By Tom Brookes, Energy Procurement Lead, firstname.lastname@example.org
If you’re a fan of music, you’ve probably experienced the moment when your particular musical sub culture has gone mainstream. It can be a particularly jarring experience for fans, success can be bittersweet with a niche identity giving way to wider but more commercial access to the sound you have come to appreciate. We all have a friend who has shunned a music scene because it has become popular. I bring this up because clean energy has reached that point, the successful advocacy of activists, scientists, entrepreneurs, and enthusiasts has taken the renewable energy sub culture into the mainstream. We now find ourselves at a nexus point where renewable energy is not only the environmental choice but also increasingly the economic and commercial choice. A sign of success that causes some conflicting emotions is the rising involvement of Oil & Gas Majors that are moving into renewable energy.
It can be hard to keep up with all the M&A activity in the energy and power sector, but it is useful to look at all the recent acquisitions and rebrands as they show how the oil & gas industry is strategically buying its way into the renewable energy sector. Here is quick highlight selection:
There is a somewhat apocryphal quote attributed to Ahmed Zaki Yamani, an Oil Minister of over 20 years’ experience in Saudi Arabia; “The Stone Age didn’t end for lack of stone, and the oil age will end long before the world runs out of oil”. If the quote is hard to accurately attribute, the sentiment is not. This has led many to wonder if Oil Major interest is simply diversification and transition to a new market, old habits die hard and many struggle to view big business with anything other than cynicism. However, it is time to recognise that we have actually reached a point which we have all been working towards, making renewable energy mainstream. The question is not why the oil firms have moved into renewables but how they can best further the cause of clean energy, then we can judge them on what they achieve.
The renewables sector can benefit greatly from the expertise of the Oil Majors. There are perhaps three significant benefits that could be developed quickly from this new relationship. The first is that Oil firms have a greater appetite for risk than most businesses and have money to back it up, this should hopefully translate into larger more marginal projects getting the green light. The second benefit is engineering expertise. Offshore wind especially could seriously benefit from an industry that is one of the world leaders in offshore engineering. Finally, Oil Majors are unsurprisingly active in countries with large oil reserves, they are established parts of those countries infrastructure. This may be the biggest global benefit, they are in place to be powerful advocates for renewables in the countries where a transition to a green economy could have a lasting impact for the world.
Whilst many can see the natural synergy between fossil power firms developing and potentially transitioning to renewable energy, it would be wrong to assume that they will be the only organisations that see the opportunity. In 2001, Chris Zook a prominent business theorist released a book called “Profit from the Core”, his big argument was that firms looking to grow should seek out adjacent business markets to their core offering. This idea is hugely relevant to the renewable energy sector. Renewable energy removes a disconnect in the energy supply chain that exists in fossil fuels because of the local nature of its generation. This means that it is now an adjacent sector for many companies; different firms are looking to take control of their supply chain and insource their energy provision to improve their image and secure access to energy for their operations. Energy thirsty tech organisations such as Google and Microsoft are becoming more engaged in energy production. Google has been taking an active role in floating solar for an example. Car manufacturers too are getting in on the action; in January 2019 Volkswagen outlined plans to be a green energy supplier. The motor trade hurt by the diesel scandal and the rise of EVs has seen renewables as logical next step for its business model. So, what does that mean for the future? It means that renewable energy will in time just be known as energy and most business sectors will be in on it.