Total will on Wednesday unveil what is being billed as its most significant strategy update for years, amid claims rival supermajor BP has “stolen the limelight” over renewables and climate.

Total is due to use the 30 September update to put more flesh on the bones of its target for 25GW of renewables by 2025 – at one stage the most ambitious of any fossil group – and its wider 2050 net-zero goals that were first revealed in May.

The French group whetted the appetites of energy transition-watchers last week with another blockbuster deal in solar (see panel) which it said will enable it to fully cover with green electricity the consumption of its entire European operations.

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Analysts for HSBC said intense scrutiny on the decarbonisation plans of the world’s oil giants, combined with a “torrid macro and sector backdrop”, make the strategy update the most crucial for some years, adding that recent renewable and climate announcements by fellow supermajor BP – which include a 50GW target for 2030 – have “stolen the limelight” from its peers.

“BP’s unexpected climate presentation at 2Q results in August threw a curveball at Total. With its well-received strategy update, BP re-captured the lead among oil majors on the energy transition,” the bank said in a note to investors.

While stressing that it doesn't have to replicate BP's every move — and stating that Total “deserves credit” for its progress to date — HSBC urged the French player to use the update to demonstrate the “internal consistency” of its climate strategy, issuing a “shopping list” of areas where it hopes to see more clarity from the supermajor in relation to its 25GW renewables target, up from about 5GW now.

On that list are visibility over net rather than gross capacity ambitions, reflecting the oil group’s equity in renewable assets rather than the total developed.

The HSBC team said its estimate of 50-60% working interest in its renewables operations would leave Total’s target of a 2025 renewables base at more like 13-15GW net — behind the 20GW interim goal set by BP, which is setting targets on a net rather than gross basis.

Total could also go beyond 2025 in setting capacity ambitions, joining fossil peers that have set goals for 2030, 2035 and even in the case of Italian oil group Eni as distant as 2050, HSBC reckons. A longer timeframe and more details could also help give visibility to Total's low-carbon investment plans, currently set at 20% of total Capex by 2030 or sooner, up from about 15% now.

Spotlight on returns

Another area where HSBC would like more light to be shed is project returns – cited by its analysts as “one of the key uncertainties relating to the energy transition”.

Like every other oil and gas group, Total has faced questions over returns on investment from large-scale renewable power projects that are often cited as lagging at least five percentage points behind their best-performing upstream fossil assets.

Total CEO Patrick Patrick Pouyanne gave some insight into Total’s thinking over returns from renewables projects during its last quarterly results presentation in July, specifically when questioned on the IRR on offer from its entry as majority owner in the Seagreen offshore wind development off Scotland.

Pouyanne said Total was looking at sanctioning renewables investments that could achieve an IRR above 10% on an equity basis, but also highlighted Seagreen’s rock-solid contract-for-difference power deal with the UK government and the stability that brings in terms of revenue in contrast to more volatile fossil markets.

“So compared to the oil price, yes, I don’t go to the high 15 or 20s. I don’t have the upside, but I don’t have the downside as well,” Pouyanne said.

David Doherty, an analyst following the energy transition strategies of oil and gas groups for Bloomberg NEF, said that in any case the current state of the oil & gas sector means that the days of the level of returns alluded to by Pouyanne are “pretty much done”.

“They’re not buying [projects] with the returns in mind now, it’s to reduce barriers to entry for the future,” Doherty told Recharge, predicting that Total would continue with its “bit of everything” strategy that has seen the supermajor over the last few years take positions in onshore and offshore wind, energy storage (it bought French battery group Saft in 2016), EV charging via a new link-up with PSA, and solar development, adding to its long-standing stake in PV with US group SunPower.

Like Shell, according to Doherty, Total is quietly creating a “cohesive business” in the power sector spanning large-scale generation right down to individual relationships with consumers via vehicle batteries or home storage — something that looks very much like an electric utility.

While Total hasn’t been as explicit as Shell in its power sector ambitions — the latter said it wants to be the biggest electricity company in the world — Doherty said the French oil group could be a candidate to make acquisitions in the utility space, pointing to its 2018 deal for Direct Energie as a potential early marker.

Total has already set a blistering pace with deals in both wind and solar (see panel) this year.

In wind, the French group made dramatic entries to the offshore sector, buying a majority stake in the 1.1GW Seagreen 1 from utility SSE and ensuring a fast-track route into fixed-foundation development.

It also staked a claim in the emerging floating wind industry, with stakes in a UK project and most notably a link-up with Macquarie for a planned 2GW of development off South Korea.

Analysts say the market should brace itself for more Total deals as it pursues its goals.

Big oil’s solar pacesetter

Total last week reinforced its position as the fossil industry's biggest backer of solar with a deal to co-develop another 3.3GW in Spain, meaning it has now taken positions in 8GW of potential future PV capacity this year alone, writes Upstream's Anamaria Deduleasa.

The latest deal with local player Ignis followed its entry to Spain, Europe's largest solar market, in a February co-development pact with two other Spanish groups for up to 2GW.

The first Spanish deal was part of an early-2020 burst of activity that made Total among the most active players in solar M&A in the first half of the year.

In India, Total inked a $500m deal with Adani Group to acquire a 50% stake in its 2GW solar portfolio, while in Qatar it signed agreements for the development of the 800MW Al Kharsaah PV project alongside Marubeni.

The French group’s Indian foray could show the way for other oil groups to quickly add renewable capacity in a market that’s aiming to bring huge amounts of new solar plant online to meet stretching 2022 renewable energy goals, said one analyst.

“Entering the Indian solar sector could be the supermajors’ best bet to achieve their renewables targets,” according to Rystad Energy.

“Taking the Total route and entering a joint venture with one of India’s larger renewable energy developers would expand their portfolios of renewable energy projects substantially as well as provide them with a ground team with years of experience in the Indian solar sector.

Total was a mover in solar as early as 2011 when it acquired a majority interest in US PV group SunPower, a deal valued at the time at close to $1.4bn that now looks prescient, according to Tom Heggarty, principal analyst for solar at consultancy Wood Mackenzie.

“If you want to move very quickly and grow a business in renewable power, solar is the easiest way to do it as you can develop projects quickly and the technology is applicable in far more geographical locations than wind," Heggarty said.

Earlier in 2020 Total completed a move to spilt SunPower into a US-focused business of residential and commercial solar and storage sales under its existing name, and Singapore-based Maxeon, which took ownership of module manufacturing plants in Malaysia, France, the Philippines and Mexico.