Blog #4: Renewables as a disruptive force in the energy sector

In Clayton Christensen’s “Why Good Companies Fail to Thrive in Fast-Moving Industries,” the author describes how good companies often fail because they do not take seriously disruptive technologies. I think looking at how big oil and gas companies have reacted to the rise in renewable energy within the energy sector is a good example of this scenario.

By many measures of performance, renewable energy sources are inferior to conventional fossil fuels. Renewable energy has historically been more expensive, land intensive, and unreliable compared to fossil fuels. This has made them uneconomical, unfeasible and, as a result, unable to easily meet market demand.

However, some large oil and gas companies such as BP and Shell are investing in renewable energy research and development. This is because globally we are trending toward renewable energy. It may not be outperforming traditional fossil fuel generation now, but as advances in technology put renewable energy on par with the market demand, it will certainly outperform fossil fuel generation in other categories such as limited or zero green house gas emissions, resiliency, and resource preservation.

According to a report in 2019, Chevron, Exxon, BP and Shell since 1965, have been behind more than 10% of the word’s carbon emissions (Link to The Guardian article). With alarm over climate change increasing, at least two of the four companies are beginning to incorporate renewable energy into their strategies.

In 2017, BP acquired 43% stake in Lightsource, the largest solar power project developer in Europe. It also made several investments into rapid-charge batteries and fast charging infrastructure. Notably BP also changed their name (British Petroleum Company to Beyond Petroleum) and it’s core purpose  to reflect their shifting focus. Shell has also made several clean energy investments including the acquisition of NewMotion, Europe’s largest electric vehicle charging company, and buying stake and equity in several renewable energy companies. (Link to NS Energy article).

Unlike BP and Shell, Chevron and ExxonMobil have made minimal investments in renewable energy, instead focusing on new technologies that will reduce carbon emissions or capture them for storage. (Link to NS Energy article). Although these strategies are wise, responsible and may protect the companies from possible future policies and regulations regarding carbon emissions, they are not considering the possibility that renewables may outperform oil and gas in the future.

Personally, I think BP and Shell are applying a strategy more in line with the principles outlined by Mr. Christensen and would be wise to continue to increase their investments in renewable energy. According to the EIA’s 2020 outlook, the percentage of electricity generation from renewable energy is expected to jump from 19% to 38% by 2050 (Link to EIA Energy Outlook). Another consideration that should be noted is the dependence we still have on oil within the transportation sector and the slow and uncertain penetration of electric vehicles within the automobile market. It is likely that big oil and gas will not make a large strategic push toward renewable energy until electric vehicles become more prevalent.