If you can’t beat them, invest in them: Oil companies and investors look toward renewable energy

Oil and gas companies are feeling headwinds from the decreasing costs and increasing popularity of renewable energy. Consequently, they are looking at cleaner solutions. In 2017, oil and gas consultancy agency Wood Mackenzie recommended traditional energy companies invest heavily in renewables.  Companies have obviously taken note.

European companies lead the charge

In 2018, big oil and gas companies spent about 1 percent of their budgets on renewable energy investments. European oil companies, in particular, have embraced the shift to renewable energies. According to a study by the Carbon Disclosure Project, about 70% of Europe’s renewable capacity has been funded by large traditional European energy companies.

Furthermore, European oil companies are funding nearly all of Europe’s current developments in renewable energy capacity. Shareholder pressure is a driving force behind renewable energy investments, so companies are starting to be more conscious about sustainability.

Ultimately, renewable energy is still a risky business where disruptive technology and uncertain government policies can heavily affect returns.

Investors turn towards renewables

Investment funds are also taking note of the renewable shift. The renewable energy industry offers an attractive CAGR of almost 21% according to a report by Technavio. Institutional investors who have traditionally favored oil and gas companies due to more consistent profits are now being drawn in by the renewable industry’s high growth prospects.

A $1 trillion Norway-government-owned investment fund, the Government Pension Fund Global, has announced it will invest $14 billion into the renewable energy industry.

Renewable energy companies are also often dependent on government subsidies to make a profit. Given the current political climate, subsidy-reliance has deterred investors away from renewable energy companies. Luckily, buzz over The Green New Deal may provide a catalyst for greater renewable energy investment. Even if The Green New Deal is never implemented, its proposal could still cause renewable stock prices to rise since it signals that U.S. voters are more willing to adopt clean energy policies.

Conclusions

While a renewable revolution is still far from here, rising renewable energy investments are a good sign for the planet’s health. If even oil companies are breaking tradition and putting their money into renewable energies, there are likely huge growth prospects for the industry coming soon.

As renewable energy companies gain more capital, they can afford to invest in more research and development. Even a temporary surge of capital could be enough to bring along the next breakthrough in GreenTech.

Share via