Big oil and the wind industry might seem like an unlikely combination.
But several international oil giants have competed successfully with established players in the wind energy business to win offshore wind leases.
Major international oil companies including Royal Dutch Shell, Statoil (a Norwegian company), and Eni (Italian), have begun to invest heavily in offshore wind farms.
In the North Sea, they have successfully outbid such other international giants as Dong Energy (Danish) and Vattenfall (Swedish), which have invested in North Sea wind farms longer.
Oil production from North Sea oil fields has declined steadily over the past 15 years. The same winds that have always bedeviled workers on oil platforms have generated revenue for wind farms.
These large oil companies realize that renewable energy will inevitably gain market share at their expense. They know they can’t cling to old business models and stay in business. A partnership of big oil in the wind industry just makes sense. By the end of this year, they will have invested about $99 billion in North Sea wind farms alone since 2000.
What does big oil bring to the wind industry?
Oil companies increasingly find new oil projects too risky and expensive. Their investments in wind energy will provide more predictable cash flows.
Since oil companies have long experience drilling for offshore oil, they bring special expertise to offshore wind projects.
It gives them a competitive edge. Especially considering that most wind development has been onshore.
The big oil companies’ entry into the wind energy business has driven down costs.
Until now, building offshore wind farms has required anchoring the masts of the turbines to the seabed. Oil platforms float. Statoil, at least, is working on much less expensive floating foundations for wind turbines.
Wind projects going online now deliver power at half the price of wind farms installed just five years ago. The sheer size of major oil companies also makes their financing cheaper than what smaller companies must pay.
Oil companies likewise have much longer experience in managing risk––financial, regulatory, and technical––than renewable energy startups. Smaller companies must have some combination of long-term lease agreements and government support before they can move forward with a project.
How are big oil companies getting into the wind energy business?
Statoil has even sold the last of its oil sands interests at the cost of at least half a million dollars in impairment charges on money lost on its investments.
At the same time, it bid more than $42 million to win a lease for wind energy development off the New York coast.
The company already owned a 40% stake in a British wind farm at Sheringham Shoal and has started construction on projects in Scotland and Germany.
Saudi Aramco installed a very large wind turbine in January 2017. It is Saudi Arabia’s first commercial wind turbine. It won’t be the last. The kingdom has recently made a major commitment to renewable energy and expects wind and solar energy to deliver 9,500 MW of electricity by 2023.
Total, a French oil company, has made similar investments in solar energy through its majority owned subsidiary SunPower. Although oil companies can bring useful experience to the table for wind projects, they have far less crossover with solar energy.
As Total’s actions indicate, wind and solar have grown from alternative energy to mainstream energy. And other mainstream companies, including the likes of General Motors and Lockheed Martin, have become heavily involved in the wind energy business.
American companies like ExxonMobil and Chevron have so far not invested significantly in renewable energy.
What risks does big oil face?
Analysts at Wood Mackenzie, an oil and gas consultancy, estimate demand for oil could peak as soon as 2030. They also estimate that wind and solar power could account for almost a quarter of the worldwide market for energy by 2035.
Critics still complain about the high costs of wind and solar energy and about their government subsidies, but costs have fallen dramatically in recent years. This trend will continue. Some companies envision a time when, unlike fossil fuel companies, renewable energy can thrive without subsidies at all.
Meanwhile, oil companies have already extracted and sold everything easy to get. They must turn to riskier and more expensive processes like extracting oil from shale.
Renewable energy currently creates jobs 17 times faster than the American economy as a whole. Both governments and consumers are demanding reduced carbon emissions.
Combined, these factors create a situation in which any oil company that wants to stay in business will have to embrace renewables.
Royal Dutch Shell, in fact, traces its origins to 1833, when a British antique dealer named Marcus Samuel decided to expand his business to import shells from the Far East. His sons seized an opportunity to get into the oil business only in the 1880s.
Shell realizes it must continue to adapt to new opportunities in order to survive. Its interest in wind power, in fact, is not so much in selling electricity as using it to power electrolysis. It wants to make hydrogen fuel cells for cars.
The future looks bleak for companies in the oil business ––or the coal business. They can survive only if they decide they’re actually in the energy business and invest seriously in renewable energy.
Another tipping point for coal: big oil eyeballs big wind / Tina Casey, CleanTechnica. March 26, 2017
Big Oil needs to spend $350 billion…on wind and solar / Matt Egan, CNN Money. June 15, 2017
Big oil replaces rigs with wind turbines / Jess Shankleman, BloombergMarkets. March 22, 2017
An oil company’s new bet on wind power signals the latest shift in energy investments / Travis Hoium, Business Insider. December 22, 2016
Shell sees ability to manage risk as benefit in offshore wind development / Anna Hirtenstein, Renewable Energy World. June 14, 2017
Princess Amalia Wind Farm. Photo by Ad Meskins from Wikimedia Commons
Floating wind turbine. Public domain from Wikimedia Commons
Sheringham Shoal Wind Farm. Public domain from Wikimedia Commons
Oil and gas well schematic. Public domain from Wikimedia Commons