Oil Companies Invest in Green Energy

BP, Shell, and Total Go Green

Oil companies, including BP (BP), Royal Dutch Shell (RDSA) and Total (TOT) are getting into the renewable power industry, aiming to capitalize on increased demand from businesses. The oil companies are constructing wind and solar power farms and selling the electricity to large enterprises including Amazon (AMZN) and Microsoft (MSFT).

Corporations around the globe are seeking alternative energy sources. Many have pledged to slash their carbon emissions and have turned to wind and solar energy to meet these goals. Companies purchased a record amount of renewable power in 2020 and green energy purchases are on track to hit a new high this year.

Oil Giants Compete With Utilities Companies

Oil companies are entering a market long dominated by traditional power companies in an attempt to find new income streams and reduce their reliance on fossil fuel. Utilities companies have been providing green power to homes and businesses for some time, so they have some expertise which oil producers lack. However, oil companies believe they have other advantages.

Oil companies could be well positioned to provide green power to international companies thanks to their global reach and trading operations. Utilities companies tend to be more regional, providing power for specific states or countries. Oil companies may be able to source power from more areas and distribute it more widely. For example, BP already sources wind power from Scandinavia and solar power from Spain.

US Oil Companies Have a Different Approach

BP is focused on inking corporate power purchase agreements through Lightsource, its solar power joint venture. This year the unit signed power deals with Amazon, Verizon Communications (VZ), and Allianz (ALIZY). These deals provide BP with a stable source of cash though they do not yield the same returns as its oil and gas business. Meanwhile, Total recently reached a deal to supply renewable energy to the drug company, Merck (MRK) and Shell is providing green power for Amazon.

Major US oil companies are taking a different approach to the green energy market from their European counterparts. ExxonMobil (XOM) and Chevron (CVX) are not building solar and wind farms as a way to provide power to other companies, though they are sourcing renewable energy for their own use. As individual consumers and corporations become more conscious of the need for green power, it will be interesting to watch how companies respond to this increasing demand.

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