Save for later Print Download Share LinkedIn Twitter European oil majors are flocking to the US to develop renewable energy and low-carbon projects as they seek an early-mover advantage in a market considered second only to China in its attractiveness. But growth is targeted, with some states and regions better positioned than others, and European majors may struggle to preserve both returns and scale as they ramp up their renewables investments. In recent months, BP, Equinor, Repsol, Royal Dutch Shell and TotalEnergies have all made aggressive moves focused on solar photovoltaic (PV), battery storage, and offshore wind projects in the US at very early stages of development (PIW Feb.26'21). Repsol told Energy Intelligence it sees the US as "the most interesting" renewables market, and is chasing projects in the pipeline rather than operational assets. In May, Repsol took a 40% stake in Hecate Independent Power, a US-focused renewable developer with a 40 gigawatt pipeline of projects, including solar PV and batteries. Hecate operates in some of the most sought after electricity markets in the US, including the PJM Interconnection, which covers all or part of 13 states in the mid-Atlantic and Midwest, the Electric Reliability Council of Texas (Ercot), and the New York Independent System Operator (NYSIO). An investor confidence survey this month from the American Council on Renewable Energy (Acore) found the PJM, NYISO and the California Independent System Operator to be the most attractive US markets for renewable energy investment and development over the next three years, with solar PV and energy storage the preferred technologies. Repsol says siting and financing are "paramount" in the US, stressing good locations and financing are key for project feasibility and profitability. The Spanish major is considering project finance, green bonds and equity bridge loans to advance projects. The Biden administration's aggressive climate targets, including a 50% cut in US greenhouse gas emissions by 2030 and a carbon-free power system by 2035, are supporting European majors' push into US renewables (PIW Apr.23'21). These companies have recently upped their targets for renewable capacity in response to investor pressure to accelerate energy transition strategies (PIW Apr.16'21). They must build scale quickly in the most attractive markets. The Biden administration's plans also call for 30 gigawatts of installed offshore wind power by 2030 and up to 110 GW by 2050. Ernst & Young ranks the US #1 in its index of most attractive countries for renewables projects, overtaking China in May 2020. In June, BP paid $220 million for 9 GW of utility-scale solar PV pipeline projects from 7X Energy, an emphasis on PJM and Ercot. BP says solar energy is the fastest-growing power source in the US and is expected to quadruple over the next 10 years. Solar now accounts for more than 40% of all new electricity generating capacity added. Some 19 GW was added in 2020, up 43% from 2019. A record amount of battery capacity was added, too. Repsol says companies come to the US to build gigawatts, not megawatts. Since Biden announced the offshore wind target, there has been a raft of regional targets tabled, with lease awards planned along the Atlantic and Pacific coasts and the Gulf of Mexico. Respondents to the Acore questionnaire said the main issues driving future investment will be long-term extensions of the federal wind and solar tax credits and new standalone tax credits for energy storage. European majors are chasing renewable capacity scale but also coming to terms with the reality that returns may not be as high as previously thought. The US could stand out as a market where returns are higher than those offered in other markets. This week Equinor updated its energy transition plans, vowing to aggressively boost renewable capex and rapidly build out renewables at scale (related). It also revised down expected real returns on renewables to 4%-8% but said it could achieve nominal equity returns in a 12%-16% range from US offshore wind projects with offtake contracts. Equinor is partnering with BP in US offshore wind. Equinor's head of renewables, Pal Eitrheim, said they can "compete effectively in what will be a very competitive US market. In the US we now have the scale that we need to optimize value across the portfolio, and beyond farm-downs we do think uplift will come from project financing on competitive terms."
