OSLO, Norway — The growth in investment in renewable energy projects continues in 2023, according to a recent Rystad Energy report.
There has been significant growth in offshore wind, with over 45 GW of capacity launched globally in 2022. As many countries ramp up efforts to meet self-imposed 2030 targets for installations, 2023 is expected to be another bumper year for the sector, with 55 GW of offshore wind capacity set to be opened for auction.
Many E&P companies have stated their aims to grow in the renewables sector. However, Rystad is expecting the majors, in aggregate, to fall short of their 2030 cumulative target by a wide margin – more than 50% – based on their current portfolios. Mergers and acquisitions are clearly the preferred growth strategy for the oil and gas giants, with upward of 170 GW of renewables capacity changing hands in 2022.
One of the main challenges for E&Ps lies in the expected level of returns from renewables. While the cost of capital is commonly 10% or higher for upstream oil and gas investments, returns on renewable energy projects are generally lower. Gaining an understanding of the hurdle rates that companies are using, including variations across different countries, will be critical to be competitive in deals, Rystad said, as will a good understanding of regional power prices.
Petronas makes strategic acquisitions to enter the renewable industry
Petronas, through its new green arm Gentari, is diving into the renewables market through a series of acquisitions in Australia and Taiwan. Gentari closed last week the acquisition of Wirsol’s Australian portfolio – mostly solar PV – and in December announced a deal to acquire a 29.4% stake (for about 307 MW) in the Hai Long offshore wind project in Taiwan with Northland Power.These deals mark Gentari’s push toward reaching its ambitious portfolio goal of 30-40 GW of renewable energy capacity by 2030. And both deals came in at slightly higher valuations than expected based on Rystad Energy calculations, implying Petronas is willing to pay a slight premium to quickly establish itself as a renewable player. Like many of its oil and gas E&P peers, Petronas has taken a tried-and-true approach and entered the renewables industry by acquiring portfolios, Rystad said. Last year E&Ps traded 145 GW of renewable energy capacity globally. Such deals included Equinor acquiring East Point Energy in the US and Repsol acquiring the Asterion Energies portfolio. Also, giants like TotalEnergies and Shell opted to form joint ventures to build up their portfolios.
Rystad said Petronas is looking to diversify its portfolio and include renewables, thus looking to follow suit by partnering with experienced renewable energy developers to ensure stability and gain useful operatorship knowledge.