Royal Dutch Shell Invests in Tennessee Solar

When President Trump formulated his "American Energy Dominance" message, he may not have had the power of global oil and gas producers in mind. Europe's Statoil is moving forward with its Empire offshore wind farm hard by the New York City shoreline, and now a unit of Royal Dutch Shell has acquired a major stake in the Tennessee-based solar developer Silicon Ranch.

As overseas global oil and gas companies plow more investment dollars into the U.S. renewable energy market, the Energy Dominance theme is getting muddied. The theme is generally understood to support U.S. fossil fuel development, but it's difficult to make the pitch for "America First" when domestic energy assets are owned or leased by companies headquartered elsewhere. To make matters worse for the Trump Administration, the rise of renewable energy is putting the squeeze on fossil fuel production here in the U.S.

Global companies eye U.S. renewable energy market

The news from Statoil and Shell is particularly interesting because both companies have jumped into two of the more challenging arenas in the U.S. renewable energy landscape.

The offshore wind industry has been slow to develop in the U.S., partly due to obstruction by Republican governors in control of Atlantic coast states. It's no accident that the nation's first commercial wind farm took shape off the coast of Rhode Island, where the political headwinds have been less challenging.

More recently, things have been looking up. Despite Trump's professions of love for coal miners and his distaste for wind turbines, his administration has moved forward with offshore wind leases, and other wind energy initiatives.

On the solar side, the news about Shell and Silicon Ranch came out on January 15th. That was barely a week before Trump announced his new tariff, creating an uproar among U.S. solar installers and other stakeholders.

The new tariff could throw a monkey wrench into Shell's plans -- or not. More likely, Shell was prepared for the tariff decision to go either way, and is prepared to absorb the fallout.

That seems all the more likely because of the solar industry's reliance on power purchase agreements for financing. Under PPA's, property owners pay no money up front for solar panels. They pay off the costs through their electricity bills, which are still expected to be reduced even if the price of solar panels rises.

In other words, PPA customers will not necessarily experience any hard impact from the new tariff, except that it may take slightly longer to pay down the cost of the installation.

A challenging solar arena -- or not

Even with the sharpest edges of the new tariff filed down, the Silicon Ranch acquisition still poses a challenge for Shell. Part of the company's operations are concentrated in southeastern states, where solar development has been slow to grow.

Apparently Shell foresees an opportunity there. Inside Climate News has a good take on the current state of affairs:

When Brandon Presley was elected to the Mississippi Public Service Commission in 2007, he said, he couldn't have found a solar farm "with a SWAT team and a search warrant."

A decade later, Mississippi is one of the fastest-growing solar markets in the United States, according to GTM Research. The state's public service commission approved several solar projects this summer, and the state is expected to gain more than 700 megawatts of solar capacity over the next five years.

So, there's that. The Tennessean has the rundown on the Silicon Ranch deal:

Shell, which generated more than $233 billion in revenue in 2016, will buy a nearly 44 percent interest in Silicon Ranch from Switzerland-based investment manager Partners Group. The purchase amount will be based on Silicon Ranch’s performance, and Shell has the ability to increase its position after 2021.

Marc van Gerven, Shell's vice president of solar, adds this observation:

We were impressed by Silicon Ranch’s proven management team, its market-led development strategy, and its long-term ownership model and commitment to the communities it serves...This joint venture partnership progresses our new energies strategy and provides our U.S. customers with additional solar renewable options.

Tariff or not, Solar Ranch expects to accelerate its operations following the Shell move. That's a win-win for both companies, as expressed by Solar Ranch in its press release:

The transaction will enable Silicon Ranch to accelerate its growth strategy by developing new projects, entering new markets, and expanding product offerings across its portfolio. The strategic partnership provides Shell a platform to establish a successful global solar business by aligning with a proven team in the second largest solar market in the world.

So, what about that new solar tariff?

The new solar tariff is all but certain to cause pain in the U.S. solar industry, though the size and nature of that pain is yet to be determined.

In the meantime, a consensus is starting to emerge that even if some elements of the industry -- and their workers, and their communities -- suffer as a consequence of the tariff, the overall impact will not be devastating.

A recent article in Forbes Magazine, for example, characterizes the new tariff as a "speed bump." That's partly because solar developers began stockpiling solar panels in advance of the tariff. Silicon Ranch was one of them:

“Uncertainty is not helpful in any industry, and now we at least know what the rules are and can plan accordingly,” David Vickerman, Silicon Ranch chief corporate development officer, said. Prior to its minority acquisition by Shell last week, Silicon Ranch had already procured panels for its development portfolio through 2019, Vickerman said, so any exposure to the tariff case should be minimal.

Vickerman also told Forbes that "he does not anticipate the company’s disciplined approach to acquisitions to change based on either the solar tariff or its ownership change."

Even with the new tariff, the company expects to expand, not shrink, the number of states in which it offers PPA financing for solar development.

American energy dominance: it's complicated

Circling back to the "Energy Dominance" theme, the big picture behind the Silicon Ranch deal is that it pits Shell in a mano-a-mano fight with ExxonMobil and other U.S. shale gas producers.

With ExxonMobil a a leading player, the U.S. shale gas industry has been the major force driving coal out of the power generation industry. Unfortunately for gas stakeholders, what goes around comes around. Wind and solar costs are continuing to drop, and they are beginning to gain a competitive edge over natural gas in some U.S. markets.

With Shell behind Silicon Ranch, solar could accelerate the trend, putting a crimp in the demand for natural gas power plants.

That doesn't necessarily translate into a reduction in the pace of shale gas development. The export market is still a possibility, and ExxonMobil is depending on US shale gas to ramp up its U.S. plastics and petrochemical business.

Nevertheless, with overseas oil and gas companies like Shell, Statoil and BP making big moves on the U.S. renewable energy landscape and elsewhere, ExxonMobil's position on natural gas is becoming increasingly isolated.

In any case, "American Plastic Dominance" just doesn't have that same ring to it.

Photo: Social Circle solar farm in Georgia via Silicon Ranch.