The move to clean energy is about driving energy transition and business survival for Shell

The oil giant has been on a mission to acquire clean energy businesses and has plans to become a leading regional electric utility within the United States. Shell has made it quite clear they are serious about the transition towards clean energy. Maarten Wetselaar, the director of the New Energy Division at Shell believes the business could transform into the biggest power business in the world within the 2030s.

 Wetselaar explains that Shell believes there is an urgent need for the world to decarbonise, tackle climate change and create a ‘net-zero energy system’. Wetsellar points to electricity as the simplest form of energy consumption that can be carbon-free. Based on internal studies at Shell, the electricity share in final energy consumption stands at just over 20%. By 2070, electricity is expected to rise to over 50% of end-use consumption.

 Wetsellar highlights that the majority of their customers, individuals and businesses, will in the years to come only be using electricity, suggesting that if they don’t move into this area, business progress will diminish. For Shell, it is a case of playing a significant role in energy transition, but equally important, it is about survival for the business.

 Many energy industry experts are sceptical of the rise of interest of oil majors in the clean energy market. Wetsellar agrees that there is a challenge of balancing traditional interests of oil businesses and the rise of new, emerging activities. Some analysts refer to Shell’s spate of acquisitions as ‘greenwashing’, suggesting they are trying to portray a cleaner image. Wetsellar points out that up to $2 billion is being invested in clean energy every year, suggesting that Shell is taking the transition very seriously.

 On the other side, many energy analysts are excited about the new energy division and the rise of clean energy activity. There is mounting pressure on oil majors from governments and customers to shift closer to clean energy resources.

Shell’s focus on electric utilities

 In the last few days, Shell rebranded its UK energy supplier First Utility to Shell Energy Retail, providing all residential customers with 100% renewable electricity. The service is certified by Renewable Energy Guarantees of Origin, ensuring every unit of energy used by their customers is replaced with a unit of renewable electricity into the grid by renewable generators in the country.

 Shell Energy Retail intends to launch a number of smart home technology services this year, including free Nest smart thermostats and discounts for residential EV charging. Shell is measuring customer response to an oil major supplying residents with clean energy and exploring customer experience by combining electricity customers to Shell’s loyalty system, providing discounts when filling petrol at a Shell station.

 Wetselaar explains they are aiming to deliver a holistic shell experience, where customers can buy all their energy from Shell, resulting in added incentives and benefits for customers. Shell also intends to expand its plans to the U.S, with intentions of becoming a regional electric utility provider in the U.S. in the future.

 In the last year, Shell invested in U.S. based retail power provider Inspire Energy, a clear indicator of Shell’s future plans for the U.S. market. Shell also acquired the Texas company MP2 and continues to enhance its service offerings to all customers.

 Shell has made a number of significant acquisitions in the last few years, including the recent purchase of German home energy storage company Sonnen and Dutch EV charging business NewMotion. Wetsellar explains that there are other opportunities in nature-based carbon credits, where Shell would generate carbon sinks such as planting trees to offset other pollutants. He emphasises that this would be far more than a CSR project, but an actual solid and legitimate business proposal.

Making the transition from traditional interests to clean energy

 There are a number of challenges facing oil majors moving into the clean energy market. An increase in electrification levels will potentially impact the core business of oil majors and their investment potential into clean energy. The overall attitudes of stakeholders will also play a major part, with a mixed bag of opinions over clean energy and whether it offers new opportunities or added risk to the business.

 Shell is investing between $1 and $2 billion every year into new energy solutions, a portion of their total $25 billion investment program. Wetsellar believes this value will only increase over time as their understanding of the industry expands further. The level of investment made by Shell has faced criticism, with many suggesting it simply isn’t enough. Wetsellar points out that there are very few businesses investing in clean energy at this scale. He also highlights the leverage involved with these investments. For example constructing an oil platform of $10 billion will cost the business $10 billion, whereas a wind farm that costs $10 billion is generally 75% financed by banks, with partners also funding the build. This means the $1 billion invested can result in the development of a wind farm of a value of $10 billion, offering a larger multiplier on investment compared to oil and gas.

 Investors at Shell are becoming more aware of the potential earnings from new energy solutions. A few years back, investors were cautious and sceptical about the clean energy strategy and its associated financial returns, and some investors are still questioning this emerging trend. Investors, however, are facing mounting pressure from organisations and customers into how their investments are benefiting our world. Shell aims to show how they can provide this service and at the same time deliver healthy returns for their investors.

 One of the key challenges facing Shell is enhancing its new energy solutions and ensuring it is capable of handling new technologies and services. To really enable a clean energy transition will require regulators, investors and new technology businesses to collaborate and deliver a system capable of managing the shift towards clean energy. Wetselaar explains that for Shell, the main challenge is allowing enough space for new investments, innovation and testing, and at the same time, standardizing practices so they can be expanded worldwide.