In a new study, Energy Goes Green, released by BDO, energy sector CFOs reported that solar power will be the most dominant form of alternative energy in the United States by 2023.
The study details forces driving the transition towards alternative energy sources. The survey features the thoughts of 100 CFOs at oil and gas and power generation companies, revealing that energy executives are focused on striking a balance between navigating short-term uncertainty and volatile markets, but also planning for a green future.
Why solar?
A survey recently taken found that 38 percent of both oil and gas and power generation CFOs say solar power will be the most dominant form of alternative energy in the U.S. by 2023.
The oil and gas industry are seeing the double green benefit of solar because of its renewable nature and the price of solar going down tremendously .
While switching to solar may seem outside of the range of oil and gas companies, solar is also much easier to come across. It is known that oils were never easy to get to, so to have a renewable source that’s readily available without needing to run new lines is extremely valuable.
Renewables used to be too expensive to make good business sense, but now—driven by consumer and investor demand along with lower production costs—there is more opportunity in the renewables space than ever before.
—Ed Hirs, BDO Energy Fellow
CFOs’ biggest fears
Energy CFOs are worried about the market because of pending tariffs that threaten to endanger the industry. In fact, 21 percent cited they are most concerned about regulatory uncertainty.
Over the last few years, the trade policies that have been applied, not applied, and applied again, have driven a lack of certainty in the energy industry. Particularly in solar, most panels are made in China. With trade negotiations and tariffs applied there, costs will go up when at a time its critical costs are low to compete.
The real problem for companies is if they can keep ahead of the changes by maintaining a good relationship with the government and monitoring the situation closely. In the report, 71 percent of energy CFOs say their businesses are thriving today; however they’re more cautious about 2020.
All this uncertainty spawns from continued trade policy turbulence and the November 2020 presidential election. Depending on who wins the election will determine how the industry is regulated for the next four or possibly eight years. The elected president will also likely have labor regulations that affect the market.
Unfavorable tariffs
The survey found 50 percent of the CFOs feel the U.S. trade policy has been unfavorable to energy companies.
Of the oil and gas CFOs, 36 percent stated they have experienced, are experiencing, or are currently at risk of bankruptcy because of industry headwinds
“Bankruptcy is a real fear for some energy companies,” insiders said. “It is a part of what’s happened over the last several years, with companies overpaying for leases and now having significant debt.”
Oil and gas companies paid a high price to obtain leases to drill on land to extract oil and gas. As prices fluctuate, the leases have put the companies in debt.
“The old mantra was, ‘we will keep drilling our way to prosperity,’ and that isn’t working. The price on the commodity hasn’t increased but remained steady in a low price environment. Throw that in with the investment community, demanding oil and gas companies to live within their means, and the ability to drill their way to prosperity is gone.”
This climate has given oil and gas companies a low ability to generate excess profit to pay back their debt. And bankruptcy results.
Seventy-two percent of the energy CFOs told BDO that they are planning to increase budgets in their risk management and compliance departments next year to combat this uncertainty.
36% of oil and gas CFOs say they have experienced, are experiencing, or are currently at risk of bankruptcy.
Growing demand for companies to be socially conscious
While it may be surprising to hear that oil and gas CFOs are heading toward renewable sources of energy, besides solar’s low price, there are outside forces driving this.
The general public is demanding that companies have a renewable and environmentally friendly plan, even for oil and gas, and luckily it’s starting to become economical to make that move. The cost per KWH dropped tremendously. And It has become a viable solution for power generation.
Customers want to know that they’re not overtly contributing to climate change, and even some employees want to work for companies that have a green mission and take green actions.
For oil and gas companies that want to expand, they’re facing hurdles when trying to build new infrastructure. Opposition to construction, particularly around the potential environmental impacts of projects, is causing the companies to be entangled in disputes. In the report, CFOs cited 40 percent of power generation CFOs say they have entered into a climate change dispute in the last 12 months.
Solar is coming. Now with many states requiring renewable energy on various projects, it is just a matter of time before most homes and businesses are powered by the sun.
