By Travis Hoium | More Articles
January 17, 2015 | Comments (0)
For decades, Big Oil companies have dominated energy with oil and natural gas. Competing energy sources like nuclear, biofuels, wind, and solar have popped up from time to time but long-term proved too expensive to compete with traditional energy, at least until recently.
As 2015 begins, though, the energy industry is seeing a long-term threat from the abundant energy of the sun. Solar energy is now cheaper than grid prices and most competing technologies on a utility scale. Electric vehicles pose a real threat to gasoline consumption. And energy companies are taking notice of the threats they face in the market. But only one big oil company, Total (NYSE: TOT ) , has committed to the future of solar energy and other nascent industries that could interrupt the energy industry’s status quo.
Small solar installations like this one have become a big threat to the entrenched energy industry. Image source: SunPower.
Big Oil realizes the threat from solar energy
The American Petroleum Institute just released its State of American Energy, and for the first time it highlighted solar energy as a viable option for the energy industry. In a section titled “Solar Energy in America Shines Bright,” the report acknowledges the threat of climate change, and touts the solar industry’s 42% growth last year, as well as the over 50% system cost reduction in the last five years. Maybe the most telling statement is this: “Simply put, when looking at America’s energy future, solar can be a real game changer… providing clean, reliable and affordable electricity.”
This industry assertion comes even as Big Oil companies have jettisoned renewable energy businesses in recent years, particularly solar. BP shut down its solar business in 2011, Chevron closed its profit-making renewable energy business last year, and ExxonMobil has expressed zero interest in renewable energy.
In 2011, Total bet on the future of solar by buying 60% of SunPower. Image source: SunPower.
Despite the industry’s admission that renewable energy is a viable long-term threat, few Big Oil companies seem to be making significant bets on these new technologies.
French oil giant takes a long-term view
French oil giant Total has taken the opposite approach than competitors to both the solar industry and new fuel technology. Instead of building a business itself, it has acquired major stakes in industry leaders.
Total holds two-thirds of solar industry leader SunPower (NASDAQ: SPWR ) , which makes the world’s most efficient solar panels. This not only gives Total an equity position in a solar company, but it is buying stakes in the solar power plants SunPower builds — notably Chile’s largest merchant solar power plant, which is selling electricity to the grid at market prices.
As an energy giant, Total can also help SunPower grow, so it’s a mutually beneficial relationship. Total’s reach into the Middle East opens up sales channels for SunPower and again gives the oil giant an option to buy solar projects that SunPower builds. Slowly but surely, both SunPower’s equity and acquired solar generating assets are becoming a big part of Total’s business.
Amyris is Total’s synthetic biology play. Image source: Amyris.
Total has also invested in Amyris (NASDAQ: AMRS ) , owning a 17.9% stake at the end of 2013. The company is a leader in synthetic biology that, as fellow Fool Maxx Chatsko pointed out recently, has the potential to produce $1 billion in sales by the end of the decade. In addition, Total created a 50/50 joint venture with Amyris called Total Amyris Biosolutions that holds all of the intellectual property related to Amyris’ main product, farnesene, which can be used to make jet fuels, cosmetics, and solvents.
In addition, Total has made small investments in wind farms and tidal energy, although they aren’t part of the company’s main new energy development.
A backdoor play for new energy technologies
Most Big Oil companies have stuck to their bread-and-butter product instead of investing in new energy technologies, but Total has taken a different approach. In the process, it has built large positions in two companies that could eventually transform the company.
This should comfort Total shareholders, given that oil is trading below $50 per barrel and profits will likely be squeezed in 2015 and beyond unless prices recover. Both SunPower and Amyris appear poised for major growth in years ahead, just as oil and gas profits wane. That could make Total a great long-term investment, even if you aren’t bullish on the future of oil and gas.
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Travis Hoium owns shares of AMYRIS INC COM, SunPower, and Total (ADR). Travis Hoium has the following options: long January 2015 $5 calls on SunPower, long January 2015 $7 calls on SunPower, and long January 2015 $40 calls on SunPower. The Motley Fool recommends Chevron and Total (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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