Summary List Placement
The global energy industry has been rooted in fossil fuels for centuries. Now, its largest companies, including oil giants like Shell, have made big promises to clean it up — partly in response to investor pressure.
Plenty of other firms are chipping in to help. Large corporations like Facebook are buying huge amounts of solar and wind power, and startups are making progress on breakthrough technologies like batteries that last for days.
Plus, President Joe Biden has set forth the most ambitious climate-change agenda in the nation’s history, and investment in clean-tech is booming.
On March 8, Insider brought together four top executives in the energy industry for a live roundtable, moderated by senior energy reporter Benji Jones. Jones spoke with the panelists about how Big Oil can make good on its promises, how to generate returns for shareholders while pivoting into cleaner energy products, and which breakthrough technologies are needed to reach net-zero emissions by 2050.
Panelists included: Urvi Parekh,Facebook’s head of renewable energy; Mateo Jaramillo, Form Energy’s cofounder and CEO; Shell’s EVP for renewables and energy solutions, Elisabeth Brinton; and Francois Austin partner at Oliver Wyman in the UK and head of the group’s energy practice.
The following is a transcript. It has been edited for clarity and length.
Reputation aside, big oil companies like Shell will help drive the transition away from fossil fuels
Benji Jones: For decades, big oil companies have been under fire for their role in fueling climate change. Elisabeth, do you think this bad reputation is still deserved for oil companies like Shell?
Elisabeth Brinton: I joined the company two years ago, coming from Big Tech and from renewable energy. The reason I joined is because I really believe that these are really good companies and essential for our energy transition, in terms of putting a good balance sheet to use as part of the solution. We need to shift the economy from fossil-fuel-based energies over to renewables and clean energy. To do that, we need companies that have the global scale, the reach, the infrastructure, and the capital to be able to do that.
Benji Jones: Francois, how do oil and gas companies start pivoting towards cleaner energy without losing profitability, losing the ability to return a lot of money to their shareholders?
Francois Austin: There are some examples of companies out there that have actually managed that transition — from a fossil fuel background to renewables. DONG Energy, or Orsted as it now is, was 85% fossil fuel and is now 85%, 90% renewable. That was not easy to do because fossil fuel companies effectively had a high risk and high return equity valuation — maybe 8%, 10% returns.
A more pure-play utility return might be more like 3% or 4%. But the fact is that the returns being generated by some of these new renewable companies are significant. This is not a transition that an organization the size of Shell can make in three or four years. This is a journey that they’re going to be on over the course of the next 10, 15 years.
They’re going to have to manage their portfolio to help finance that transition. It is about actions and it’s about having a granular-level plan that gives people real confidence that things are going to change, and that capital is going to get reallocated consistent with that plan. I think it’s all doable. It’s been demonstrated in terms of the returns. But it’s not an easy challenge.
Benji Jones: How have those returns changed in the last, let’s say, decade?
Francois Austin: If you look at the companies who have performed very strongly from an ESG scoring perspective, the ones with the strong ESG scores, with a strong, renewable orientation in their portfolio, have significantly outperformed the more classic fossil fuel players. Now there’s been an absolute wave of money that’s gone into ESG-related stocks and companies with the highest ESG ratings. I think that will probably slow down, at some point. Certainly, through the last three or four years there have been very strong returns.
Benji Jones: Elisabeth, if I’m not mistaken, Shell’s thinking behind maintaining oil and gas as a large part of its portfolio is, in part, to fund its transition.
Elisabeth Brinton: Yes. Francois is right. It’s a complicated transition. We’re so big. That means it’s a bigger transition, a bigger distance to travel. But with that, you have to be bold, and it is exactly about actions.
We’ve talked before, Benji, about our HKN Offshore Wind Park. That’s a $3.8 billion project. That goes back to the role of companies like Shell. We have the type of balance sheet that we can do many big projects like that.
If you look at what we’ve already announced today and what we’ve won, that’s billions of dollars of capital that’s going to work. You have to have the AA credit rating, the balance sheet, the scope and the scale, the engineering talent of a big company like Shell.
Why we can’t put 100% renewable energy on the grid today
Benji Jones: On the point of cost, Urvi, I know Facebook’s operations are, as of last year, entirely run on renewable energy. What did that cost the company?
Urvi Parekh: We don’t publicly disclose that. What we’ve discovered is that renewable energy is good business for our company, from the perspective of allowing us to partner more closely with the utilities that serve our data centers. That allows us to come up with new ways of doing business with utilities that are going to enable other corporates like us to be able to support decarbonization of the grids that they are siting new facilities on.
Benji Jones: Facebook has a massive footprint, globally. I’m wondering if you can share one or two pieces of advice for other companies that are also trying to hit that 100% target. What do you wish you knew before getting started?
Urvi Parekh: What I’d advise other corporates on is partnering and finding the experts who can guide them through the process. Now, this is a well-developed space, and they don’t have to navigate this journey alone.
Benji Jones: Putting 100% renewable energy on the grid raises the challenge of intermittency. Mateo, you’re an expert on this problem. Why can’t we just convert the entire grid, let’s say, in the US, today to renewable energy?
Mateo Jaramillo: Well, it takes time. We’re talking about a massive amount of infrastructure that we’re trying to turn over. Even assuming that there were no lag times associated with putting that kind of thing in, the question is, “At what cost?”
Right now, if we took all of our available solutions, we could go do that and it would be probably more expensive than it had to be.
We’re missing a piece, and that big piece is cost-effective, multi-day energy storage. There’s a lot of ways to potentially try and solve that problem. We think that electrochemical is the way to go here. It will be a very cost-effective solution, and it will show up in the market very quickly, and in the timeframe that we’re considering right now. Where are we in the planning horizon? We’re very much in the middle of planning what the grid is going to look like for the next 30 or 40 years.
Benji Jones: The issue around storage is cost today. You mentioned electrochemical. Can you talk about what you see as the most elegant solution when it comes to storage for multi-day?
Mateo Jaramillo: Well, the most elegant is probably pumped hydro. Unfortunately, building more pumped hydro is tricky. The natural geological features that are large enough to support the demand just aren’t really there. And certainly, in the US, putting up new dams is not really going to happen. All the watersheds that can be dammed have been dammed. In fact, they’re coming down.
Electro-chemical is fantastic because it can be sited anywhere. You can put it anywhere you want; you can scale it any way you like to. That’s why Form Energy is working on electrochemical solutions. We think it has the cheapest cost entitlement to be competitive around the world for multi-day storage and it has the abundance and overall siteability entitlements that are required to really scale.
Benji Jones: Urvi, how do you deal with the issue of intermittency at Facebook?
Urvi Parekh: Just last week we announced one of our largest large-scale battery commitments. We’ve been partnering with our utilities. We see storage as a tool to help our utilities decarbonize their systems and allow us to continue to grow our presence in their jurisdictions. That’s going to allow them to continue to achieve their own renewable energy goals while supporting our goals of staying at 100% renewable as we grow.
Rising oil prices could accelerate investment in clean energy
Benji Jones: Elisabeth, is Shell going big on energy storage as one of the many technologies that it is ramping up investments in, and why or why not?
Elisabeth Brinton: Absolutely. For all the reasons that you’ve just been mentioning with our colleagues on the panel, we have to solve for duration.
Benji Jones: What are some of the other technologies it’s betting on?
Elisabeth Brinton: We’re involved in offshore wind, onshore wind, onshore solar, storage. Hydrogen. So green hydrogen for industrial and transport uses. We have the largest LNG business in the world, and so we have a lot of experience moving ships and transport.
In a sense, we’re technology agnostic. We’re focused on the use cases. How can we really help sectors accelerate their own de-carbonization? How do we find the best fit for purpose? I want to note here that we’re eager to partner. We recognize with a lot of humility that we can’t own everything and do everything. Our big expertise is big projects.
Benji Jones: I’m just looking at the price of oil today, which is essentially back to where it was at the start of 2020. Francois, is the price of oil putting the investment case for clean energy at risk?
Francois Austin: I think society has shifted. I think COVID has been a wake-up call. Momentum is there. The fact that the oil price is good is actually going to enable the Shells of this world to finance this transition. Clearly, there will be oil and gas. We know it’s still going to be part of the energy mix in 2040, 2050. But I think the increasing crisis at the moment is only a good thing in support of this transition agenda.
Elisabeth Brinton: Totally agree. This near-term price of oil actually accelerates us to be able to speed up the transition. That’s a really important point because a lot of people think, “Well, that’s bad. It’s going to slow things down.” Actually, it’s very helpful.
‘We can’t afford to waste any more time’
Benji Jones: A question for each of you: What do you want out of the Biden administration related to energy or the energy transition that he has yet to commit to?
Elisabeth Brinton: I just want the Biden administration to continue to lean in with a commitment and a pace. For example, support investment tax credits, support getting the offshore wind industry up and running, bring together the different environmental agencies so that we can really have a clear path forward, particularly to accelerate offshore wind.
Mateo Jaramillo: Let’s see that infrastructure bill, and see what’s in there, but also follow through on all the commitments that are already there. That would be the best thing.
Francois Austin: I think it’s about aligning the regulatory authorities. I think the government wants to do it. The administration wants to do it. The consumers want it. Corporates want to do it. This role of the regulatory authorities is actually getting them aligned and on the same page.
Urvi Parekh: I think long-term commitments to next-generation decarbonization. So I would love to see some high voltage transmission efforts and also continuing the progress on storage.
Benji Jones: One last question for all of you: Do you think that we will get to globally net zero emissions by 2050 — that’s in less than 30 years? Why or why not?
Elisabeth Brinton: Yes, because we are firmly focused on it and I believe people are good, have passion, and the capital is pouring in the right direction. But we have to put the pedal to the metal and have the urgency, and be willing to do the hard, hard work.
Mateo Jaramillo: Yes, if we get started right now. We really can’t afford to waste any more time. Not another five, not another 10 years. It’s got to get going right now.
Francois Austin: I think the scientists and the technologists have done a huge amount of work in the last 20 years on this. I think this is the decade for the corporates to really step up and really put the shovels in the ground and build the infrastructure.
Urvi Parekh: Yes. I think that I’ve seen social and political will aligning around climate change in a way that’s unprecedented, and so I think that’s going to carry us a long way.