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TotalEnergies, Shell expand renewables footprint with acquisitions

05 May 2022 Kevin Adler

Investments by oil and gas majors to expand their renewable energy portfolios continued in recent weeks, with TotalEnergies nearly doubling its US renewable power portfolio and Shell purchasing a wind and solar company in India.

The latest deals continue the companies' strategies of pursuing their net-zero by 2050 goals through investments in renewables companies in well-established markets, though they each also have invested billions of dollars in emerging technologies, such as carbon capture and storage, green hydrogen production, and sustainable aviation fuel.

TotalEnergies

TotalEnergies' purchase of Core Solar, announced on 27 April, adds 4 GW of renewable generation that is either operating or under development in the US, bringing its total to nearly 10 GW in the second largest market for renewables by installed capacity, it said.

Under the company's net-zero plan, it will own and operate 35 GW of renewable power worldwide by 2025 and 100 GW by 2030, "with the objective of being among the world's top five producers of electricity from wind and solar energy."

The US is a key market for the company, said Dhroov Sharma, research analyst, S&P Global Commodity Insights. "As TotalEnergies is already an established and much larger player in the US market it is expected to provide financial and operational strength to Core's businesses," he said.

Following this deal, TotalEnergies' US portfolio exceeds 10 GW gross capacity of renewable projects that are operating, under construction, and in development, the company said. These include 2.2 GW of projects acquired through SunChase Power, and 1.6 GW of projects in partnership with Hanwha Energy. The projects under development also include energy storage, TotalEnergies added.

The acquisition of Core Energy shows how TotalEnergies is looking for proven business models for a significant part of its energy transition, alongside investments in emerging technologies—and not only in Europe, which accounts for about 70% of its annual revenue, according to S&P Global. "A company like TotalEnergies can do both," said Sharma. "It's a smarter choice to invest in a company with a proven market and technology."

Gianni Chianetta, CEO of the US-based Global Solar Council, said: "We are currently witnessing an acceleration of investments by big oil companies in renewables—with a preference for large plants that have the lowest prices and allow for large economies of scale—but they had begun many decades ago."

"The difference is that now, they have understood that this is the only way forward and that the oil age will soon end," he told Net-Zero Business Daily by S&P Global Commodity Insights.

At the same time, TotalEnergies is shifting the emphasis of its multi-billion-dollar fossil fuel business from oil to gas. In 2021, it acquired a 20% stake in Adani Green Energy Limited (AGEL) from Adani Group in India for $2.1 billion. AGEL had a portfolio of 3 GW of renewable power in operation and 3 GW under construction at the time, but also distributes natural gas.

"This investment in AGEL is another step in the strategic alliance between Adani Group and TotalEnergies, which covers investments in LNG terminals, gas utility business, and renewable assets across India," Sharma said.

Shell

Shell latest dive into renewables also is taking place in India, as on 29 April it agreed to acquire Solenergi Power Private Limited for $1.55 billion from Actis, an investment firm that specializes in sustainable energy and infrastructure.

India is seen as a major growth market for renewable power, as the nation has goals of 100 GW of renewables to be installed by the end of 2022 and 450 GW by the end of 2030. However, third parties watching the industry say the country is only going to reach about 70% of its upcoming target.

Solenergi owns Sprng Energy, which has 2.9 GW of wind and solar assets in India (2.1 GW operating and 0.8 GW of contracted supply). The company had been put on the block last year, and Shell topped more than 20 bidders, according to local media.

"This deal positions Shell as one of the first movers in building a truly integrated energy transition business in India," said Wael Sawan, Shell's Integrated Gas, Renewables and Energy Solutions director, in a statement. "I believe it will enable Shell to become a leader across the power value chain in a rapidly growing market where electrification on a massive scale and strong demand for renewables are driving the energy transition."

The acquisition nearly quadruples Shell's renewable capacity globally of about 1 GW solar and wind combined. But much more is coming. Shell says it now has 38 GW of renewable generation at some stage of development.

As with the TotalEnergies acquisition, this deal is being made for a secure revenue stream which Shell believes it can grow. "Sprng Energy generates cash, has an excellent team, strong and proven development track record and a healthy growth pipeline. Sprng Energy's strengths can combine with Shell India's thriving customer-facing gas and downstream businesses to create even more opportunities for growth," Sawan said.

Shell is an investor in CleanTech Solar, a Singapore-based developer of more than 600 MW of rooftop solar for corporations across Asia. Its latest deal, announced 28 April, is for a 625 kW-rooftop solar PV system for Yachiyo India Manufacturing Private Limited in Rajasthan, India.

Shell's other renewables investments include: Savion, a US-based solar and energy storage operator; solar development company Solar-Konzept Italia, acquired in January 2022; and WestWind, which operates wind farms in Australia. It's also involved with prototypes of floating offshore wind farms in France, Ireland, Norway, Scotland, and South Korea.

Impact on renewables

Having an influx of money and expertise from Big Oil can change the dynamics for the renewables industry, just as it can open doors to clean energy for oil majors.

"Big oil companies have been used to big revenues and are starting to see renewables as an equally attractive business, which is positive," Chianetta said. "Their investments are good for the solar and renewables market. These companies can bring more capital and a global experience in the energy transition."

Because a renewables project is less costly to develop than an oil field, Chianetta said the industry's lower barriers to entry have attracted more participants, including companies such as oil majors that are applying some capital to the sector while remaining in their core businesses. "While they used to be opponents, today they can become allies and make a difference in the global race towards net-zero," he said.

Net-zero strategies

TotalEnergies and Shell are taking different routes to reach their net-zero goals.

For TotalEnergies, its goal covers Scope 1 (direct) and Scope 2 (indirect) emissions, and also Scope 3 (use of its products) for its European customers, which are responsible for more than 70% of current purchases. Using a 2015 baseline, TotalEnergies is aiming for a 40% global reduction in Scopes 1 and 2 by 2030, and recently announced a goal of a 30% reduction in its Scope 3 emissions as well. Through 2021, it had achieved a 15% reduction for Scope 1 and 2, and 14% for Scope 3 from the 2015 baseline, it said last month.

Shell is aiming for all three scopes to be net-zero worldwide by 2050, and its interim goals are defined by carbon intensity reductions: 6-8% by 2023; 20% by 2030; 45% by 2035, and 100% by 2050 (against a baseline of 2016). In announcing its plan last year, Shell said its oil production peaked in 2019, and it "expects" that its GHG emissions for all three scopes peaked in 2018 at 1.7 billion metric tons.

For Shell, it's a strategy to "build material low-carbon businesses of significant scale by the early 2030s" by having "a presence across the entire energy system."

But both companies have been the subject of lawsuits—successfully against Shell—for alleged inadequacies in their climate plans and progress so far. In May 2021, Shell was ordered by a court in The Netherlands to improve its Scope 3 climate plan.

TotalEnergies was sued in May 2022 by Greenpeace France, Friends of the Earth France, and Notre Affaire à Tous for its advertisements saying it's "a major player in the energy transition," thanks to its net-zero plan. The lawsuit calls the claim greenwashing, in part because it says TotalEnergies is delaying the start of a meaningful exit from fossil fuels until 2030.

Chianetta said that for some oil companies, investments might have an element of greenwashing, but "for others, it was a way to be present in the entire spectrum of the energy mix because it has always been clear that renewables would have potential ... I hope they show consistency by divesting from fossil fuels."

Posted 05 May 2022 by Kevin Adler, Chief Editor



This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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