed also gives Total the possibility to take complete control of EREN RE after a period of five years. 

In 2017, the group also set up its own affiliate, Total Solar, in order to develop solar power plants in developed countries and distributed solar systems for industrial and commercial customers (B2B).

ExxonMobil
ExxonMobil appears to be focusing very much on the future and has announced plans to invest US$1bn a year into early stage research of alternative forms of energy. While any commercial breakthrough is, reportedly, over a decade away, such investment from the world’s most valuable publicly-traded oil company no less is a strong indicator of the reality of the green energy transition. The funds are for more than a hundred research projects and the company has joined with around 80 universities in addition to innovative start-ups. These studies include research into cleantech such as algae biofuels and carbonate fuel cells. 
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While most of Exxon’s focus is on seed funding, it is also working alongside more established companies such as Renewable Energy Group who are investigating the use of microbes to convert inedible crop residue like corn husks into biofuels. The two companies began their collaboration in 2016 and have recently extended their joint research programme.

Venture capital investment 
As well as investing in large established companies, all the firms listed above are also very active in the venture capital sphere and below are some of the energy-technology start-ups they have invested in since 2016.  

In the last 15 years, big oil firms have completed 428 transactions and spent US$6.2bn building stakes in clean energy companies
Source: Bloomber NEF

Table 1: Big Oil’s ’green’ venture capital investments

BP
Tricoya Technologies, makes technology that changes the chemical structure of wood chips as a base for a more sustainable building material.
Fulcrum, produces bio-jet fuel made from municipal waste, raised $30 million from BP
Solidia, a company that is working on reducing the carbon footprint of concrete.

ExxonMobil 
Synthetic Genomics Inc., studies how algae can be used to make biofuels.
FuelCell Energy Inc.,develops carbonate fuel cells to capture CO2 emissions from natural gas plants while also producing electricity.

Shell 
Kite Power Systems, designs kites that uses wind currents to generate renewable electricity.
Glasspoint Solar Inc, uses solar energy to create steam for enhanced oil recovery 
Sense, a start-up that creates devices that monitor home power consumption.

Total 
AutoGrid, a California-based company that designs smart-grid software.
United Wind, leases wind turbines to retail customers and small businesses.
Off Grid Electric, Tanzania-based installer of rooftop solar panels that works in low energy-access areas in Sub-Saharan Africa.

The Green Stick
BP, Shell, Exxon and Total, along with their fellow oil and gas giants have all been responding to increasing market pressures, as well as influence from their shareholders, to improve their governance on climate change. The Climate Action 100+ is a group of 256 (to date) major investors with the aim to encourage the world’s largest companies to improve their climate action and risk disclosure. With a combined $28 trillion of assets under management behind it, the five-year project is a clear demonstration that investors see the importance, and business case, of monitoring climate risk and this is in turn an indication that the public is increasingly behind the concept of a green transition. 

ExxonMobil has already engaged with its shareholders.  In response to a 2017 shareholder resolution seeking additional climate disclosures about the impacts of technology advances and global climate change policies on the company, Exxon produced the climate risk report, 2018 Energy and Carbon Summary: Positioning for a Lower-Carbon Energy Future. 

A recent report by a European Commission group on Sustainable Finance has recommended that the EU explores how to align climate-related financial disclosures with its own Non-Financial Reporting Directive, which requires large companies to publish regular reports on the social and environmental impacts of their activities. In the UK, there have been suggestions that the government is planning to make it mandatory for companies to disclose the risks they face from climate change.

Insurance companies own Environmental, Social and Governance (ESG) criteria has led them to increasingly divest, or not insure, projects and companies which are not in line with the Paris accord goal of keeping global warming below 2C. At present coal has been the focus from a wave of firms including Lloyd’s of London, Aviva, Axa and Zurich and around US$21bn has been divested by insurers in the coal industry in the past two years.

In December 2017 Axa announced it was not only divesting from 25 tar sands companies but also from three major North American pipelines needed to deliver their oil to market and by ending the insurance it provides, at a total cost of US$860m. In the same month the World Bank announced it will end its financial support for oil and gas exploration and extraction within the next two years in response to the growing threat posed by climate change. At present, 1-2% of the Bank’s $280bn portfolio is accounted for by oil and gas projects.

The Green carrot 
As well as the risk reduction benefits from diversification, recent reports indicate that companies involved in clean energy production are faring better than those who solely focus on fossil fuel based energy. The Clean200, a global ranking of the 200 largest publicly listed companies based on clean energy revenues, has reported that in the year and a half leading up to September 2017, Clean 200 companies recorded total returns of 32.1%. In comparison, the fossil fuel benchmark, the S&P 1200 Global Energy Index, delivered a 15.7% return—less than half the performance delivered by their cleantech counterparts. 

Source: Bloomberg (total USD returns free-float market cap weighted re-balanced semi-annually from July 1, 2016 to December 31, 2017)

It is important to note that this is only a study into the world’s largest firms, those which are publicly listed with a market capitalisation of more than US$1bn and generate at least 10% of their revenues from clean energy sources. Twenty-nine countries are represented and the companies generate over US$363bn in clean energy revenues per year. A broad spectrum of organisations is included and at the top of the green totem pole sits Siemens, while Toyota Motor, ABB, Panasonic, Vestas and SSE are all in the top 10. While the Clean200 focuses on the market leaders, it is a clear indication of the transition to the Green Economy which is happening across diverse sectors and markets. 

The Clean200 currently does not include oil and gas companies (and utilities) which generate less than 50% of their power from green sources, and thus currently excludes the likes of BP and Shell. While the sums expended on clean energy still represent a fraction of the money invested in crude every year, based on the patterns of investment above, it appears that it is only a matter of time until one of the oil and gas giants make it on to the list.

Richard Vale

Richard is an Energy Analyst for the Energy Industries Council (EIC), the UK’s leading energy trade association. He focuses on managing the EIC’s project tracking database EIC DataStream for several areas of renewable energy including onshore wind, solar, biomass and energy from waste. He also analyses conventional power including the potential of carbon capture and storage. Richard has a BA (Hons) in Geography from the University of Southampton and an MSc in Environmental Policy from the University of Oxford.