In developing a ‘pros and cons list’ of petroleum-based energy sources and renewable options, the decision seems obvious. By definition, we know that renewable energy sources are more sustainable in the long-term. However, the history of non-renewable energy is much more established, much more ingrained in our infrastructure, and is still big business. Though the transition has begun, the world was still spending $796 billion on oil and gas production and distribution in 2019, according to World Energy Investment. Things remain optimistic for the renewable sector, however, who have seen a trend in large-scale renewable energy developers with a valuation that already rivals some of the ‘supermajor’ oil companies.
The biggest ‘Pro’ on the list of positive reasons to continue investing in oil and gas is simply because that’s ‘what we’ve always done.’ While much of our technology is currently oriented towards this industry, it is becoming increasingly obvious that ‘peak oil,’ or the point at which there is more oil already extracted than in the ground, is approaching quickly. At the point of peak oil, the process to extract and refine petroleum will cost more than it’s sold, contributing to a plunging return on investment. This shift in return the ‘Con’ that will outweigh the Pro on the list. Interestingly, the slow transition to renewable energy that has been organically growing in recent years has now been expedited during 2020 and the Coronavirus pandemic. In World Energy Investment’s 2020 Report, total investment in global energy (of any kind) reduced by 20% since 2019. The oil and gas industry saw an especially deep decline in investment since 2019 with $250 billion spent this year compared to last. In comparison, though total consumption has dropped in 2020, the investment in clean energy remains valuable and instills confidence in many experts, including those within oil and gas companies that are realizing the need to transition sooner rather than later.
Though these global trends are much larger than the building industry, building owners can still play a significant role in the transition between non-renewable and renewable energy. In places where on-site renewable energy sources are impractical to install, building owners can actively choose to purchase energy from renewable sources. This transition, done through power purchasing agreements (PPAs) or through buying green power from their Utility, makes renewable energy accessible to anyone that is interested in purchasing it. In addition to PPAs and other renewable power sources, building owners can also invest in the renewable technology itself. As new innovators come to market, building owners have the opportunity to ‘buy in,’ future-proofing their assets with more resilient electricity sources and producing a longer-term return. In addition to the financial practicality, this transition will also help organizations recognize a reduction in carbon emissions, enhancing their Corporate Responsibility story and promoting new reasons for investors to buy in. This shift may also be appealing for prospective tenants, who have their own carbon-related emissions targets for their company footprint.
In Big Power, Meet Big Green, E&E News predicts that this trend in the increased valuation of renewable energy companies is not going away. The article cited, Imperial College London’s Energy Investing: Exploring Risk & Return in the Capital Markets, which concluded that shares in renewable energy companies were less volatile and delivered better returns than the larger oil and gas competitors.
Citing Sam Arie, a research analyst at UBS, “We think we’re going to see a new category of companies called wind and solar majors. They’re on the way to being the size of the oil majors.” This prediction by major financial institutions is more than just an educated guess. Arie’s UBS and most economic institutions alike are recognizing these long-term projections. To remain leaders and get ahead of the inevitable sunk cost of non-renewable energy, building owners must transition to renewable energy sources now.