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March 19, 2018updated 06 Feb 2020 1:45pm

Shell moves into renewables: big splash or a dip in the water?

Shell is diversifying its approach to energy, adopting a greater portfolio of renewables in the UK and around the world. Is the oil giant set to become a big player in the renewables space?

By Molly Lempriere

Shell is taking tentative steps away from the oil and gas sector in which it has flourished for over a century and is stepping into renewables. In an effort to move towards a less carbon-intensive energy system, Shell has been investing in biofuels, carbon capture and storage (CCS) technologies, as well as green energies such as wind and solar.

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The wind power market has grown at a CAGR of 14% between 2010 and 2021 to reach 830 GW by end of 2021. This has largely been possible due to favourable government policies that have provided incentives to the sector. This has led to an increase in the share of wind in the capacity mix, going from a miniscule 4% in 2010 to 10% in 2021. This is further set to rise to 15% by 2030. However, the recent commodity price increase has hit the sector hard, increasing risks for wind turbine manufacturers and project developers, and the Russia-Ukraine crisis has caused further price increase and supply chain disruption. In light of this, GlobalData has identified which countries are expected to add the majority of wind power capacity out to 2030. Get ahead and download this whitepaper for more details on the current state of the Wind Power Market.
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And Shell isn’t the only company making changes, many major oil and gas companies are staking similar claims to ensure they play a growing part in the renewables sector. For instance, BP investing in solar and DONG , which has potentially made the most dramatic change, transitioning entirely to a fully renewable company and rebranding itself as Orsted.

“It’s all about balancing their portfolio, and it’s really important,” says Oil and Gas Technology Centre technology accelerator director David Millar. “I think it would be irresponsible of companies of that size not to start investing in the renewables space because the industry is going to move into that clean energy, low-carbon, renewables space and we are seeing a number of them diversifying their portfolios, albeit a relatively small chunk.”

As the share of renewable energy sources around the world steadily grows year on year, will oil giants disappear or will they simple become big players in the new energy sector?

From petrol to electric

Energy demand is increasing and a greater proportion is being met by renewable and sustainable energy generation instead of traditional fossil fuels. In 2016, renewables accounted for two-thirds of all new power additions globally, overtaking coal’s net growth for the first time. This growth is expected to continue and will play a vital role in the 58% increase in demand for power by 2040.

As an industry, the value of renewables has vastly improved over the past few years as well. Price drops and power purchase agreements amongst other things have allowed many renewable technologies to go subsidy-free. It is estimated that the industry will be worth $777.6bn by 2019.

This year, Shell announced plans to invest $2bn a year in new energies, the biggest of any oil and gas company. This follows on from a number of clean energy companies and projects they are already involved in, such as providing a line of credit for Inspire Energy Holdings  – a clean power, energy management and smart home company.

Possibly the most notable indication towards changing demands is Shell ’s increasing investment in charging stations and electric vehicles. It has already purchased Europe’s biggest electric vehicle charging provider NewMotion, as well as working with IONITY  to provide charging points throughout Europe.

This confidence appears unsurprising and even sage, given current predictions that electric car market growth will displace eight million barrels of oil a day by 2040. These 250 million vehicles could cause global oil demand to peak as soon as 2030.

Solar power in the UK

In the UK, Shell recently entered into an offtake agreement for the Bradenstoke solar park in former RAF Lyneham site near Swindon. The company has just signed a five-year power purchase agreement for the 213-acre site with British Solar Renewables (BSR).

“The UK is one of our key markets for power and we’ve been exploring ways to increase our power presence in the country on both the buy and sell side,” said Shell Energy Europe Ltd” target=”_blank”>Shell Energy Europe general manager North West Europe, Jonathan McCloy. “The deal with BSR helps us achieve this goal and is a significant boost to our renewable power portfolio in the UK.”

The solar plant has 269,000 panels, and a maximum capacity of 69.8MW. Completed in 2015, the plant is the largest in England and the second-largest in the UK. It represents a major clean energy asset for the country, saving more than 21,000t of CO2 a year.

BSR operates and manages Bradenstoke along with other ground-mounted solar power plants throughout the UK which amount to more than 500MW a year. The power purchase agreement signed with Shell will ensure secure future revenues and stability.

“The benefit of Bradenstoke in all of this is that it gives certainty over the next five years as to the pricing on the electricity that it is generating as the second-largest solar park in the UK, and as the largest one in England it is generating 60GW-65GW of energy a year,” says BSR MD and CFO Graham Harding. “So it’s great to have some certainty over the pricing that we’re getting, over that period.”

Developing interest in renewables

It seems that renewables will play an increasingly prominent role in Shell ’s portfolio and those of other oil and gas companies. Bradenstoke is a key example of a low-carbon investment, adding great value and resilience.

With the renewables sector booming it is no surprise that Shell wants to be a part of that. “I think the renewables sector is a very interesting and dynamic marketplace, so the more traditional oil and gas companies are, as far as I can see, very motivated to try and develop their interest on the renewables front,” says Harding.

But it is not without its challenges; whilst the renewables sector is growing fast there remains uncertainty, particularly regarding technological developments.

“I often make the comparison with the media world and the transition between print to digital, so the transition from traditional energy to renewable energy is similar in that, where you’ve got long incumbents it can take them some time to change their business models and restructure themselves in order to take advantage of the new business model,” says Harding. “Whereas, you can get a lot of new start-ups coming in who can act much more quickly and be more flexible in the way they approach things, and adapt to the changing marketplace a lot quicker.”

The energy market’s transition to renewables, should it happen on a large scale, is likely to be slow, and Shell , while having one foot on the greener side of the fence, remains committed to the oil and gas industry. In 2016, the company made $234bn in revenue and also launched several major new projects that overshadow any renewable investments. But with current commitments to making small inroads into the renewables market, Shell is placing itself in an attractive position, giving it the flexibility to cope with the changes to come.

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Wind Power Market seeing increased risk and disruption

The wind power market has grown at a CAGR of 14% between 2010 and 2021 to reach 830 GW by end of 2021. This has largely been possible due to favourable government policies that have provided incentives to the sector. This has led to an increase in the share of wind in the capacity mix, going from a miniscule 4% in 2010 to 10% in 2021. This is further set to rise to 15% by 2030. However, the recent commodity price increase has hit the sector hard, increasing risks for wind turbine manufacturers and project developers, and the Russia-Ukraine crisis has caused further price increase and supply chain disruption. In light of this, GlobalData has identified which countries are expected to add the majority of wind power capacity out to 2030. Get ahead and download this whitepaper for more details on the current state of the Wind Power Market.
by GlobalData
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