Shell New Energies, a division of the oil and gas giant Royal Dutch Shell Group, is buying a U.S. renewable retail electric power company in the latest sign that oil and gas companies are waking up to a new climate reality.
This isn’t Shell’s first foray into US electricity markets, back in 2017 it acquired MP2 Energy, a Texas-based commercial and industrial renewable energy seller. Now with the newly announced acquisition of Inspire Energy Holdings, Shell’s expanding its footprint.
“Shell is the most forward thinking oil company,” said John Tough a managing director of Energize Ventures.
The company has bought electric vehicle charging companies like Greenlots, NewMotion and Ubtricity, as well as the battery in-home backup storage and charging company, Sonnen, along with its retail and commercial electricity businesses.
“For the most part oil firms are better at big, centralized projects and the new energy economy is going to reward firms that are better at decentralized assets,” said Tough.
Inspire Energy likely represented an attractive target for Shell for a few reasons. Retail energy providers upsell baseload power — a market that Shell already plays in thanks to its renewable energy project development businesses.
So it’s possible that Inspire would buy power from Shell or another vendor for something like 3 cents and sell it to consumers for 8 cents to 10 cents. With its current scale, Inspire likely represented an attractive acquisition target.
Beyond that, Tough said, Shell could use the company’s customer list to sell community solar or other, higher margin renewable products. If Shell were to buy a solar company (rooftop residential or community solar), then the company could combine its charging companies, solar offering, and storage to give customers a one-stop shop.
“Our goal is to become a major provider of renewable and low-carbon energy, and this acquisition moves us a step closer to achieving that,” said Elisabeth Brinton, Executive Vice President of Renewables & Energy Solutions at Shell. “This deal instantly expands our business-to-consumer power offerings in key regions in the U.S., and we are well-positioned to build on Inspire’s advanced digital capabilities to allow more households to benefit from renewable and low-carbon energy.”
Inspire operates on the East and West Coasts from offices in Philadelphia and Santa Monica, Calif. The company had raised capital from the Los Angeles-based investment firm Crosscut Capital (among others).
Rather than supply renewable power directly to homes, Inspire buys renewable energy certificates from local wind farm or solar power project developers (like Shell). Those credits are commodities that renewable energy sources sell alongside their electric power to boost their value.
The company benefits because it has negotiated fixed rates with consumers, while the cost of the wind power drops due to increasing demand.
“There’s definitely been a push from the oil/gas majors into electricity (recognizing where the long-term growth will be),” wrote one investor at a $1.5 billion firm focused on the clean energy transition.
It may take time for the implications of this new climate reality to be felt across all of the largest oil and gas companies, but changes are coming, according to Pradeep Tagare, the head of corporate venture investing at National Grid Partners.
“We’ve seen the oil majors play an offensive and defensive side. They are indeed building out their portfolio in terms of renewables,” said Tagare. “On the defensive side they are clearly looking at carbon market.”
The push into electrification represents a hedge against decarbonization that will only become more aggressive as the regulatory regimes oil and gas companies face become more restrictive around fossil fuels and greenhouse gas emissions.
On the flip side, these businesses are making a huge bet that the sequestration of greenhouse gas emissions from current operations will be enough to stave off the obsolescence of a multi-billion dollar industry.
The reality is likely more the former than the latter. Current levels of greenhouse gases in the atmosphere are already having dramatic effects on global economies.
“There’s going to be consolidation and an existential threat to some of the incumbents and completely new companies that come out as energy service providers,” Tagare said. “For that, you need the scale, you need the capital, and that’s when you’ll see the consolidation.”