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Big Oil Shareholders Look To Cash In On Renewable Boom

Irina Slav

Big Oil’s shift to renewables will result in a veritable windfall for their shareholders, Norway’s energy consultancy Rystad has said, as quoted by Bloomberg.

The reason is easier access to debt finance: Rystad’s founder Jarand Rystad said at the company’s annual meeting in Singapore that wind and solar projects have access to a debt market that can provide up to 95 percent of the costs associated with their development.

That’s different from the core business financing model of companies including Chevron, Exxon, and other Big Oil majors, which have had to rely on their own means to finance new projects.

“Shareholders will be drowned in capital paid back by energy majors in the next 20 years,” Bloomberg quoted Rystad as saying. “Basically the whole energy sector needs to decapitalize and to increase leverage.”

According to Rystad, returns from solar and wind projects were guaranteed thanks to their nature: power-purchase agreements are how money is made from such projects and while returns from them are lower than returns from new oil and gas projects, they begin flowing much sooner. Renewable projects are also a lot less risky than upstream ones, even if financing them would require a lot higher leverage.

“Clearly Chevron and Exxon and everybody have ambitions to be an energy major 30 or 40 or 50 years from now,” Rystad told Bloomberg. “Current energy majors are only 15% debt, but the future energy majors will be 85% debt. That’s why it will change the capital structure of the industry.”

There is one added benefit for Big Oil shareholders: large institutional investors such as pension funds and banks would be much happier with renewable investments. Just recently, Norway’s sovereign wealth fund said it would divest $6 billion worth of interests in oil companies. Although the fund’s reason for the decision was to reduce exposure to the volatility of the oil industry, other large investors are also pulling out—or planning to pull out—from oil and move to more sustainable industries.

By Irina Slav for Oilprice.com

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