Big Oil’s green rush needn’t inflate

The initial numbers give some cause for concern. Incumbent utilities like Enel, EDP and Iberdrola have 200 GW of wind turbines and solar panels, against gatecrashing oil majors’ 14 GW. But that will change quickly, with BP and Total pledging to spend $5 billion a year between them on renewable energy over the next five years. Royal Dutch Shell has yet to say, but could at least match BP’S $3 billion annually. As banks will lend up to 70% of a project’s value, the three majors’ commitments of perhaps $40 billion over five years could unleash $133 billion of new investment.

A bubble is possible. Offshore wind projects can take years to plan and still fall through. Looming green targets may compel BP and Total to pay top dollar to buy up pre-existing projects, while competing also with infrastructure investors with lower return hurdles. BP paid a punchy $3 billion per GW for a stake in an Equinor offshore wind venture last month.

The oil majors have ways to manage the bottleneck. BP only has to sign off its 20 GW of projects by 2025 rather than have them up and running, giving it some leeway. They could also invest heavily in solar, which is quicker to scale up than offshore wind.