Euro Majors Shrug Off Renewable Inflation Fears

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European oil majors are confident their investments in renewable energy and alternative fuels will generate competitive returns despite growing worries that fierce competition in the sector will push costs up and profits down. The heads of BP, Equinor and Eni said they will use tools such as diversification along the value chain and new business structures as well as their existing technical expertise to ensure that the money they plow into wind and solar power delivers sufficient returns to support healthy dividends for investors. Their confidence comes despite incumbent renewable energy players sounding the alarm that a lack of licensing rounds for acreage to develop green energy projects and an increasingly crowded field of bidders risk driving up prices. Equinor CEO Anders Opedal acknowledged that the lack of access was a problem. "Now there's probably more competitors than there are leases available and we know that that that can drive the prices up," he told the Reuters Energy Transition conference. He expects the competition to be short-lived, however, as governments open up more acreage in a push to hit their own emissions targets. "I think we will see a lot of new competitors but also in the longer run we will see much more leases being available," he said. Meanwhile, Opedal preached patience as a way to protect returns. Hey, Big Spender! BP, which will pay more than $1 billion for two large long-term wind leases in the Irish Sea has faced criticism as the most glaring example of the impact that the oil majors' push into renewables is having on prices. CEO Bernard Looney said such criticism shows a lack of understanding of the value of the acreage relative to other opportunities. "We didn't pay a premium. We paid a good price for a good asset," he told the Reuters conference. He again pitched BP's integrated approach as a key differentiator (IOD Sep.15'20). "We have some things that are unique that we can offer," Looney said, "whether it's the trading organization, whether it's the customer part of the business, whether it's the skills that we bring from the traditional oil and gas part of the business." Accelerating the Transition Eni's Claudio Descalzi pointed to his plans to restructure the company's businesses as an accelerator of the company’s energy transition strategy (IOD May3'21). The Italian giant is considering spinning off a minority stake in its power business and retail networks via a public offering or a sale to a strategic investor. "We can accelerate the renewables and extract value from assets that are in Eni but with a different" valuation multiple, he said. A similar approach could make sense for the company's biofuels business, he added. Descalzi also noted that Eni's strategy of putting its legacy oil operations in places like Angola and the North Sea into joint ventures would free up capital to invest in low-carbon energy "without increasing the leverage of Eni." All three said their promise to investors of strong dividends would not be derailed by their need to invest in low-carbon growth projects. "That is what we expect to deliver and that I think is what the investor should expect," Opedal said, noting that he expects "nominal" returns of "between 12% and 16%" from wind projects in the US and the UK. Noah Brenner, London

Renewable Electricity , Corporate Strategy
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