It is no secret that the Labour government wishes to make the UK a clean energy superpower, delivering renewable green technology through the use of wind, solar, and hydrogen power. It will also create Great British Energy, with what appears to be an aim to co-invest in new technologies, although a lot of the detail is still to come.
What I find interesting therefore is that BP and Shell, the two largest UK-listed oil and gas companies, have been observed shifting away from their investments in renewable energy projects, moving the focus back towards their higher-margin fossil fuel operations. On the face of it the reasons behind this look straightforward as big budget, low-carbon projects, tend to operate at much lower margins and increasingly act as a drag on shareholder returns, particularly after Russia’s invasion of Ukraine drove oil and gas prices higher.
The global energy landscape can be volatile, with fluctuating prices and changing geopolitical dynamics. These factors create an environment where a focus on traditional energy sources provide a more predictable and immediate return on investment rather than the renewable energy projects which are often subject to regulatory uncertainties, technological challenges, and varying levels of government support which can make them a riskier proposition in the short term.
This strategic realignment does not imply a complete abandonment of renewables of course, but rather a more balanced approach. Both companies are likely to continue investing in renewable energy, albeit at a moderated pace, focusing on projects that promise higher returns and integrating them more cautiously into their overall business strategy. The effect that this has on share prices will be interesting to watch over the next few years, as will any reaction from environmental groups.
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