Norway's economy and wealth is built on the oil and gas sector, making it vulnerable to falling oil prices and a global shift from fossil fuels to renewable energies. Windpower Monthly looks at how state-owned Equinor and Statkraft are responding -- are they truly diversifying or just paying lip service?
The move away from fossil fuels gained an unlikely supporter when the Norwegian government announced in March that it would drop oil and gas exploration firms from its Government Pension Fund Global (GPFG). Created to invest the surplus revenues of the country’s oil sector, it has grown to become the world’s largest sovereign wealth fund, with more than $1 trillion in assets.
Even if the decision to divest these shares was based on a desire to protect the Norwegian economy against falling oil prices rather than concern about climate change, finance minister Siv Jensen’s statement that it would be better to invest in companies selling a broadly diversified energy sector speaks volumes.
While Norway‘s own electricity sector has long been close to 100% renewables thanks to large hydropower resources, the country is heavily dependent on oil and gas exports from its North Sea production, which are subject to price fluctuations and could see demand falling as countries turn to ever more renewables energies.
Crucially, the GPFG is only ditching stakes in pure oil and gas players, not in fossil-fuel companies that have some renewable-energy interests. Apart from global players such as BP and Shell, the latter group includes Norway-state-owned utilities Equinor and Statkraft.
Equinor, Norway‘s flagship oil and gas company, has been extending feelers into offshore wind, seeing interesting opportunities to apply spin-offs from its core business. The company has been a vocal supporter of floating offshore-wind technology at industry events. But whether offshore wind will move beyond being a marginal add-on is not clear — the group could exit the scene at any time.
Statkraft, a 100% state-owned energy company with its roots in hydropower, is making a name for itself in onshore wind. Although the smaller of the two, Statkraft’s commitment to the transition to renewable energy looks considerably stronger as it shuns new fossil-fuel investments.
Oil and gas is expected to remain a major part of Norway’s identity for a long time to come. "We are a significant oil and gas producer. And of course, the burning of fossil fuels is one of the main causes of climate change. But shutting down our production is not a viable option, given the economic and climate-related challenges facing the world today," said Norway’s prime minister, Erna Solberg, at the Equinor autumn conference in Oslo in November 2018.
"Around one third of Norway‘s estimated gas resources have been produced. This means that we have a lot of gas left to produce. We expect a high and stable level of gas exports to the EU in the years to come," noted Kjell-Børge Freiberg, minister of petroleum and energy, in his speech opening an EU-Norway energy conference in Brussels on 5 February.
Equinor is 67% state owned, with another 3% held by Folketrygdfondet, the professional investment entity that manages the GPFG for the finance ministry. It is the largest natural gas producer on the Norwegian continental shelf and the second-biggest gas supplier to Europe. The firm’s natural gas sales totalled $26 billion (€23 billion) in 2018, up 29% on 2017. As more countries prepare for the energy transition, Equinor "sees strong market opportunities for gas and expects global demand to grow by around 10% towards 2030".
Pulling the plug on oil
But there is a niggling risk that gas might not expand with the hoped-for volumes as coal and lignite are gradually ousted from energy supplies. In the beginnings of a global pushback, albeit symbolic at present, two countries have set about ending oil and gas exploration and production in their offshore territories.
New Zealand amended its Crown Minerals Act 1991 in December 2018 to stop any new petroleum-prospecting, exploration or mining permits being granted for climate change reasons. France passed a similar law in late 2017 to ban any new oil-exploration licences with immediate effect and all oil extraction by 2040.
Neither country is a significant oil producer, and the writing on the wall is still faint. But the message got stronger with the European Commission’s call in November 2018 for a climate-neutral Europe by 2050. While carbon-neutral holds open the option of gas and oil use combined with carbon capture and storage, a technology Equinor continues to explore, several member states responded with demands for a 100% renewable-energy scenario.
Recent studies show 100% renewables is doable without huge costs. A study by Finland‘s Lappeenranta University of Technology and the Climate Watch Group, released in December 2018, concluded an energy system based on 100% renewable energy is possible — and would be cost effective — before 2050. The report suggests getting there is not a question of technical feasibility or economic viability, but one of political will. Inevitably, gas and oil would be affected.
A study by German think-tank Agora Energiewende, titled Ushering in the European energy transition 2030, points out that to achieve current climate targets, not only would coal consumption have to be halved by 2030, but vehicle fuels, natural gas and heating oil consumption would also have to be reduced by a quarter.
In parallel, new scientific knowledge shows a bigger than expected carbon footprint for natural gas from extraction to final use, tarnishing its image as a bridging energy on the road to 100% renewables.
Norway’s interest in steady, long-term oil and gas revenues seems, therefore, at odds with any ambition for a complete switch to renewable energy. Accelerating renewables expansion to 100% of energy supply would eliminate the need for natural gas and oil, a counterproductive scenario for the country and Equinor.
Equinor new energy solutions
Hedging its bets, or hoping to gain leverage in steering the rate of renewables expansion, Equinor began in 2015 — still named Statoil at the time — to gradually complement its oil and gas portfolio with renewable energy and other low-carbon energy solutions, such as carbon capture and storage. The company used its existing small offshore-wind portfolio as the starting point for a new division named new energy solutions.
In the same year, possibly to ensure the state-dominated companies did not unnecessarily compete with each other, Statkraft announced it would divest its offshore-wind activities and focus on onshore wind, solar, gas-power station operation, renewables-electricity trading and power purchase agreements (PPAs).
In May 2018, Statoil changed its name to Equinor to reflect its aim of becoming "a broad energy company". But several pointers indicate that with respect to renewables, it is merely creating optionality.
First, a shareholder proposal at the May 2018 annual general meeting asking the company board "to present a strategy for business transformation from producing energy from fossil sources to renewable energy to ensure the company’s long-term sustainability and shareholder value" was not adopted. Second, heading for completion of its fourth year of business, Equinor’s new energy solutions division, including offshore wind, is still not material enough to be reported separately, forming part of the lossmaking "other" division.
Third, by 2030, 80-85% of Equinor’s investments will still be in oil and gas. How the remaining 15-20% of investments — up to $1 billion a year — earmarked for new energy solutions for 2030, compared with 5% at present, will be distributed between offshore wind, carbon capture and storage or other low-carbon alternatives is not clear.
So far, Equinor’s offshore wind activities are either shared with other big players or are early-stage projects, and, while they have big potential, they could be dropped if they fail to meet the company‘s profitability requirements. The firm’s Hywind floating foundation technology has not yet been ramped up for broad commercial application.
In the UK, Equinor operates and own stakes in two fixed-foundation projects: the 316MW Sheringham Shoal site, running since 2011, and the 402MW Dudgeon offshore wind farm, completed in 2017. The company has partnered with E.on for the 385MW Arkona offshore wind farm in the German Baltic Sea (right), due to come fully online this year.
Although much smaller in scale, Equinor is better known for its involvement in floating offshore wind technology. Its 2.3MW Hywind Demo project in Norway, running since 2009, was sold to Unitech Offshore in February 2019. The 30MW Hywind Scotland project has been producing power since 2017 and is still the only commercial-scale floating wind site, illustrating the advantage of having an oil major’s deep pockets behind it. Early results have been promising, and Equinor plans to power its platforms at its Snorre and Gullfaks oil and gas fields in the Norwegian North Sea with the planned 88MW Hywind Tampen project.
By December 2018 it had acquired stakes in three Polish early-stage offshore projects, Baltyk Srodkowy I, II and III in the Baltic Sea being developed by Polenergia. The company is also looking beyond Europe, estimating first power in 2025 from the Empire Wind project planned off Long Island New York.
Widening its scope
Equinor signed a three-year memorandum of understanding (MoU) with Brazilian oil major Petrobas in September 2018 to develop the country’s offshore wind sector, followed in February by an MoU with the Korea National Oil Corporation to investigate the potential for floating offshore-wind development in South Korea. It also has the 162MW Apodi solar project in Brazil, and the 117MW Guanizul PV project in Argentina, as well as a 10% stake in Norway-based Scatec Solar.
The acquisition of Danish energy trading firm Danske Commodities — one of Europe’s largest short-term electricity traders, which is also active in short-term gas trading and provides energy market services —announced in July 2018, gives Equinor the expertise to market electricity from offshore wind farms and "supports Equinor’s development towards becoming a broad energy company", according to the firm.
Statkraft pledges $1 billion a year
The much smaller Statkraft completed the divestment of its offshore-wind assets in 2018, bagging it $1.2 billion. Already claiming to be Europe’s largest producer of renewable energy, mainly due to its hydro assets, the firm now plans annual investments of around $1 billion in renewable energy in 2019-2025. Around 70% of the investments are planned for Europe, with more than a third of those expected in Norway.
Although the company’s roots were in Norwegian hydropower, Statkraft concedes that very few new hydro projects will be profitable as prices for solar, wind and batteries keep falling. In Europe, the utility sees gas power as key to flexibility in a renewables-dominated electricity market and will therefore continue to own and operate its existing gas-power stations. But it insists that "all further growth will be in renewable energy".
By 2025, Statkraft is aiming for 6GW of installed onshore-wind capacity, compared with 1.2GW at the end of 2018, and 2GW of solar power, to be grown from the solitary small project in India it has at present. The company will mainly act as a developer, selling shares in the new assets to financial investors, primarily after completion. Reflecting the new strategy, Statkraft’s wind-power division, which moved into the black in 2018, changed its name to European wind and solar on 1 January 2019.
Recent moves towards the 2025 goal include acquiring Element Power’s UK and Irish onshore-wind-development business, with a 1.55GW portfolio, and work continues towards completing the remaining five out of six wind farms in the 1,057MW Fosen cluster, under construction in Norway, in partnership with TrønderEnergi and European investor consortium Nordic Wind Power.
Although its own wind and solar assets are still small, Statkraft is a big player in providing access to the wholesale markets for third parties. In Germany, the company interconnects more than 1,400 wind and solar installations in what it describes as Europe’s largest virtual power plant with, in all, 12GW. It provides market access for another 6.2GW elsewhere in Europe.
The firm’s recent deals include three PPAs and power supply agreements with four Spanish industrial customers for renewables electricity, and entry to the Irish market with a PPA for electricity from the 41.4MW Castledockrell wind farm. In France, it has a PPA with Eurowatt for electricity from three wind farms totalling 30.5MW. Statkraft has also made its first foray into corporate deals with a four-year supply contract with carmaker Mercedes-Benz to provide green electricity supplied by German wind farms when they have moved out of the renewables support mechanism.
Compared with Equinor’s more voluminous but ambivalent investment ambitions, Statkraft is a small player. But in showing conviction by turning its back on new fossil-fuel investment and engaging heavily in the electricity markets for power from renewable sources, it can punch above its weight in driving forward the transition away from fossil fuels.
Renewable energy industry celebrates The Scottish Green Energy Awards
New programme examines pathways for integrated floating offshore wind technology
Google and Microsoft add more renewable energy for datacenters
A new strategy for the Celtic Sea region to tap into offshore wind potential