Traditional energy companies like oil majors and utilities are starting to map out how they view the future of energy now that wind, solar, and energy storage are becoming economically viable across the globe. No company wants to be caught flat-footed, but making the transition from a highly profitable business dependent on fossil fuels to something cleaner is easier said than done.
We've seen some utilities like NextEra Energy and NRG Energy move into renewables through the development of renewables and yieldco vehicles, which are both adjacent to their core electricity businesses. But most oil companies have shied away from renewable energy altogether. One that hasn't is Total (NYSE:TOT) and it's possible the company is quietly building a renewable energy giant that will be a key player in the future.
Total's bets on renewable energy
Total has made three big moves toward renewable energy and they may be a slow moving train that will eventually transform the business.
1. Total bought two-thirds of solar panel manufacturer SunPower (NASDAQ:SPWR) in 2011. The relationship has been rocky financially, but solar energy is now one of the few growth markets for Total and SunPower has leading technology in the industry. With Total supporting the company financially, look for this relationship to get closer and closer over time.
2. In 2016, Total bought battery maker Saft for $1.1 billion. The move gives Total exposure to batteries in military, aircraft, and industrial applications, but energy storage for electricity is really the end game. If Total can integrate Saft batteries into SunPower installations at homes, businesses, and utility-scale projects it could give the company a lead in the emerging solar and storage business that will likely be booming for at least the next decade.
3. Project ownership is where I would expect Total to grow most in the next few years. The company played a big role in funding the PV Salvador solar project in Chile in 2014 and SunPower has said it will be a conduit to key markets like the Middle East and Africa. This partnership, along with more solar and storage capabilities, will likely lead to Total owning more projects in Africa and Asia that will generate revenue for decades. In some ways, owning these projects will make Total look more like an independent power producer than an oil and gas company, but it's the right move given the shift in global energy trends.
Slow and steady wins the race
Total is slowly moving into the renewable energy space. It didn't buy SunPower and change its name to Total Solar or start its own yieldco or wholly owned renewable energy arm, like Chevron and BP have tried to do. Instead, it has bought all or part of leading companies in renewable energy and let them run on their own. This is smart because renewable energy buyers may not see an oil company as a good long-term partner.
But the company is making a big commitment to renewable energy through its stake in SunPower and ownership of Saft. And management has said it will invest $500 million annually in renewable energy projects, which is small when compared to a capex budget over $17 billion, but sizable in the world of renewable energy. I would expect a large chunk of that money to be put to work on the project development side until a bigger strategy for renewable energy emerges.
The strategy of making small bets on companies also allows Total to observe how the market is playing out before going all-in. And if SunPower's volatility over the last few years is any indication, that was a good strategy. Total may not have had the patience to keep SunPower going through a hard time had it been internal and not an external company.
Long term, Total has a stake in the ground and is growing prudently in renewable energy without making a complete strategic shift of its business. But a decade from now it may be a bigger renewable energy company than any other oil major or utility in the world. That's a great position to be in and makes Total a player to watch in the global renewable energy business.