The global energy giant ExxonMobil recently dropped a tantalizing hint that it is gearing up for a significant investment in renewable energy, but don't get too excited. The company's interest is apparently limited to deploying low cost renewables to help run -- and potentially grow -- its massive oil and gas operations in Texas.
That's not quite the same thing as diversifying its energy production portfolio to pump more wind or solar power into the national grid. Still, if ExxonMobil follows through on the new venture, it's yet another indicator that the U.S. coal industry has passed the point of no return.
More renewable energy for ExxonMobil, kind of
ExxonMobil has actually been dabbling in renewable energy for a number of years, with a particular emphasis on algae biofuel. That effort is apparently aimed at leveraging the company's considerable experience with liquid transportation fuels. Other than that, the company has not made any decisive move to diversify its portfolio.
ExxonMobil's stubbornness is a stark contrast to other legacy oil and gas companies that have invested significant dollars in wind farms and solar arrays in recent years. Statoil and Royal Dutch Shell are two good examples. BP is another one, with its recent acquisition of the solar company LightSource.
In that context, the news about ExxonMobil's foray into renewable energy looks relatively insignificant. Bloomberg reports:
The largest U.S. oil company sent out a request for proposals with a June 8 deadline, inviting solar or wind power suppliers to pitch contracts that would last 12, 15 or 20 years, according to a document obtained by Bloomberg and people with knowledge who asked not to be named discussing confidential matters. Exxon, based in Irving, Texas, is seeking at least 100 megawatts and would consider proposals for more than 250 megawatts.
As Bloomberg reporters Brian Eckhouse and Kevin Crowley describe it, ExxonMobil is seeking wind or solar power purchase agreements for its operations in Texas.
Power purchase agreements have become a familiar source of financing in the renewable energy field. They enable property owners to get wind turbines or solar panels built on their property, without having to pay up front for the installation. The property owners pay off the cost through their monthly electricity bills.
A similar arrangement can also cover the construction of wind farms or solar arrays that are not located on the end user's property. Either way, the motivating factor is the bottom line. Power purchase agreements are generally sought where the cost of renewable energy is less than the cost of conventional grid-supplied electricity, so it's a win-win for the renewable energy developer and the end user, too.
Eckhouse and Crowley suspect that's in play for ExxonMobil:
...as the price of renewable power declines, the company may see the value in consuming wind or solar, even if it eschews producing that kind of energy. Texas is the biggest wind-producing U.S. state, with power prices occasionally going negative on windy days, and solar power is cheaper than coal in many parts of the world.
Another important motivator could be reliability. Power purchase agreements can involve renewable energy facilities that provide electricity directly to the property on which they are located, or nearby. With an energy storage component, renewables can protect sensitive facilities from wider power outages.
These so-named distributed renewable energy resources have become an area of great interest to the U.S. Department of Defense and the Department of Energy as a matter of national security, and they are also emerging as an option for commercial facilities.
So, what's with the big interest in wind and solar?
ExxonMobil has been tight-lipped about where and how it plans to use renewable energy in the 100 to 250-megawatt range, but consider its recent moves in Texas and the picture comes into focus.
The company began ramping up its shale gas operations in Texas and the southwest during the Obama administration, when the market was relatively weak, and now it appears to be betting on petrochemicals to offset any decline in demand for transportation fuels.
Last year Triple Pundit noted that ExxonMobil was on track to build the world's largest ethane cracker as part of a new gas-to-plastics facility. That's in addition to other major petrochemical projects:
Several years ago the company also undertook a major expansion of its Baytown, Texas petrochemical facility, and last spring Platt’s listed several other new ExxonMobil projects aimed at leveraging access to cheap shale gas.
All of this activity is in anticipation of a global rebound in the plastics market through 2040, fueled in part by growing demand for convenience products in Asia, India and elsewhere.
All of this activity also indicates the potential for a sharp increase in electricity consumption across ExxonMobil's corporate profile. With wind and solar costs dropping, no wonder the company is looking to lock in lower electricity rates.
What it means for coal in Texas
Here's where things get interesting for coal stakeholders. Texas is known as one of the nation's historic hotspots for oil and gas production. Perhaps lesser known is the state's role in U.S. coal production -- and consumption, too. The U.S. Energy Information Agency runs the numbers (breaks added for readability):
Texas is the largest coal-consuming state, and its emissions of carbon dioxide and sulfur dioxide, mostly from electricity generation, are the highest in the nation.
On a tonnage basis, Texas lignite accounts for more than two-fifths of the state's coal consumption, with nearly all of the rest of the state's needs met by subbituminous coal brought from Wyoming by rail.
Coal recently accounted for a healthy 29% of electricity production in Texas, but EIA also notes that coal is losing its grip in that sector:
Competitively priced natural gas and accessible renewable generation are causing some coal-fired power plants and their associated coal mines in the state to close.
EIA may be referring to the company Vistra Energy. Last October its subsidiary Luminant announced plans to close three major coal power plants in Texas, and it followed through earlier this year.
Some energy observers anticipated that the closures could result in brownouts or blackouts this summer, as Texas braced for record-breaking heat. Nevertheless, the grid held steady.
The strength of the Texas grid, combined with the falling cost of wind and solar, certainly validate ExxonMobil's decision to pursue renewable energy for its operations in Texas. The company's newfound commitment could also help inspire other corporate citizens to demand more renewables from their grid operators.
Just don't expect expect ExxonMobil to close the door on its oil and gas operations any time soon.
Photo (screenshot): Upton County Solar 2 via Vistra.