Renewables, EVs and ‘sowing seeds’: Inside Shell’s energy transition strategy

Oil and gas giant Shell has revealed how it plans to adapt to the low carbon energy transition in the coming years, explaining how it intends to work backwards from the consumer while embracing renewables. 

Shell’s Energy Transition Report, published today, is designed as a follow-up to the ‘Shell: Energy Transitions and Portfolio Resilience’ report released two years ago, but also to build on the three climate and energy models it has released – the most recent, Sky, having been published earlier this year.

The report is largely separated into six key chapters, detailing the importance of the low carbon transition generally, a glimpse at Shell’s climate and energy scenarios, actions Shell expects to take in the short-, medium- and long-term and how the company expects to collaborate with others.

Its purpose is to detail how Shell’s strategy is enabling it to “thrive as the world transitions to lower-carbon energy”, however the energy giant remains intent on selling the oil and gas “society needs”. This, Shell says, will continue to take place while the company prepares its portfolio to move into lower carbon energy.

That move will take place “when this makes commercial sense”, Shell said.

Writing in the strategy, Shell chairman Chad Holliday said that Shell would have to “learn new skills” as the world increasingly moves towards lower carbon energy. This, Holliday said, would place greater importance on learnings from its New Energies unit.

“I like to think that our New Energies business is sowing different seeds in different places. Over time, we will see where the best and most profitable crops start to grow. Then we will give the winners all the nourishment they need to flourish,” he said.

The company expects most opportunities for it to grow and take advantage of the energy transition will occur in the medium-term, tallying with Shell’s early investments in the power market. As well as numerous investments and product launches catering for electric vehicles, Shell recently completed its acquisition of supplier First Utility, which has more than 800,000 domestic customers.

Shell’s wider strategy is revealed in the document to “work backwards from the consumer”. In growing its EV and domestic supplier base, Shell has guaranteed its foothold in energy off-takers and will subsequently look to cater for this demand with increasingly lower-carbon power.

This is perhaps the opposite to how others have made the step into the energy transition. Vattenfall, for example, established a sizeable wind portfolio in the UK before making its move into the commercial and domestic supply markets last year.

Shell’s movement into renewables will be largely driven by its New Energies division, which is to invest between US$1-2 billion (£704.5 million – £1.4 billion) each year until 2020. In comparison, that is between two and four-times larger than investments outlined by its rival British Petroleum.

The company also provided a minor update in how it determines what makes a reasonable investment in alternative energy, clarifying that Shell would only seek to invest in projects that are financially viable today (as in, unsubsidised) due to potential regulatory uncertainty, and by stating that it normally seeks equity returns of 8-12% for investments in power.

Ben van Beurden, chief executive at Shell, said the energy transition itself would likely mean “more renewable power, biofuels and electric vehicle charging points” as the company seeks to drive change throughout its entire portfolio.

“This is a long-term journey. There are tough challenges ahead that society will need to address because the transition will require enormous levels of investment, and profound changes in consumer behaviour. Shell is also on a journey. We cannot know exactly how this transition will play out, or how long it will take. But it could mean significant changes for Shell in the long term. We will learn, and adapt our approach over time,” he said.

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