Why Big Oil Can't Get Renewable Energy Right

Renewable energy is gaining momentum, but big oil companies continue to cut exposure to these new energy sources. The reason why might surprise you.

Jun 8, 2014 at 9:00AM

The writing is on the wall for big oil companies. Renewable energy is now cheaper than energy from fossil fuels in places with an abundance of sun or wind, and with costs falling, it won't be long before it's cheaper just about everywhere in the world.

At the same time, the appetite for oil is waning in developed parts of the world. The U.S. and the European Union are in the midst of a long decline for a number of reasons, from higher prices to more efficient vehicles.

US Oil Consumption Chart

US Oil Consumption data by YCharts.

This data isn't new to big oil, and they know the long-term threats facing their industry. So, why can't they adapt and evolve to the energy industry of tomorrow?

Seeing the problem
It isn't as if big oil doesn't see renewable energy coming. BP (NYSE:BP) changed its logo to look more "green" and, until fairly recently, had its own solar panel business. Chevron's (NYSE:CVX) renewable energy business that focused on geothermal plants made a $27 million profit last year.

Spwr Solar Star

Huge projects like this are where big oil can invest in renewables. Source: SunPower.

But both BP and Chevron shut down these renewable energy businesses to focus on fossil fuels. They see the problem, and they know there's a solution, but executing on it is harder than it seems.

A tale as old as time
This is something we see time and again as industries are disrupted by new technologies. It isn't like Walmart didn't see the Internet coming, or Kodak didn't think digital cameras had a future. The problem is that they don't know how to evolve from what was and is a profitable business to a business that will one day be the future.

Changing business models and cultures is great on paper, but very few companies can do it successfully -- big oil is no different. 

Big oil may not know how to go renewable
In solar, it's particularly difficult. I recently asked SunPower's (NASDAQ:SPWR) investor relations vice president, Bob Okunski, about the prospect of Total (NYSE:TOT), which owns 66% of SunPower, buying out the solar company. He said that more than anything, Total might not know how to run a solar company.

Scty Installers

Residential solar is providing huge value for installers like SolarCity and SunPower, but big oil has almost no exposure. Source: SolarCity.

When Total bought its majority stake in SunPower in 2011, executives came to the U.S. to meet with management and learn more about the company. Total's executives asked to see a 10-year plan, something that big oil us used to outlining both internally and to investors. But no such plan existed at SunPower because the industry changes so quickly that the plan would be obsolete within months.

This fast pace suits a smaller company like SunPower or SolarCity, but it's foreign to a company used to making decade-long investment decisions.

How to solve it
None of this means big oil can't and won't somehow invest in newer forms of energy. They can buy projects that will generate revenues for years to come and just hold them on the balance sheet, something Total is starting to do.

The YieldCo has also become a popular wind and solar investment, allowing companies to bundle projects into a single investment vehicle. Big oil is used to invest in projects that have 20+ year revenue potential, so these would fit well in their portfolios. 

As for manufacturing solar panels or any other components, I think that opportunity has passed. Big oil isn't nimble enough to be in the technology of renewable energy; it has proven that time and again. Instead, that will be left to smaller, more focused companies, and big oil may play in the market by buying projects, which doesn't come with the same upside for investors. 

At the end of the day, big oil hasn't found a way to invest in renewable energy and shape the market, which is a theme we've seen seemingly dominant companies in industries over and over again when disruptive technologies are introduced. 

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Travis Hoium manages an account that owns shares of Total and SunPower and personally owns shares and options of SunPower. The Motley Fool recommends Chevron, SolarCity, and Total (ADR). The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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