Times are Changing: Shell Buys into US Renewable Retail Market
Shell New Energies, a division of the oil and gas giant Royal Dutch Shell Group, is buying a US renewable retail electric power company in the latest sign that oil and gas companies are waking up to a new climate reality (See the just-released Sixth IPCC Assessment Report which basically issues a "code red for humanity"). And this isn't Shells first foray into US electricity markets -- back in 2017 it acquired MP2 Energy -- a Texas-based commercial and industrial renewable energy seller. The company has also bought electric vehicle charging companies like Greenlots, NewMotion, and Ubtricity, as well as the battery in-home backup storage and charging company, Sonnen, including along with its retail and commercial electricity businesses.
"'Shell is the most forward-thinking oil company,' said John Tough, a managing director of the venture capital firm, Energize Ventures."
Shell: This is Shell's New Energies business, March 12, 2019.
Now with the newly announced acquisition of Inspire Energy Holdings (IEH), Shell is expanding its footprint even further.
"Shell is the most forward-thinking oil company," said John Tough, a managing director of the venture capital firm, Energize Ventures. "For the most part, oil firms are better at big, centralized projects and the new energy economy is going to reward firms that are better at decentralized assets." IEH likely represented an attractive target for Shell for a few reasons. Retail energy providers upsell baseload power -- a market that Shell already plays in -- thanks to its renewable energy project development businesses.
So it's possible that IEH would buy power from Shell or another vendor for something like 3 cents and sell it to consumers for 8 to 10 cents. With its current scale, IEH likely represented an attractive acquisition target.
SaskPower: Understanding Baseload Power, April 10, 2019.
"It may take time for the implications of this new climate reality to be felt across all the largest oil and gas companies, but changes are coming..."
Beyond that, Tough explained that Shell could use the company's customer list to sell community solar or other, higher-margin renewable products. So, if Shell were to buy a rooftop residential or community solar company, it could combine its solar offering with charging and storage to give customers a one-stop-shop.
Our goal is to become a major provider of renewable and low-carbon energy, and this acquisition moves us a step closer to achieving that. This deal instantly expands our business-to-consumer power offerings in key regions in the US, and we are well-positioned to build on Inspire's advanced digital capabilities to allow more households to benefit from renewable and low-carbon energy.
Rather than supply renewable power directly to homes, IEH buys renewable energy certificates from local wind farms or solar power project developers (like Shell). Those credits are commodities that renewable energy sources sell alongside their electric power to boost their value. The company benefits because it has negotiated fixed rates with consumers, while the cost of wind power drops due to increasing demand.
"The push into electrification represents a hedge against decarbonization that will only become more aggressive as the regulatory regimes that oil and gas companies face become more restrictive around fossil fuels..."
It may take time for the implications of this new climate reality to be felt across all the largest oil and gas companies, but changes are coming, according to Pradeep Tagare, the Vice President and head of venture investments at National Grid. "We've seen the oil majors play an offensive and defensive side. They are indeed building out their portfolio in terms of renewables," said Tagare. "On the defensive side, they are clearly looking at [the] carbon market."
UN: A major new UN climate report issues a code red for humanity, August 10, 2021.
The push into electrification represents a hedge against decarbonization that will only become more aggressive as the regulatory regimes that oil and gas companies face become more restrictive around fossil fuels and greenhouse gas emissions. On the flip side, these businesses are making a huge bet that the sequestration of greenhouse gas emissions from current operations will be enough to stave off the obsolescence of a multi-billion dollar industry.
The reality is likely more the former than the latter. Current levels of greenhouse gases in the atmosphere are already having dramatic effects on global economies. "There's going to be consolidation and an existential threat to some incumbents and completely new companies that come out as energy service providers," Tagare said. "For that, you need the scale, you need the capital, and that's when you'll see the consolidation."