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Can Green Utilities Compete Against Oil Majors?

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Rakesh  Sharma's picture
Journalist Freelance Journalist

I am a New York-based freelance journalist interested in energy markets. I write about energy policy, trading markets, and energy management topics. You can see more of my writing...

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Perhaps the biggest defining of 2020 was the shift towards renewable energy. The move away from fossil fuels gathered momentum, no, accelerated during the pandemic shutdown as governments around the world committed to a green recovery in their stimulus plans. The pandemic has also birthed the green utility or utilities that are renewable energy powerhouses.

A story in the Wall Street Journal earlier this month discussed a clash between energy titans of the fossil fuel and renewable energy industries. Oil majors like Exxon, Shell, and Chevron represent the old guard of fossil fuels while NextEra, owner of Florida Power& Light, Spain’s Iberdrola, and Italy’s Enel, are part of the vanguard. Of course, the contest between them is hardly equal considering that fossil fuels still account for an overwhelming majority of power generation in their home countries.

But there is one arena where titans are equally matched. That is the stock market. Consider the following statistics. In the last decade, NextEra’s market capitalization has surged by slightly more than 520% to $135.9 billion. Just this year alone, NextEra started the year with a market cap of roughly $118 billion. as of this writing, it is $153 billion. Iberdrola and Enel have seen their market cap increase by 77.4% and 87.2% respectively. Meanwhile, British Petroleum has witnessed a decline of 57% to $59 billion during the same time period. The market caps for Exxon Mobil and Shell have declined by 60% and 53% respectively.

What does this flow of funds tell us? Investors are betting that green utilities, or utilities which source their energy entirely or overwhelmingly from renewable energy sources, will power the future. It also means that old-school utilities, such as Duke Energy, are transitioning to the new model. (They were also rewarded by investors after they announced targets for zero carbon emissions). Even the oil majors mentioned above have bankrolled renewable energy projects to commence their pivot away from fossil fuels. Enticing as that future sounds, it also needs some fixing. In a world dominated by renewable energy sources, competition will likely be cut-throat. This means that it will eat into profit margins for such utilities. As they have in the case of the fossil fuel industry, subsidies may not help alleviate the pain of those margins. As such, green utilities will likely to have search out as many customers as possible by making their products cheap and affordable and electrify as much of the economy as possible to generate value for shareholders.

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