Big Oil Bets Against Technology and Change
May 25, 2016
Chevron Exec says his company might profit from all this hoohah about climate change, and fossil fuels aren’t going away.
Actually, he’s right about one thing, some people are going to make big money on the current transition.
But this stance increasingly sets him apart from his oil counterparts as they react to pressure from climate-change activists and concerned shareholders.
On Wednesday, Chevron CHV, +0.82% , like Exxon Mobil Corp. XOM, +0.08% , is facing a shareholder-proposal campaign by activists who want the company to detail the risk climate change poses to its business. Exxon is opposed to the proposal, and so is Watson: He questions its entire premise, arguing that climate change might even prove positive for Chevron, if it spurs more of the planet to shift from coal to natural gas.
“I hope to gain market share in some areas,” he said.
Where many other oil and gas executives are retreating at least in rhetoric, emphasizing common ground with environmentalists, Watson, who became CEO in 2010 after climbing the company’s ranks for three decades, has doubled down.
Watson, 59, isn’t a climate-change skeptic. But the staunch disciple of free markets believes that only a major technological breakthrough, rather than a top-down solution from government, will substantially curb climate change.
Within just 15 years conventional energy production and transport will have been rendered obsolete by the revolution taking place in batteries, solar power and electric cars.
The startling thesis by energy disruption guru and Stanford University lecturer Tony Seba has been around for a couple of years but after originally being dismissed as crazy, is now catching serious attention from investors.
“It’s the end of energy and transportation as we know it, and it’s coming very quickly,” Mr Seba said at the start of a week of investor meetings in Australia.
“It’s going to be over by 2030; it has started already.”
Mainstream forecasting bodies such as the International Energy Agency have it all wrong and are greatly underestimating the growth of solar power, says Mr Seba, who sees solar as close to a “tipping point” that will drive a super-exponential uptake in solar power similar to the experience with smartphones.
Mr Seba sees the tipping point for solar is when the cost of solar goes beyond “grid-parity”, when unsubsidised rooftop solar generation undercuts power from the grid, to what he describes as “god parity”, when it undercuts the cost of transmission and makes even zero-cost centralised generation redundant.
“At that point … it is in every consumer’s selfish consumer interest to put up solar panels on every available rooftop because for those hours of sunshine… central generation will never be able to compete with rooftop solar,” he says. “Solar is going to eat everything.”
State renewable portfolio standards have long been the top driver of U.S. utility-scale solar and wind energy growth — until now.
This year, for the first time ever, more than half of new utility-scale solar capacity will be brought on-line outside of state mandates. In fact, this year’s non-RPS solar capacity will exceed the total utility-scale solar installed in any previous year.
But that doesn’t mean policy is becoming irrelevant. It’s just evolving.
“This definitely doesn’t put government and policy out of the picture as key drivers of renewable energy growth,” said Barbara Sands, a renewable energy expert at PA Consulting. “Not by a long shot.”
For instance, in December 2015, Congress passed a three-year extension of the 30 percent federal Investment Tax Credit for solar, as well as a one-year extension of the Production Tax Credit for wind. Both of these government incentives are slated to ramp down in subsequent years — but for now, developers are hurrying to cash in on peak incentive levels.
The ITC extension has sparked a sharp increase in several types of non-RPS utility-scale solar procurement — a rush that’s expected to last until 2020, as utilities and other organizations seek to lock in low energy costs through long-term power-purchase agreements. Along with the continuing overall decline in the price of solar, the ITC extension has put prices for power-purchase agreements in the range of $30 to $60 per megawatt-hour — a substantial hedge against long-term uncertainty in natural-gas prices.
Colin Smith, a solar analyst for Greentech Media and author of the Next Wave report, noted that favorable economics are dramatically expanding the geographic diversity of utility-scale solar.
“We’re now seeing large amounts of solar in markets where we weren’t seeing it before, such as Indiana, Arkansas, Idaho, Oregon and Mississippi,” said Smith. “That was a tremendous surprise.”
In 2016, 11 percent of new solar capacity in the pipeline will come from retail procurement. Favorable economics — not necessarily sustainability efforts — are the driving force behind the sharp growth in long-term retail contracts.
The Metro of Santiago, Chile, will be the first public transport system to run mostly on solar energy, after a new agreement signed with Total and SunPower this week.
According to an announcement from US solar manufacturer SunPower, in cooperation with Total, a global integrated energy producer and provider, the Metro of Santiago, Chile, has signed a power purchase agreement for the supply of 300 GWh annually of clean solar energy for its public transport network.
This should make the Metro of Santiago the world’s first public transport system to run mostly on solar energy, which is good news for the system’s 2.2 million daily passengers.
“SunPower is proud to serve Metro of Santiago’s growing energy demand with cost-competitive, renewable solar power,” said Eduardo Medina, executive vice president, global power plants, SunPower. “Solar is an ideal energy source for Chile because of the country’s high solar resource and transparent energy policies. In partnership with Total, SunPower is committed to the continued growth of our business in Chile.”