EnergyWire’s Ferris talks Big Oil’s departure from renewable energy investments

Source: By Monica Trauzzi, E&E • Posted: Monday, October 6, 2014

Last month, Chevron Corp. announced the sale of its renewables subsidiary, following a trend by several oil majors to move away from clean energy investments. On today’s The Cutting Edge, EnergyWire reporter David Ferris discusses the shift in clean energy strategy at several oil companies and explains how it is impacting the renewable energy industry.

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Monica Trauzzi: Welcome to The Cutting Edge. Why is Big Oil moving away from clean energy investments?EnergyWire‘s David Ferris is here with a look at a shift in strategy at several oil majors. David, at the heels of Chevron’s exit from solar and geothermal investments last month, you’re reporting in today’s EnergyWire that several supermajors have changed direction on renewable energy investments. Is there a straightforward answer of why this is happening?

David Ferris: Well, if you ask the oil majors themselves, the reason they give is that they just weren’t getting the returns that they wanted to get on that, but my colleague, Nate Gronewold, and I decided that that — we decided that that deserved a closer look to see why that would be. So we talked to some oil and gas industry analysts, and they said that the oil majors are experiencing some relatively tough economic times. Their returns aren’t what they used to be, and they needed to funnel money back into the core. There are possibly some other intriguing reasons why that’s so.

Monica Trauzzi: So what did the oil industry promise years ago on clean energy, and what did they deliver on?

David Ferris: Well, many viewers will remember, a few years ago, that BP called itself “Beyond Petroleum,” and they invested $6 billion in solar and wind and biofuels. Shell made a similar portfolio of investments, but not quite so large. Chevron actually, not once, but twice, became one of the leading companies in solar in California. So between about 2005 and 2010, those investments took place, and then since, they have mostly either disappeared or been greatly scaled back, and it’s — especially in solar, it’s striking. Almost all the oil majors are almost entirely out of solar, a market that, right now, is really achieving a lot of market acceleration, and the oil majors are nowhere to be seen.

Monica Trauzzi: So let’s dig into why this is happening. Where is the money going?

David Ferris: So the oil majors are facing a different landscape than they were a few years ago. The oil fields that they’ve relied on for decades, they’re slowly being pushed out of the foreign ones by companies like Aramco in Saudi Arabia and Petronas in Malaysia, and instead, they have to rely on these exotic fields, these exotic sources that they haven’t before, like drilling in the Arctic, fracking for natural gas, looking for tight oil under Texas and North Dakota, and that kind of thing takes a lot of expertise and technology that isn’t perfected, and that’s where they want to spend their venture dollars.

Monica Trauzzi: Are there other reasons why renewables aren’t the right fit right now?

David Ferris: Well, it’s interesting. I had talked to Robert Redlinger, who used to run the solar program for Chevron back in the mid-2000s, and I asked him: “Why is this? So you have these energy companies that are the best at energy. They know it backward and forward. And then you have solar and wind and geothermal energy, and why is it that they can’t get together? Why is it that this seems to be a pairing that just doesn’t work?” And he had some interesting answers for me.

One is that the way that renewable energy and projects and electricity projects, in general, are financed are unfamiliar to the oil majors. They’re used to spending a ton of their own money on very risky projects and taking out all the risk for themselves, and other big infrastructure projects are used to taking on lots of debt, and that’s not something that oil majors are comfortable with. They — and also, the relationship with utilities is one that’s sort of stuck in the craw of the Big Oil companies because they’re used to being the alpha dog in the room and dealing their deals, but when they’re dealing with utility, they’re a monopoly, and so they’re in an inferior bargaining position. And finally, it’s that the — what the oil companies do has to do with molecules. They pump them out of the ground, they use chemical process to refine them. What the solar and wind and geothermal industries do is electrons, and that’s electrical engineering, which is not an area that the oil majors are really all that good at.

Monica Trauzzi: Money often drives policy in this town. Any indication that if Big Oil’s money is moving away from clean energy, we might see the policy follow in that direction as well?

David Ferris: Frankly, I think we’ve already seen the policy following that way, I mean, with the expiration of the renewable energy tax credit last year and a lot of uncertainty around how much biofuel’s going to be mandated to be in our fuel supply. The Big Oil companies could’ve weighed in in favor of renewables, but they didn’t.

Monica Trauzzi: All right, very interesting. Great read in today’s EnergyWire. Thank you for coming on the show.

David Ferris: Thanks, Monica.

Monica Trauzzi: More Cutting Edge coming next Friday. We’ll see you then.

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