Shell triple buy shows its two-pronged wind plan

I haven’t enjoyed a ‘will they, won’t they?’ story this much since Ross and Rachel.


February 22, 2019

I haven’t enjoyed a ‘will they, won’t they?’ story this much since Ross and Rachel.

Over the years, Anglo-Dutch oil giant Shell has flirted with renewables on multiple occasions but then pulled back. The tease. Take this negging from chief executive Ben van Beurden in late 2016: “Growth of renewables has been remarkable, but the capacity of industry to make money in that segment has been remarkably absent.”

The utility’s strategy for wind has evolved since then. So far, it has followed the well-worn path of major oil companies into the offshore wind sector. It is part of the group that took the 731.5MW Borssele 3 & 4 schemes in the Dutch North Sea to financial close in mid-2018, and is also making inroads in the US, where it is part of the 50:50 Mayflower Wind tie-up with EDPR Offshore North America that won the right to build up to 1.6GW of offshore wind capacity in a zone off the coast of Massachusetts.

Shell has also bought a second US offshore site in the waters off New Jersey from US Wind, in partnership with EDF Renewables. We’ll be looking more at the fledgling US offshore wind sector at our Financing Wind North America conference in April.
But the oil giant has revealed in a trio of deals in the last ten days that its plans for wind don’t stop with large offshore projects. It is also pursuing acquisition-led growth of technology companies that could enable it to unlock the industry’s ‘next big thing’.

First came the investment in kite power pioneer Makani, which has been spun out of Google parent company Alphabet as a standalone company. Shell said it is looking to test whether it could use the technology as an alternative to floating turbines.

Second came the announcement that Shell and German utility Innogy were investing in an €18m demonstration project with wind turbine pioneer Henrik Stiesdal’s firm, on an offshore turbine foundation called TetraSpar. Shell owns two-thirds of the project.

And third, Shell last week agreed to buy German domestic energy storage company Sonnen, after an investment it made in the company in 2018. Shell New Energies EVP Mark Gainsborough said this would help “accelerate the building of a customer-focused energy solutions… to offer more and cleaner energy solutions”. While Sonnen offers domestic rather than utility-scale systems, the chance to pair its technology with wind farms and support huge change in the energy system is clear.

It is exciting that Shell is starting to step up to play a role in that transition.

And what now? Well, and this isn’t the boldest prediction, we expect more investment from Shell. There is no shortage of innovative storage companies and those with digital systems that Shell could bolt on to its recent acquisitions. The company has committed to invest up to £2bn a year in new forms of electrical generation and renewables, which we take to mean a mix of the large capital-intensive offshore wind projects and next-generation companies.

This also underlines the importance of major investors, including oil firms, in backing the start-ups and other growing businesses that are developing the technology of the low-carbon energy future. Shell isn’t going into this with altruistic motives, of course. It wants to find the ‘next big thing’ and gain a competitive advantage. Nevertheless, it is an important source of funding for firms in that early stage.

Imagine how much could be done for the energy transition if oil and gas giants could unlock more of the estimated $500bn capital expenditure they make each year.

That isn’t to say all of these technologies will succeed. Makani, Sonnen and Stiesdal are all known in the market and have grown this far, but they will all to some extent rely on upending established technologies and existing ways of doing business.

We don’t think it’ll be straightforward – but a cash-rich and supportive parent should help, especially one with the ability to pair these technologies with its other projects.

Now that Shell is invested, both in projects and technology, we hope that is doesn’t get cold feet again.

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