Getting Real: The Oil Majors Move Away from Political Energy (Government-dependent wind, solar are not ready for prime time)

By Robert Bradley Jr. -- April 9, 2009

A recent article in the New York Times, “Not So Green After All: Alternative Fuel Still a Dalliance for Oil Giants,” chronicled the move away from politically correct (but economically incorrect) wind and solar energy by the oil majors.

Royal Dutch Shell and BP, in particular, recognize wind and solar as what they are: dilute, intermittent energies that are not consumer friendly or economic. And their investment returns in the same have been lackluster. Shell and BP have found out what Exxon Mobil learned in the 1970s.

“Oil giants worldwide are skeptical that President Barack Obama’s plans to move the economy away from petroleum will be successful,” Jad Mouawad wrote in the Times. “Many of the oil companies are sticking to their hydrocarbon business model and some are backing away from commitments to renewable power.”

Mouawad summarizes the thinking from these three majors:

Royal Dutch Shell last month said it would freeze research in wind, hydrogen and solar power to devote all its renewable energy efforts to biofuels. The company had already sold much of its solar business and last year pulled out of a project to build the largest offshore wind farm near London.

BP has been trimming its renewables program, and U.S. oil companies, which have traditionally been more lukewarm to renewables than their European peers, are not budging either.

“In my view, nothing has really changed,” Rex W. Tillerson, the chief executive of Exxon Mobil, said after the election of President Obama. “We don’t oppose alternative energy sources and the development of those. But to hang the future of the country’s energy on those alternatives alone belies [the] reality of their size and scale.”

Indeed, the article goes on to note, the majors are focused on frontier hydrocarbons, such as tar sands and natural gas from shale. Such emphasis will warm the hearts of those who favor free-market capitalism over political capitalism.

Core Competency: “We Don’t Do it All”

The pullback from wind and solar is back-to-the-basics. As Shell’s CEO Jeroen van der Veer stated, “We don’t do it all.” Whatever the advantage of investing in wind and solar for public relations reasons, in the current economic climate such PR is no longer affordable. Perhaps these companies are also asking whether technologies that are forever dependent on government policy are really sustainable.

There is also the problem of scale, which Daniel Yergin spoke to in the Times article mentioned above. It is the same point that the former CEO ExxonMobil, Lee Raymond made so well back in 2004:

One of the difficulties people have, even some who work in this business, is understanding the scale and size of the energy industry. This is important to understand in order to put in perspective what some of the alternatives are and to judge if they are significant in the context of the whole.

There are many alternative forms of energy that people talk about that may be interesting. But they are not consequential on the scale that will be needed, and they may never have a significant impact on the energy balance. To the extent that people focus too much on that—for example, on solar or wind, even though they are not economic—what they are doing is diverting attention from the real issues.

And 25 years from now, even with double-digit growth rates, they will still be less than 1 percent of the energy supplied to meet worldwide demand. I am more interested in staying focused on the 99 percent than the 1 percent.

 Wind and Solar: Failed Expectations

Wind and solar in almost all applications are a bust. Not even very generous government tax incentives (production tax credit, accelerated depreciation) have worked. As Texas proves, mandatory renewable-energy quotas are required. In 1999, that state enacted the Enron provision of an electricity restructuring bill that made Texas the nation’s leader in new windpower capacity and production. (Enron Wind Corporation, now part of General Electric, was the intended beneficiary of the deal made by Enron’s Ken Lay and then-governor George W. Bush.)

Consider the long history of failed competitiveness of wind and solar as shown by these quotations.

Worldwatch Institute in 1984:

“Tax credits have been essential to the economic viability of wind farms so far, but will not be needed within a few years.”[1]

American Wind Energy Association in 1986:

“The U.S. wind industry has … demonstrated reliability and performance levels that make them very competitive. It has come to the point that the California Energy Commission has predicted windpower will be that State’s lowest cost source of energy in the 1990s, beating out even large-scale hydro.“[2]

Barry Commoner in 1976:

“Mixed solar/conventional installations could become the most economical alternative in most parts of the United States within the next few years.”[3]

Solar Energy Industries Association in 1987:

“I think frankly, the—the consensus as far as I can see is after the year 2000, somewhere between 10 and 20 percent of our energy could come from solar technologies, quite easily.”[4]

Worldwatch Institute in 1987:

“In future decades, [photovoltaic technologies] may become standard equipment on new buildings, using the sunlight streaming through windows to generate electricity.”[5]

Lee Raymond, a rare energy realist in political times, was right.

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[1] Statement of Michael L.S. Bergey, American Wind Energy Association in Renewable Energy Industries, Hearing before the Subcommittee on Energy Conservation and Power of the Committee on Energy and Commerce, House of Representatives, 99^th Cong., 2^nd sess. (Washington, D.C.: Government Printing Office, 1986), p. 129.

[2] Christopher Flavin, “Electricity’s Future: The Shift to Efficiency and Small-Scale Power,” Worldwatch Paper 61, Worldwatch Institute, November 1984, p. 35.

[3] Barry Commoner, The Poverty of Power (New York: Alfred A. Knopf, 1976), p. 151.

[4] Scott Sklar, Solar Energy Industries Association. Quoted in Solar Power, Hearing before the Subcommittee on Energy and Power of the Committee on Energy and Commerce, House of Representatives, 100^th Cong., 1^st sess. (Washington, D.C.: Government Printing Office, 1987), p. 12.

[5] Cynthia Shea, “Renewable Energy: Today’s Contribution, Tomorrow’s Promise,” Worldwatch Paper 81, Worldwatch Institute, January 1988, p. 44.