IE 11 is not supported. For an optimal experience visit our site on another browser.

As Wall Street dollars flow into green energy, what's next for the oil industry?

Over the last four years, the price of renewable energy has dropped dramatically, making it cheaper than coal or gas.
Traders work in a booth on the trading floor of the New York Stock Exchange on Jan. 20, 2021.Colin Ziemer / New York Stock Exchange via AP

One of Joe Biden's first acts as president was to sign a wave of executive orders on Inauguration Day to undo former President Donald Trump’s legacy ignoring climate change — a move that ushers in a new era for the booming renewable energy industry.

President Biden moved last week to rejoin the landmark Paris climate agreement, aimed at reducing the world’s carbon footprint over the next few decades, and revoked the permit to construct the controversial Keystone XL oil pipeline. He also signed an order that overturned rollbacks on vehicle emissions standards and reestablished a working group on the social costs of greenhouse gasses. Previously, he’s laid out a $2 trillion plan to put the country on "an irreversible path" to net-zero carbon emissions by 2050.

“A cry for survival comes from the planet itself,” Biden said in his inauguration address last week. “A cry that can’t be any more desperate or any more clear.”

Biden's swift action on climate change ricocheted through the oil industry. The American Petroleum Institute, an industry lobby group, said it supports rejoining the Paris accord, but called Biden's order to revoke the Keystone pipeline "a slap in the face to the thousands of union workers."

"Revoking the Keystone XL pipeline is a significant step backwards both for environmental progress and our economic recovery," the group said in a press release. "This misguided move will hamper America’s economic recovery, undermine North American energy security and strain relations with one of America’s greatest allies."

Some European oil companies have already begun the shift to renewable energy. Royal Dutch Shell told investors in April that by 2050 it aims to achieve net-zero emissions across its operations and invest in hydrogen fuel, a zero carbon fuel burned with oxygen that can power planes and cars. Over the last year, BP has begun to pivot from oil to renewable energy under the leadership of its new CEO Bernard Looney. In September, the company laid out an initiative that will reduce oil exploration and increase its renewable generating capacity twentyfold.

"Our new strategy is going to transform BP into a very different company, not overnight, given our size and scale, but fast because the world needs change," Looney told investors. "And importantly, we want to be part of that change."

While some laggards in the U.S. oil industry risk losing ground in this new era, there is a whole new slate of winners. Wall Street dollars have flowed into green energy stocks ever since Biden showed promise of winning the White House, according to Steve Fleishman, a senior analyst with Wolfe Research. Since the summer, an index of solar energy stocks called the Invesco Solar ETF has seen its price soar by roughly 150 percent, compared to around just 18 percent for the S&P 500.

“Clean energy stocks had already been outperforming for a long time, but it just hit a whole new level,” Fleishman said. “It’s just crescendoed after the Democrats won the Senate.”

Investors are betting the Biden administration will accelerate the renewable energy industry, from green power to electric vehicles to battery-powered wind farms to zero-emission commercial buildings. Already, the industry had been growing in part due to a number of state and local tax credits that encourage investment in green energy. Those credits paid off: Over the last four years, the price of renewable energy dropped dramatically, making it cheaper than coal or gas for consumers, according to Michael Weinstein, research analyst at Credit Suisse Securities.

Under Biden’s climate policies, demand for clean energy could potentially double in the next 15 years, Weinstein told investors last week. Already, the clean energy industry is on track to see 5 to 10 percent annual earnings growth over the next two decades that will require an investment of $58 trillion by 2040, according to Mark Haefele, an analyst with UBS.

“With governments and businesses placing an increased emphasis on climate issues, we think sustainable strategies will benefit in a post-pandemic world,” Haefele told investors on Thursday.

Some of the country’s biggest clean energy companies already had a growing presence in Washington, D.C., through organizations such as Renewable Energy Buyers Alliance, which represents Amazon, Google, Facebook, General Motors and 300 other companies.

“Our policy priorities are focused on the demand side in order to unlock the market,” said Miranda Ballentine, CEO of Renewable Energy Buyers Alliance and former director of sustainability for global renewable energy at Walmart. “These are iconic American brands putting their name on policy priorities, which is pretty unusual because these are not energy companies.”

But new lobby groups have sprung up around the Capitol. Zero Emission Transportation Association, launched in November, plans to lobby Congress to help fund the construction of new electric car-charging stations and provide tax credits for consumers and companies to buy zero-emissions vehicles. In September, the American Clean Power Association launched under Heather Zichal, a former climate adviser to the Obama administration, to advocate for solar and wind companies.

Among the group’s members are Google, which operates two wind farms in North Dakota; and NextEra, a lesser-known renewable power company whose market valuation is approaching that of oil giant ExxonMobil. Separate from the lobby group, Florida-based NextEra has spent billions of dollars slowly building its empire in the renewable energy industry across the country. The company has sued state utilities commissions over laws that encourage providers to use local electricity companies in Texas and the loss of a utility contract to a competitor in Massachusetts.

The company declined to comment on the lawsuits as a matter of policy, according to David Reuter, a spokesperson for NextEra.

Similar to other sectors, small businesses in the renewable energy industry have been hammered by the coronavirus, leaving larger companies in a better position to gain from future federal tax credits that might come with the new administration.

“These deals are not cake walks to negotiate, and typically come with a lot of upfront legal costs that smaller developers and investors might have more trouble digesting to make the deal worthwhile,” said Adam Wilson, an analyst with S&P Global Market Intelligence.

“I don’t want to make it sound like smaller players can’t take advantage of these deals at all — that’s certainly not true. But the setup, as it is, does favor larger players,” Wilson said.

Biden has not yet specified how his administration will structure the tax credits to spur the burgeoning market for utility-scale wind and solar projects.