French supermajor Total is expected to continue signing deals for renewable energy projects, analysts believe, as it moves to meet its low-carbon aspirations by 2025.
Total this week signed a deal to take a majority stake in Scotland’s biggest offshore wind project from utility developer SSE.
The Paris-based giant acquired a 51% interest in the 1.1GW Seagreen 1 development, and the new partners announced a final investment decision as a result of the deal, which includes an option to extend the North Sea wind project by up to 360MW.
The company did not disclose the contract value publicly, but did classify it as “major”, noting that it defines a major contract as being worth over $750m.
“With the acquisition of a 51% stake in the Seagreen 1 offshore wind project, Total is well on track to meet its near-term renewables targets... but further acquisitions are still required to meet the 2025 target, ” analysts at consultancy Redburn said in a note.
Low carbon growth plans
Total is targeting investments of between $1.5-2bn per annum in low-carbon electricity in the short term, rising to 20% of total capital expenditure by 2030 or sooner.
“Following a string of acquisitions [including half of India's Adani Green Energy and Spanish solar developers Powertis and Solarbay] we believe annual investment is already on course to reach $2bn this year, around 15% of revised group capex guidance of around $14bn,” Redburn said.
Total is targeting 25GW of gross renewables capacity by 2025. Based on the current portfolio, Redburn forecast gross capacity will reach 10GW by 2025, with a further 5 GW coming from combined assets.
The further moves into the renewables segment come as Total is aiming to reach net-zero emissions, including those from its products, in Europe by 2030 or sooner and to reduce the global net carbon intensity of products sold by 60% by 2050.
“These targets are long dated, but will require a step up in investment in carbon sinks, such as nature-based solutions and carbon capture, utilisation and storage,” the analysts noted.
Redburn said that it predicts that Seagreen 1 will bring a return on investment of 6%, rising to 11% "on an equity basis post third party financing".
“However, the earnings profile is undoubtedly lower risk than in commodity markets and we see compelling valuation upside at Total even ascribing zero value to its nascent renewables business,” it added.
In May, Total chief executive Patrick Pouyanné said the company faces a revenue shortfall of at least $12bn due to the recent crash in oil prices.
Pouyanné told shareholders last month that the company will, however, continue to expand in the low-carbon energy sector.
According to analysts at consultancy Rystad Energy, oil majors are expected to invest $17.5bn in wind and solar projects over the next five years.
The Norwegian consultancy, however, said that almost all of this investment will come from just ten oil majors, who are collectively forecast to spend $166bn on greenfield oil and gas projects during the same period.