Page 7 - NorthAmOil Week 45

NorthAmOil COMMENTARY NorthAmOil
Going greener
The broader adoption of renewable power by Permian producers comes as renewable use and capacity rises in Texas. Wind power was reported earlier this year to account for around 15% of the state’s electricity, with this share set to grow. Texas’ solar capacity, meanwhile, is set to quadruple by 2022.
Indeed, solar developers have been scram- bling to meet Texas’ growing power needs, with Permian Basin operations contributing signifi- cantly to this rise in demand.
Record-high demand has left existing power plants struggling to keep up – with shortfalls leading to regional price spikes that make the market attractive to solar players. On top of this, solar farms can be built comparatively cheaply and quickly. Bloomberg NEF estimates that building a solar farm in Texas currently costs about $32 per MWh over the facility’s lifetime, compared with $38 per MWh for a high-effi- ciency gas plant. Such solar facilities can be built in six months, and expanded with relative ease further down the line if necessary.
There may be challenges ahead for solar developers buoyed by the oil and gas boom, however. A federal tax break for solar projects is due to start being phased out next year. In the short term, this has spurred developers to scram- ble to build new capacity. In the longer term, there is a concern that this could disincentivise investment in new renewable projects, though demand for new renewable power could still come from Permian oil producers.
“Whether more oil and gas companies decide to transition into renewables likely hinges more on overall corporate strategy than a single tax provision,” a Shell spokeswoman, Anna Arata, told Reuters.
Meanwhile, additional power generation capacity – renewable or otherwise – will reduce the likelihood of price spikes in the Permian region. Earlier this year, Bloomberg NEF esti- mated that adding 5 GW of solar capacity would reduce Texas power plant revenue by 11%, or $1.43bn per year.
Nonetheless, it appears as though there is still plenty of capacity for renewable infrastructure to grow and to serve oil producers – and not just in the Permian. And this comes as exploration and production companies find themselves under increasing pressure to take environmental issues more seriously. Some are doing more than oth- ers, however.
The European-based super-majors, for example, have been more prominent in invest- ing directly in renewable development, while their US counterparts have tended to take other approaches. Indeed, Chevron sold off its renew- able energy subsidiary in 2014 and has opted to pursue its environmental goals through other means, for example by setting new greenhouse gas (GHG) emission intensity reduction goals, as it did last month.
ExxonMobil – which is currently involved in a high-profile court case centring on climate change – extended a deal with FuelCell Energy this week that is aimed at enhancing carbon cap- ture fuel cell technology.
Whatever path operators are choosing to take in the longer run, in the short term, solar developers in Texas continue to benefit from the Permian boom. The operating environ- ment for solar companies may become more challenging from next year, but for now, it seems that in the Permian Basin, some have found a way of making oil and renewables complement each other.™
Additional power generation capacity – renewable or otherwise – will reduce the likelihood of price spikes in the Permian region.
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