Big Oil investments into wind energy point to maturity of industry

Summary

Oil companies BP and Shell both recently announced investments in the wind energy sector. The investments are more than a public relations ploy and show that the wind industry has come of age and is now perceived by the traditional energy sector as a viable investment opportunity. One interesting observation on BP and Shell’s wind energy investment is that they have taken different strategies, with Shell moving toward the offshore and European markets and BP focusing on the onshore market in the US.

Analysis

In the past, oil companies have been criticized for avoiding investments in renewable energy, with the exception of small token investments aimed at providing PR. But increasing demand for alternatives to carbon-based energy, along with factors such as global warming and fears of peak oil, might be changing that token involvement into full-scale investment. BP and Shell both recently invested heavily into the wind industry making them major players in the field. The energy giants’ financial capabilities and their expertise in the energy sector that they bring to bear on the wind energy industry bring credibility and new resources to the wind industry which, until a few years ago, was dominated by small businesses.

                                                                                                                    

BP and Shell are making more than a token foray into the wind industry. Shell is already one of the top five non-utility wind developers and Graeme Sweeney, Shell's executive vice president for renewables, hydrogen, and carbon dioxide, said the company forecasts wind becoming the source of a third of the world’s energy by 2050<!--[if !supportAnnotations]-->[jvb1]<!--[endif]--> . BP has investments that will produce one-sixth of the projected wind energy output in the United States this year <!--[if !supportAnnotations]-->[jvb2]<!--[endif]--> and sees the “stars aligned” for renewable energy. More stars are aligning nearly daily as countries around the world and individual U.S. states enact mandates for renewable energy over carbon-based power.

 

A token investment would be one that would be solely for public relations value with little hope of financial return. But the wind energy market is booming, growing 41 percent in 2005 and 32 percent in the U.S. in 2006. The oil giants see a benefit to diversifying their energy portfolio into the growing field. Their competencies in the energy sector will also benefit the wind industry by bringing capital and technical expertise to bear. The involvement of major oil companies is one indication that the wind energy industry has come of age and is no longer an “alternative” energy source. 

 

BP and Shell’s involvement in the wind industry will benefit several wind turbine manufacturers in particular. Shell has existing relationships with Mitsubishi, Vestas, GE, and Gamesa. BP has announced a major purchase of Clipper wind turbines. While BP has not yet announced purchases of other wind turbines, it should be expected that they will diversify their wind turbine supply beyond Clipper.