Big Oil Invests in Small Renewables

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With major oil players enjoying eye-popping profits on the back of high gas prices, there’s a growing political push to eliminate tax incentives for the petroleum industry. Senate Democrats and President Obama are behind a plan to strips billions in subsidies for the five biggest oil companies, with the money going either to clean energy, or simply to reduce the budget deficit. As Obama said in a speech on May 6:

If you’re already paying them at the pump, we don’t need to pay them through the tax code. Especially at a time when we’re scouring every part of the budget to try to figure out how we bring down our deficit and our debt.

There’s nothing new about politicians complaining about Big Oil—it usually kicks in automatically once gas prices rise above $3 a gallon—but this time could be different, if only because growing panic over the public debt has meant that all government subsidies are coming under attack. At the same time, there’s a growing understanding that alternative energy sources will struggle to earn market space as long as they’re fighting an entrenched oil industry. “The oil and gas industries have been living on subsidies for the past 100 years,” says John McCarthy, CEO of the next-generation biofuel startup Qteros. “We should have a level playing field.”

Interestingly, though, even as Big Oil comes under increasing political scrutiny, fossil fuel players have begun to invest significantly in alternative energy. At the beginning of May, $193 billion Total SA—the world’s fifth largest international oil company—launched an offer to buy up to 60% of the California-based solar company SunPower. The acquisition would cost some $1.4 billion, and on top of that, Total will provide SunPower with up to $1 billion in credit over the next five years. As Total executive Phillipe Boisseau said:

We evaluated multiple solar investments for more than 2 years and concluded that SunPower is the right partner based on its people, world-leading technology and cost roadmap, vertical integration strategy, and downstream footprint. The world future energy balance will be the result of a long-term transition in which renewable energies will take their place alongside conventional resources.

Total isn’t alone. That isn’t Total’s only investment in renewable energy—the oil giant is also the single biggest investor in Amyris, a promising California-based startup that uses synthetic biology to create custom-made biofuels. And other oil companies are getting in the mix. Today BP—yes, that BP—today provided an undisclosed investment in the biotech company Verdezyne, a biotech company that engineers yeasts to digest plant sugars and create biofuels and biochemicals. BP’s money—along with additional investments from the Dutch biochemicals company DSM—will help fund Verdezyne’s operations through the next couple of years, and help it build pilot plants to produce ethanol. “This is the sort of funding that will help us move to the next level,” says William Radany, Verdezyne’s CEO. “We view it as a vote of confidence.”

Other alternative energy investments from Big Oil include Shell’s work with Codexis and the Brazilian ethanol giant Cosan on a $12 billion sugarcane-to-biofuel project, as well as Exxon’s long-running, $600 million partnership with genome decoder Craig Venter’s Synthetic Genomics, which is aiming to genetically engineer algae for biofuel. Investments by Big Oil in renewable energy and biofuels aren’t new—BP has long had a $500 million investment in advanced biofuels with the University of California and a few other national labs—but the recent series of deals could mark a change of course for the energy industry, as Eric Bloom of Reuters wrote recently of Total’s investment in solar:

The move indicates a new direction for energy companies, whose objectives are often considered to be at odds with renewable energy. Large energy companies must provide attractive returns to shareholders on a quarterly basis in order to remain competitive. However, the long-held perception has been that, in the absence of governmental incentives for solar power, solar does not pay back quickly enough to form a meaningful part of an energy company’s portfolio. So Total’s acquisition marks a shift in thinking in the oil industry toward the economic viability of solar and distributed energy systems.

Of course, these investments still make up just a fraction of the billions upon billions in profit that major oil players have recorded over the past year. It’s long since past time to reexamine the generous, grandfathered subsidies that the oil industry enjoys. (Although, as Michael Levi of the Council of Foreign Relations has argued, the renewable energy industry gets more in subsidies than oil—not counting the benefit of security in the Middle East—and eliminating all federal assistance would likely hurt alternative energy far more than it would help.) But if Big Oil can really start treating renewable energy the way it does potential drilling sites—as the source for future revenue—maybe it will earn an early end to the latest round of demonization.