Total, With Energy Industry in Flux, Makes $1.7 Billion Bet on a Utility

Stock SectorApril 18, 20186min7
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Total, the French energy giant, has been looking to diversify from its traditional oil and gas pursuits.
Martin Bureau/Agence France-Presse — Getty Images

LONDON — One major energy company has invested in a solar power developer. Another is lifting its investments in wind energy. One has even placed a small bet on nuclear fusion.

Worried that pressures to mitigate climate change could eventually curb demand for their fossil fuel products, oil and gas firms are making major investments in an increasingly diverse array of businesses. On Wednesday, the French energy giant Total made the latest such deal, agreeing to buy a small electricity utility that would give it a foothold in the delivery of clean energy to customers.

The deal, worth 1.4 billion euros, or about $1.7 billion, for Direct Energie, which has 2.6 million customers in Belgium and France, appears to stand in stark contrast to Total’s traditional business. Total makes healthy profits producing oil and natural gas through enormous projects in complex and often-dangerous places, including in countries like Qatar and Angola.

But the deal fits what appears to be an accelerating trend — at least in Europe. Lacking a clear way to see how the energy industry will evolve over the coming decades, major oil companies have been investing in a wide range of activities, in the hopes of finding winners or, at worst, learning from the experience. In particular, they are making deals in cleaner energy technologies.

At the end of last year, for instance, the British energy company BP announced a $200 million deal with Lightsource, a solar power developer. BP, which pioneered clean energy investments two decades ago before paring them back, is once again plowing ahead. The company says it will probably invest around $500 million a year in such businesses.

Statoil, the Norwegian giant, has increased its investments in offshore wind, gambling that enormous turbines stationed on vast floating platforms in the sea will deliver much of the world’s power. And in one of the more intriguing moves, the Italian oil company Eni said last month that it would make an initial $50 million bet on a spinout from the Massachusetts Institute of Technology that is pursuing nuclear fusion — the goal of creating clean energy by fusing atoms together.

Analysts say that while the various deals appear to be different, they are driven by similar motivations. Traditional energy behemoths are forecasting increasing demands from governments, consumers and investors that they help find solutions for climate change.

“The megatrend that renewables represent, and clean energy represents, is unstoppable,” said Valentina Kretzchmar, an analyst at the consulting firm Wood Mackenzie in London. Major oil companies, she added, “want to be part of this trend.”

Oil and gas giants had long been skeptical about whether they could make sufficient returns from green energy to satisfy investors, but that is now changing. Wood Mackenzie estimates that demand for wind and solar power will grow at an annual rate of nearly 10 percent through 2035, compared to yearly growth of just 1.5 percent for natural gas, and slight declines for oil.

Total is taking a somewhat unusual tack by not only investing in clean energy technology like solar power, but also in companies that generate, store and distribute electric power. In 2016, it bought a battery maker for €950 million.

Total aims to have more than 7 million customers in Belgium and France by 2022, and wants to become “a leading alternative supplier,” it said in a statement. In other words, it wants to challenge traditional utilities.

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