LEGAL & FINANCE
Renewables on the up?
By Neil Anderson, Partner, Ledingham Chalmers.
Scotland is going greener, faster:
the generation of renewable electricity in Scotland reached record levels last year. Department for Business, Energy and Industrial Strategy (BEIS) figures show an equivalent of 74.6% of gross electricity consumption came from renewable sources in 2018. And that trend’s set to continue: Wood Mackenzie says it expects “radical disruption” to energy markets in the next two decades as renewable energy becomes cheaper, more scalable, and grows its market share. And that means portfolio diversification could likely benefit oil and gas operators, especially set in context with the predicted decline of hydrocarbon production in the UKCS.
Operator moves
What next?
Wood Mackenzie says “Majors have taken the first steps to move beyond the core oil and gas business into wind and solar power, as well as energy storage, but most are still weighing up the options and have yet to make telling strategic moves in renewables.”
The industry mantra is that the skills developed in oil and gas are ideally placed for delivering the energy transition: in effect, the same engineering, problem solving skills can be redeployed to meet the world’s new challenges.
Meanwhile Shell was a sponsor of the All-Energy renewable energy event which I attended in Glasgow recently; Total is part of a consortium submitting a bid for the Dunkirk offshore wind farm project; and in June last year, BP announced it was to acquire Chargemaster, an electric vehicle charging company, plus, Statoil has changed its name to Equinor to reflect its position in the market as a ‘broad energy company.’
Short-term though, renewables alone won’t meet the world’s growing population’s energy needs, so there’s a clear and present need for an evolving approach to continue to recover hydrocarbons, albeit in an ever-more efficient way using technology such as carbon capture and storage (CCS).
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It’s a journey, and one we have been supporting clients on for the last decade. Some of these clients have originated in the renewables and CCS sectors, many more have, and will, develop and diversify from an oil and gas background.
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Strategic, specialist legal advice for the oil and gas industry ledinghamchalmers.com
Contracting for change An added challenge for companies diversifying from oil and gas into renewables is dealing with unfamiliar, non-standardised renewable project contracts. Even a stop-gap of using oil and gas industry standard LOGIC contracts for offshore renewable projects is not ideal as these include provisions not relevant to renewables projects, such as comprehensive pollution liability regulations. There may also be different risk and liability profiles for renewable contracts that need fresh consideration. That said, renewables represent a sizable investment opportunity for oil and gas businesses. These companies are used to taking big risks, but they’ve also grown accustomed to large returns. And the opposite seems to be true for renewables: these are relatively low risk opportunities with lower, but mostly guaranteed, returns. The majors are only just starting to sow the seeds for what lies ahead, not least around identifying the opportunities that present the most attractive returns on investment as well as the most effective approach to contracts.
It looks like renewables is an area the industry can’t afford to ignore, especially as the sector starts to plan ahead for the next 15 to 20 years.
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