Sunday, June 1, 2014

Chevron Gets Out Of The Renewable Energy Business

Earlier I posted a note on the collapse of "green-energy" jobs in Germany. I was alerted to that story by a reader; it is a story not yet being reported in American mainstream media.

Shortly after receiving that link, I was reading a recent issue of Bloomberg Businessweek. I canceled my subscription but am still receiving the "last" issues -- I discussed "why" some time ago. My granddaughter saw the cover of this most recent issue and thought it was a teen magazine. Based on that comment, I knew I had made the right decision to cancel the subscription. See if you agree.

Having said that, there were two articles worth mentioning in this issue. I forget what the first article was; I'll have to go back and look. The second article was almost a full-page long: "An Oil Giant Dims the Lights on Green Power."

Oh, yes, that first article, how could I forget: "Who Cares About Keystone XL?" A fairly long article for BloombergBusinessweek with a very nice graphic. And yes, KinderMorgan's TransMountain pipeline was featured -- the one that Steyer has invested in. You know Steyer: the activist environmentalist who was instrumental in seeing the Keystone XL killed. Instead of taking a huge pipeline through the desert of western Nebraska to American refiners, he wants to take the same huge pipeline through the Canadian Rockies to ship western Canadian oil to China. LOL.

But I digress. Back to the Chevron article:
In January, employees of Chevron’s renewable power group, whose mission was to launch large, profitable clean-energy projects, dined at San Francisco’s trendy Sens restaurant as managers applauded them for nearly doubling their projected profit in 2013, the group’s first full year of operations. But the mood quickly turned somber. Despite the financial results and the team’s role in helping launch more than a half-dozen solar and geothermal projects capable of powering at least 65,000 homes, managers told the group that funding for the effort would dry up and encouraged staffers to find jobs elsewhere, say four people who attended the dinner.
For the past eight years, Chevron has promoted “profitable renewable energy” as a core component of its business plan. The company’s slogan, “Finding newer, cleaner ways to power the world,” is splashed across its website. And ads launched in 2010 as part of Chevron’s “We Agree” campaign declare, “It’s time oil companies get behind the development of renewable energy.” Yet Chevron recently has retreated from key efforts to produce clean energy. This includes the renewable power group, which invested in or built utility-scale solar and geothermal projects with margins of 15 percent to 20 percent or more, according to a dozen people who worked on the projects.
Chevron earlier this year sold the 48-person business unit that builds small solar and landfill-gas systems and energy-saving retrofits for federal agencies such as the U.S. Department of Defense. Jim Davis, president of Chevron Energy Solutions for the past 14 years and the executive in charge of many of the oil giant’s clean-energy pursuits, left the company in March. Davis didn’t respond to requests for comment.
Did the tax credits run out?

I've always been fascinated with strategic planning by public companies, and with their "vision statements." I've often said that businesses become / remain successful when they can successfuly identify the business they are in. I was very, very happy to see companies like BP, Enbridge, and CVX engage in renewable energy. It told me they saw themselves as energy companies, not simply fossil fuel companies, or even more limited, oil and gas companies.

As an investor in CVX, this change is no big deal. The profits generated by the CVX-renewable group were a rounding error. For a small rounding error, the company was getting huge positive PR and a seat at the table of renewable energy.

So, when CVX drops renewable energy completely there have to be a lot of story lines. Here goes.

The first story line is this: even though CVX sponsored some (albeit very little) renewable energy projects, it didn't get them a seat at President Obama's renewable energy table. CVX might have gotten a seat somewhere in the room but for all the clout the company had (based on market cap) they weren't seated too close to the big guy. After awhile, it gets personal.

Second, note the timing: the announcement comes near the end of the Obama presidency. Early on, CVX did not know which way the tea leaves would float and hedged their bets. Now, with less than a thousand days of this presidency, the writing is pretty much on the wall, and the final graffiti will be posted tomorrow. Contrary to his speeches, President Obama's energy policy is NOT "all of the above."

A third story is the nut of the story: Chevron is getting out of renewable energy simply because the industry is collapsing. Chevron may see itself as an energy company but "renewable energy" is not even big enough to be a niche going forward. I came across this Chevron article in BBW at the very same time as I received the link to "Germany green-energy jobs collapse." It doesn't take a Greenpeace activist to sort this out. Even in the most pro-environmental country in the western world, the industry is collapsing. [The best Greenpeace was able to do in its most recent multi-million dollar venture was to delay Statoil from drilling in the Arctic by 89 hours. Yes, 89 hours. And Greenpeace said it was happy with that "success."]

One of the reasons I'm a poor investor is that I'm not a detail person, which brings us to our fourth story line. Again, from the article:
A pullback from renewables doesn’t surprise some analysts, who say returns of even 20 percent can be bested by oil and gas projects that can generate profits of 25 percent to 35 percent. “Renewables for oil companies are sort of like the coffee shop inside Bloomingdale’s,” says Oppenheimer analyst Fadel Gheit. “On their list of priorities, it will always be at the bottom.”
As a less-than-great investor, I don't get excited about 20 percent vs 25 percent margins as a stand-alone reason to buy into something or to jettison something. If renewable energy had a future, a CEO would be willing to accept 20 percent vs 25 percent for a bigger payoff down the road. This sounds like CVX realizes there is no payoff down the road for renewable energy.

The fifth story line is really part of the fourth story line: 20 percent returns are nothing to scoff at. Is your savings account, or even your investment portfolio, providing you 20 percent returns year-after-year? Not likely. The fifth story line? "Yes, I like 20 percent returns, but when it's a rounding error, and I have to look at three PowerPoint slides every month on renewable energy, this stuff becomes a distraction. It takes my focus off the stuff that really counts. Let's go golfing. And s**tcan the PowerPoint slides on renewable energy."

I don't remember where I saw it, or if it was even connected with this article, but someone commented on why it was important for Big Oil to remain committed to renewable energy. The argument was this: renewable energy is the energy of the future, and to ignore it puts companies like Chevron at big risk. The example: Kodak probably wishes it had paid closer attention to digital photography. That brings us to our sixth story line: CEOs and many people on the boards of directors, which often include the likes of Algore, are not dumb people. In addition, they are movers and shakers who will drive the story lines for the 21st century.

So, I guess two more story lines. Assuming smart guys like Algore sit on these boards and they eschew renewable energy, what does that tell the rest of us? Finally, the last story line (for now): good, bad, indifferent, when companies like Chevron get out of renewable energy that was actually returning twenty percent, what does that tell investors about the future of renewable energy?


This story on CVX, an earlier story Spain (Iberdola), and Germany's return to coal is a trifecta: Spain, US, and Germany and the future of renewable energy. I track the "big stories" here, including "Europe At A Tipping Point." I've marked my calendar: June 1, 2014: the beginning of the end of renewable energy. 


  1. I think your analysis is missing the real issue. The short term future for non renewables (fossil fuels) is good. Long term though, non renewables will die just like kodak and for the same reason. Namely, the management of all public companies is under pressure to deliver results in the short term. So preparing for the "long term" frequently is delayed in order to show better short term results every quarter. Then one day the smart people who didn't prepare for renewables wake up to the reality that they do not have the time, money or personnel to reinvent their company and so the company goes poof. It is an old story.