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Transformation in the energy business.

I wish I knew more about the full story behind Shell’s decision to pull out of investing in solar and wind energy in favour of biofuels. The immediate response is to chalk it up to corporate greed and shortsightedness. Indeed a Shell spokeswoman is quoted as saying:

“If there aren’t investment opportunities which compete with other projects we won’t put money into it. We are businessmen and women. If there were renewables [which made money] we would put money into it.”

However, it can’t be shortsightedness. Shell, like all of the major energy companies is forced to take extremely long timeframes in thinking about their business and they’ve set up futures departments within their companies to scenario plan up to 50 years into the future.

picture 1 Transformation in the energy business.

So on face value the answer is purely economic. As they say, the numbers just don’t add up.

But that runs counter to a lot of other information including published government reports like this one (pdf link) which show solar electricity prices falling below conventional electricity prices by 2015. This leads me to wonder if it’s Shell’s interpretation of the future that’s leading them down this path. Or in other words, if it’s their framework for thinking that’s behind this.

It’s pretty clear there’s a massive transformation taking place within the energy industry as they are forced to shift from fossil fuels towards renewables. But perhaps the bigger shifts taking place are more subtle and more difficult to handle. It seems to me that there’s also a shift

From: a business based upon hoarding and controlling a valuable and scarce resource.

To: a business based upon being better at creating value from something that’s abundant and free.

This is a cultural and structural shift from controlling to enabling; from protecting to creating; from being materials focused to being customer-focused. The winners in solar and wind won’t be the ones who control the source, they’ll be the ones who create the most value for their customers. I’d think this would be a pretty terrifying prospect for many companies.

So I wonder if, rather than actually face up to the magnitude of this shift they’ve approached renewable energy from the same lens that they approach fossil fuels? If you were looking for a renewable resource that could still be limited, biofuels would definitely fit the bill. I don’t know if this is the reason for their decision but it’s the only one I can come up with that makes any sense whatsoever.

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This entry was posted on Wednesday, March 18th, 2009 at 11:50 am and is filed under business, models, transformation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

  • aha, thank you Adrian. so it indeed may be inherent to solar and wind technologies to favor companies that create the most value for their customers. which presumably bodes well for those of us in the business of helping companies create value...... ;)
  • Hi Stephanie, my logic is much simpler:

    Unlike fossil fuels, wind and solar are available to anyone. As an individual, I can set up my own system to extract energy from them. So any company that wants my business is going to have to provide better value and service than I can get by myself. Equally there's nothing (other than money) stopping a hundred or a thousand different companies from going into the wind and solar business. It's difficult to control access to the sun and the wind. Sure some places have more of some or the other but in general these are things I can't simply build a business around owning.

    I think that has to force a different business strategy and I think the ones who'll win will be the ones who deliver more. Starry eyed perhaps but much more likely to happen with wind and solar than with fossil or biofuels. Shell already owns the vast majority of biofuel production. Good thread on slahdot here: http://news.slashdot.org/article.pl?sid=09/03/1...
  • "The winners in solar and wind won’t be the ones who control the source, they’ll be the ones who create the most value for their customers."

    this is a fascinating proposal, though one I'm not convinced of.

    is there something inherent to solar and wind, as opposed to fossil fuels, that makes this the case? or is it just that fossil fuels are the status quo, and any emerging competitor to the status quo would (at least initially) fare better not by controlling the source, but by creating the most value for customers?

    it is clear that we will use a diversity of energy sources to satisfy our needs. but the question of how to organize our energy portfolio, so to speak, depends on the ability to characterize and therefore compare different energy sources according to well-defined criteria - not only carbon dioxide emissions, but socio-economic and political criteria as well. if it could be plausibly argued that solar and wind inherently reward companies that create the most value for their customers (as opposed to fossil fuels, which reward companies that control the source), it would make a strong case.

    it would be, well, WOW.

    [note: I actually wrote a way-too-long comment responding to my own question but then decided not to post it. that said, I highly recommend Langdon Winner's article, "Do Artifacts have Politics?"]
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