Episode 41

I don’t know if you’ve heard, but it’s been raining renewable energy announcements over the past two weeks.

One oil company after the other has announced humongous-ly large plans to invest in renewables globally.

Then, the trading companies – the oil trading companies that is – got on the bandwagon and also announced billions of dollars for renewables over the next few years.

What I like about that is that they are doing it because they have to, not because they want to.

One of the most important factors why they have to is their own people. I don’t know how many stories I’ve heard about people who work for Exxon or Chevron or Shell who just simply don’t like it there anymore, who just simply want their company to do the right thing. There are just as many stories about how hard it is for an oil company to recruit talent these days – they’re having to pay up more and more while they can afford to do so less and less.

Think about the impact that these announcements have on morale inside these companies who employ hundreds of thousands of people around the world.

Today I want to talk about what these announcements mean for renewables and for the clean energy revolution worldwide.

Welcome to Episode 41 of The Angry Clean Energy Guy with me, Assaad Razzouk. Thank you for being here.

THE OIL COMPANIES

Let’s start with the announcements by the oil companies.

French oil and gas player Total put renewables in the last two weeks at the heart of a new company strategy. They said they want to invest $3 billion a year in renewables over the period between now and 2025 and they want to ramp that up to deploying 10 gigawatts of renewable energy per year from 2025. Now 10 gigawatts is huge. That’s three times South Africa’s existing solar capacity. That’s also three times Thailand’s solar capacity. 10 gigawatt is also France’s total installed solar capacity today. So Total is talking big.

Shell, another oil company, is also increasing its focus on renewables and power markets and in their case, they want to cut 40% of their oil and gas costs. That’s tens of billions of dollars to free up cash to invest in renewable energy.

Here’s a fun fact about Shell by the way. If you look them up these days, you’ll see they are referred to as “global energy company Shell”, which I found to be very entertaining, as opposed to what it is, “oil & gas dinosaur Shell”.  You’ve got to really love the talented branding people they have.

In the case of BP, the oil major now sees renewables as being the fastest growing energy source over the next 30 years. That’s BP, the oil major, we’re talking about. They say that’s because wind and solar are now able to power newly electrified, difficult sectors, such as transport, heating and buildings – that’s difficult according to BP, of course – but remember that’s an oil company speaking, that’s an oil company saying renewables are going to be the fastest growing energy source over the next 30 years in all their scenarios.

So BP is telling us that they’re embarking on a journey to become a clean energy giant and that that journey is going to start with a five-year sprint to dramatically boost, wind and solar power. They want to, in their case, approve by 2025, four years from now, 20 gigawatts of renewable energy projects, which is up in their case eight times on what they’re doing now.

20 gigawatts, remember, is about twice France’s entire solar capacity today.

That’s just Total, Shell and BP.

Wait until the Americans wake up and smell the coffee. That’s Exxon, Chevron and many other American companies that at the moment are doing practically nothing in terms of renewables.

THE OIL TRADERS

Let’s move now to the oil and commodity traders. These are relatively obscure names that the general public doesn’t know, but they are absolutely huge companies.

Just the top 10 global oil trading companies have $2 trillion in annual revenues and employ over half a million people. $2 trillion by the way is about the GDP of Canada, that’s the country of Canada. So we’re talking some really big companies here.

The largest one, Vitol, has revenues of $230 billion and is a private company. Vitol is the world’s largest physical oil and gas trader.

The second largest is Glencore with revenues over $200 billion. It’s listed and it’s one of the largest traders of metals, minerals and oil in the world.

The third largest is called Trafigura with revenues of about $200 billion as well. It’s private.

The fourth largest (and I promise I’ll stop there) is Mercuria, with revenues of about $120 billion. Mercuria is also privately-held.

Most of the time, none of us have any idea what Vitol, Trafigura or Mercuria are doing. But one thing we know for sure is that they are trading an enormous amount of oil.

These companies now appear to have seen the clean energy light.

Trafigura launched a new, renewable energy business to invest in solar, wind and storage projects. They want to deploy 2 gigawatts in the next couple of years. What’s unusual of course, is that these companies are traders but in this case, they’re talking about actually owning the physical assets. Trafigura want to build and own the solar and the wind power plants.

Vitol is already doing the same thing and they want to go big in renewables. They’ve already been trying in North America, Africa and elsewhere.

Remember, I’m only talking about announcements made in the last two weeks.

There’s a third trader called Mercuria, which is putting $1.5 billion in battery storage projects in the U.S. That’s a lot of money for one company to deploy in battery storage.

Three of the 4 biggest oil traders in the world, with combined revenues of about half a trillion dollars, just these three, are now flexing muscle in the renewable space.

CHINA GOING NET ZERO

That’s not all.

On a previous podcast, you heard me say that China pledged to cut emissions to net zero by 2060. China did that, notably, unconditionally. China’s never done that before in climate negotiations – ever. It was a complete turnaround on their part and a very, very impressive one at that. What the Chinese are going to do now is dwarf renewables deployment anywhere else in the world by tripling solar from 2019 levels to 105 gigawatts a year (that’s 10 times, in one year, the total installed capacity of France). They’re also going to double wind to 50 gigawatts a year.

These are incredibly large numbers and China going net zero by 2060 is perfectly doable: They’re going to do it via a huge increase in solar, a huge increase in wind and a tremendously impressive effort in green hydrogen. That’s how they’re going to do it.

Then put on top the U.S. Green New Deal and assume for a moment that Joe Biden is going to get elected.

What does this all mean? What are the implications of this wall of money?

HUNDREDS OF BILLIONS INTO RENEWABLES: IMPLICATIONS

Literally hundreds of billions of dollars are going to be pouring into renewables (I should say finally, finally pouring into renewables), energy efficiency, energy efficiency, batteries, electric cars and buses.

Between now and 2025, by my calculations, just the three big oil companies I mentioned earlier, Total, Shell and BP, will be ploughing $50 billion into renewables, then and a total of $170 billion by 2030.

On top, tens of billions of dollars are coming from the oil traders that I mentioned.

Remember, we’re not talking about anyone else. We’re not talking about what the banks are going to invest, what the institutional investors are going to invest, what corporates like Google and Apple and many, many others have already said they’re going to invest.

OFFHSORE WIND

Expect this: Offshore wind is going to go through the roof and exceed any forecasts that you’ve read. In the U.S., in Europe, in China, in Japan, in Taiwan, in Korea, you’re going to see an amazing acceleration in offshore wind deployment. Remember, offshore wind plays to an oil and gas company’s strength because they know how to build offshore oil and gas exploration projects. If you want a sneak preview of the explosive growth of offshore wind which is not built in the numbers today and the forecasts that you see, note that the UK announced just a few days ago that offshore wind will power every home in the country by 2030. That’s just in 9 years. By implication, that means about $70 billion of investment to increase the country’s offshore wind power about four times from what it is today to 40 gigawatts by 2030. If you think that’s a lot, or that’s ambitious, I’ve got news for you: It’s not.  All you need to do is to look back at the offshore wind industry in the UK in the past 10 years, where wind capacity went up 10 times from one gigawatt to about 10 gigawatts today while costs went down two thirds.
That’s the important bit: Costs are going to continue to decline and therefore capacity is going to just explode.

Expect this kind of trend to accelerate by 2030, because of the wall of money that I described, which is looking for a home in renewables.

SOLAR AND ONSHORE WIND

In addition to offshore wind, solar and onshore wind are also going to explode in terms of growth.

If you think that they’re growing fast, you haven’t seen anything yet. The massive infusion of liquidity is going to accelerate deployment in China, in India, in North America, in Europe. For those of you in Africa, in Latin America, in Southeast Asia or in Central Asia and the Middle East, you need to tell your government to get with the program and to get with the program fast. That wall of money will not find it hard to deploy in China, India, North America, and Europe and miss your countries completely. You will miss the tsunami of investments in renewables if you do not get with the program.

My message to countries still thinking about building coal and gas infrastructure: there is going to be no money for that. And I mean, zero.

STOCK MARKET CAPITALISATIONS

We have to take these oil companies’ pledges with a grain of salt, because their losses are going to increase over this decade. They’re going to increase because they’re going to have to write off more and more of their investments in oil, in gas, in petrochemicals, because remember it’s the same guys drowning us in plastic and that’s got to stop and that will stop.

These losses are not very hard to imagine. Remember, we’re talking about a group of companies which by stock market capitalization were some of the largest companies in the world.

That is no longer the case.

The stock price of Total peaked in 2007, 13 years ago.

The stock price of Shell peaked in 2008, 12 years ago.

The stock price of BP peaked in 2010.

These three companies never saw these level of stock market capitalization since. There and therefore investors in them have been losing money since.

Exxon peaked in 2014, because the U S markets were late to the party.

These investments in renewable energy might be too little too late for Big Oil. But the one thing I can say is that they appear, at least European oil companies, to certainly have seen the writing on the wall.

VIRTUOUS CIRCLE

To close on the implications of that wall of money trying to find a home in renewables between now and 2030, one implication I cannot emphasize enough is that we’re going to be in a virtuous circle where that money means more deployment, which means more manufacturing capacity, which means costs will continue to decline – and that’s costs for solar, costs for wind, for batteries, for electric cars, for electric buses, for your electric heater at home and so on.

The most interesting data points to emerge in the last few days was the fact that the world’s largest solar and wind power generator, a U.S. utility called NextEra, passed ExxonMobil, a byword for Big Oil that was once the world’s biggest public company, in stock market value. NextEra, the world’s largest solar and wind power generator, passed Exxon in terms of market value.

Perhaps it had to take a pandemic to show the markets what a company’s true worth was, but here we are.

Let me go out on a limb and say that first, oil majors will most likely have no future in a world in compliance with the decarbonization targets that were agreed by leaders in the Paris climate accord, and which we need to deliver on. They have no future.

Second, watch as the U.S., China, India and Europe pivot to generate 80% of their electricity from clean energy by 2035 faster than what most people think. Watch them do that dependably. Watch them do that while costs to consumers go down, so while our electricity bills go down, not up, as they’ve done for decades under the stewardship of the oil and gas industry. Watch them do that without the need for any new coal, gas or oil plants.

If the rest of the world doesn’t want to be left behind, it needs to get with the program and it needs to do so very fast.

Thank you so much for listening to me, The Angry Clean Energy Guy, in this Episode 41. If you like this podcast, please rate it wherever you listen to your podcasts and have a great couple of weeks.