GE, Shell looking for exits as clean energy transition accelerates

Motivated by market signals, General Electric (GE) and Royal Dutch Shell are readying plans to pivot away from fossil fuel generating assets and expand their respective footprints in renewables. Yesterday when announcing that it is exiting the new-build coal power market, GE said that going forward it is focusing on power generation businesses that have “attractive economics and a growth trajectory”. For GE, the focus will be on wind.

Royal Dutch Shell’s plan, meanwhile, is to build a significant end-to-end power business that encompasses solar, wind and storage capabilities and that sits alongside its oil, gas and chemicals businesses. A spokeswoman for Royal Dutch Shell confirmed that cuts to its oil and gas business are on the way as the company intensifies its push into the power sector and renewables, but she declined to verify the cuts reported in the press.

“We are undergoing a strategic review of the organization, which intends to ensure we are set up to thrive throughout the energy transition and be a simpler organization, which is also cost competitive,” Shell’s spokeswoman said, noting that Shell is hosting an investor day, where it will detail its plans, on February 11th. During its first quarter earnings call in April, Shell said that it aims to be a net-zero emitter by 2050 or sooner.

From a profit maximization perspective, both companies’ moves make sense, according to Dr. Gilbert Michaud, an assistant professor at Ohio University’s George V. Voinovich School of Leadership and Public Affairs whose research is focused on energy policy and economic development in relation to solar.

“[It] is rational given price dynamics… The installed cost of renewables has decreased dramatically over the past two decades, and, coupled with increased consumer awareness, demand and deployment has surged,” said Dr. Michaud, who recently coauthored an economic impact study for utility-scale solar energy projects in his university’s home state.

The writing on the wall

The coronavirus health pandemic, which has dampened demand for fossil fuels, and investor pressure are also accelerating energy companies’ shifts away from coal, oil and natural gas, shareholder advocacy groups say.

Indeed, some analysts read Exxon Mobil’s replacement in the Dow Jones Industrial Average last month, after 92 years, as a sign of the times and a reaction to the negative investor sentiment around fossil fuels.

For energy companies, moving away from fossil fuels and embracing renewable energy can help make them more appealing to investors.

“GE’s announcement marks an important shift for the company… GE has a significant role to play in facilitating a rapid transition to zero-emission energy technologies,” Lila Holzman, energy program manager of As you Sow, a shareholder advocacy group that, together with the Climate Action 100+, has been urging GE to increase its climate ambitions and disclose how it will align its business model with the Paris Climate Agreement’s goals.

GE, which ranks as one of the world’s largest builders of coal-fired power plants, is among the 161 “focus companies” that Climate Action 100+ flagged as systemically important to the global transition to net-zero emissions.

Last week Climate Action 100+, an investor initiative aimed at ensuring that the world’s largest corporate greenhouse gas emitters take action on climate change, reached out to the heads of its 161 “focus companies”, calling on each to put in place net-zero business strategies. Collectively, Climate Action’s “focus companies” are responsible for up to 80% of global industrial greenhouse gas emissions.