Wood Mackenzie: ‘Low-risk’ renewables now offer same return as oil and gas projects

first_img FacebookTwitterLinkedInEmailPrint分享Recharge:Investor payback from wind and solar projects is now competitive with oil and gas as the price for crude languishes at under $25 per barrel (bbl) following the market collapse fueled by the spread of coronavirus — and would be even at $35/bbl, according to analyst group Wood Mackenzie.Before the pandemic, when the price of crude was at $60/bbl, wind and solar projects’ average 5-10% internal rate of return (IRR) “found it difficult to compete with expected double-digit returns” for oil and gas, said Valentina Kretzschmar, vice-president of corporate analysis. But even if the oil market were to rebound, the growing pressure on the sector to commit to net-zero carbon meant renewable energy “presented opportunities for companies with strong balance sheets,” she added.“Our analysis shows that 75% of pre-final investment decision projects globally would return less than the cost of capital, assumed at 10%…Oil and gas projects are now in line with average returns from low-risk solar and wind projects,” WoodMac said in a special note on the impact of coronavirus on the oil and gas sector. “Capital allocation is no longer a one-way street for Big Oil — renewables projects suddenly look as attractive as upstream projects at $35/bbl.”Kretzschmar downplayed notions that the swinging “survival mode” cuts now being made by oil and gas companies to discretionary spending would impact on renewables investments — as many, including the International Energy Agency (IEA), have feared. “Historically, the oil price has shown no correlation with investment in renewables. The installation of both wind and solar continued to increase through the last oil price downturn,” she said.“Oil and gas companies make up a tiny proportion of global investment in renewables. The sector accounts for less than 2% of global solar and wind capacity. Even if Big Oil stopped investing in renewables altogether, that would have a minor impact on growth.”Kretzschmar noted, nonetheless, that in the short-term, the oil and gas sector will “struggle to generate enough cash to maintain operations and honour shareholder commitments” in a sub-$35/bbl industrial landscape, with all discretionary spending “including additional budget allocated for carbon mitigation” being put under review.[Darius Snieckus]More: Investor returns on renewables projects ‘now competitive with oil & gas’ as coronavirus strikes Wood Mackenzie: ‘Low-risk’ renewables now offer same return as oil and gas projectslast_img

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