US solar installations continue to accelerate, but much more investment is needed to meet the Department of Energy’s ambitious goals for the next decade and a half. A growing proportion of renewables investment is now coming from well-established oil and gas giants.
Though energy industry M&A and upstream investment in fossil fuels is falling, major firms are deploying an increasing amount of capital into clean energy tech. Some, including BP and TotalEnergies, have already laid out significant targets for renewable energy generation and investment. The ongoing transformation of the global energy mix will likely coincide with a rising share of renewables in big oil companies’ operations.
Related ETFs & Stocks: Invesco Solar ETF (TAN), iShares Global Clean Energy ETF (ICLN), BP plc (BP), TotalEnergies SE (TTE), Royal Dutch Shell plc (RDS-A), Saudi Arabian Oil Company (2222.SR)
US solar installations accounted for 58% of all new electric capacity additions in the first quarter. Axios notes that new installations soared even further in April-June period, totaling 2,226 megawatts of capacity, a 73% jump over Q1.
As MRP has previously noted, the average cost of electricity generation over the lifetime of a plant utilizing utility-scale solar energy (called the levelized cost of electricity) was between $35 to $55 per megawatt hour in some of the world’s biggest markets last year — the US, Europe, China, and India. The cost for coal, in comparison, currently ranges between about $55 and $150 per megawatt hour. That prompted the International Energy Agency (IEA) to crown solar the “new king” of global electricity markets.
A recent report from the US Department of Energy (DoE) had a similar conclusion, noting that solar’s levelized cost of energy has fallen more than 70% over the last decade. If costs continue to decline, spurred on by the adoption of solar-friendly policies like tax credits, the DoE projects solar could supply more than 40% of the nation’s electricity by 2035 – up from 3% today. Solar projects are currently eligible for a 26% tax credit, but that is in the process of being phased out. President Biden has pushed for a 10-year extension, as well as new incentives for manufacturing solar components.
Though governments can provide subsidies to some level, Reuters notes that the solar industry will need a level of renewables investment that allows it to grow at three or four times its current rate to meet those kinds of lofty expectation. That kind of funding could potentially come from the well-established energy industry giants.
Renewable Investments Up – Traditional M&A, Upstream Spending Down
Back in January, MRP wrote that big oil and gas companies are finally beginning to prepare for an increasingly inevitable clean energy future. Recent trends in global energy companies’ investments only bolster that assertion.
Per the Wall Street Journal, BP, Royal Dutch Shell, and French peer TotalEnergies SE are now among the most active clean-tech investors by number of deals closed, according to data provider PitchBook, with activity ramping up amid the shift to technologies like electric vehicles and solar and wind power. Meghan Sharp, head of BP Ventures, now expects to spend up to $200 million a year, double what it has spent in some previous years.
BP last year set a target to boost its renewable energy capacity to 50 gigawatts up from less than 3 gigawatts. TotalEnergies plans to have 100 gigawatts of capacity by 2030, and Shell is also growing quickly in the space.
Saudi Aramco, the world’s largest oil producer, has just taken a 30% stake in a $907 million solar power plant in the kingdom, expected to generate a total capacity of 1.5 GW. Per S&P Global Platts, the project will be able to power 185,000 homes, while offsetting nearly 2.9 million mt/year of emissions. ACWA Power, itself 50% owned by the Saudi sovereign wealth fund, will also take a 35% stake.
Those kinds of investments could become more common among major US energy firms in coming years. As MRP highlighted back in June, Exxon Mobil shareholders recently voted in at least two new board members who are focused on moving the company in a more climate-friendly direction. The New York Times reported this was the first time activist investors successfully voted their picks onto Exxon’s board.
Chevron, the second largest fossil fuel producer, held a shareholder meeting around the same time, in which 60% of the participants voted that the company should reduce its emissions, according to Vox.
While investments in clean energy tech are picking up, overall dealmaking between oil and gas producers is in decline. Bloomberg notes that the current run rate of energy M&A, year to date, suggests $138 billion-worth of dealmaking will be announced, pending or completed by the end of 2021. That would be the lowest…
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