Shell is aiming to become the largest electricity company by the 2030s, as it prepares for a fundamental shift in global energy supplies towards lower-carbon sources.
Maarten Wetselaar, Shell’s director of gas and new energies says that the group could develop a power business, including supplying customers, trading and providing equipment, that was the same size as its oil or gas operations. Speaking at the CERAWeek conference in Houston, Mr Wetselaar said that if Shell achieved its goal for cutting its greenhouse gas emissions by 2035, “the amount of power — of clean power — we will need to be selling . . . will make us by far the biggest power company in the world”.
Achieving its ambition would depend on being able to secure an acceptable return on capital of 8-12 per cent, he said, but added: “With our brand, our global presence . . . and the adjacency to our gas business — we can get our hands on the cheapest gas anywhere — we should be able to win. He added that Shell’s expected competitors, the established power suppliers, were “useless”, because they were shackled to outdated business models.“Many of them are at a disadvantage, because they have this enormous legacy position, with coal plants and nuclear plants, but also a very centralised philosophy,” he said.
“We see the future customer group being much more decentralised, where people do have a battery in their basement, people do have solar panels on their roof, and they want us to help them optimise.”By 2020, Shell plans to be investing $1bn-$2bn a year in new energy technologies including electricity. This is still a fraction of the group’s annual capital expenditure of about $25bn, but Mr Wetselaar said the early spending was for “proving this hypothesis” that Shell could succeed in electricity.
“We will do that for a number of years,” he said. “And then we will scale it up, because otherwise we will never get there.”Shell’s plan is a response to an expected shift in the world’s energy system to much greater use of electricity, up from about 20 per cent today to about 50 per cent or more.Mr Wetselaar said the advance of electrification was “a when not an if”. An “aggressive” scenario would mean reaching that point in 2050, and a more “leisurely” one in 2080.Shell’s business now is roughly 65 per cent oil production and refining, 25 per cent gas and 10 per cent chemicals and other operations, Mr Wetselaar said.
By the 2030s, it could be 30 per cent each for oil, gas and electricity, with 10 per cent still in chemicals.Like other European energy majors including Total and Repsol, Shell has been investing heavily along the electricity supply chain — from generation to electric car charge points.It has made several small acquisitions including Sonnen, a German battery company, last month and last year’s takeover of UK power supplier First Utility, which gave it direct access to retail electricity consumers for the first time.
It also bought New Motion, one of Europe’s largest electric vehicle charging enterprises.Shell and its rivals believe they can provide a better customer experience compared with traditional utilities, as they are able to deploy advanced technologies to crunch data about how and when customers use electricity to provide them with the best service.
While investors have pushed energy majors to ensure they are robust should the world rapidly shift towards cleaner fuels, they have questioned if these companies will be able to make the same kinds of revenues from their legacy businesses.Mr Wetselaar said electricity was changing “from a boring, predictable system to a complex intermittent system”, which was “a really good opportunity for people that are good at energy trading. And we are very good at energy trading.