Shell weighs strategic review of Sprng Energy in India post $1.5 billion buyout

On July 13 , 2023, Bloomberg first reported that Shell was exploring options for its global renewable power operations, including a potential stake sale to international investors.

Nearly a year and a half after acquiring one of India's leading renewable energy platforms Sprng Energy Group for around $1.55 billion, British energy giant Shell is exploring a strategic review of its green energy portfolio in the country, which may include a potential part sale of Sprng Energy's solar and wind energy assets, three industry sources in the know told Moneycontrol.

"Shell is looking to streamline its India renewable energy business and if required the ongoing deliberations may lead to the sale of a few Sprng assets, though a final decision has not been taken as yet. They struck clean energy deals to diversify their revenue sources as it was earlier expected that the oil and gas segment would be affected, but industry dynamics have changed and that hasn't happened," said the first person above.

Since Russia's invasion of Ukraine, oil prices have soared to new highs and flirted with $95 a barrel earlier this week. This has helped boost the profits of oil majors.

The first person added , "Plus, earlier there was immense pressure on Shell from stakeholders to go green and invest aggressively in sustainability."

In a statement released last year after the announcement of the Sprng Energy platform buyout, Shell said, "The solar and wind assets Shell acquires through the deal will triple Shell's present renewable capacity in operation and help deliver its Powering Progress Strategy. An important part of Powering Progress is to develop an integrated power business, which will help Shell reach its target of becoming a profitable net-zero emissions energy business by 2050."

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A second person added, " The question being asked now is why invest so much money in renewable energy for lower rates of return vis- a- vis oil and gas. In fact, it's not just Shell, but all the oil and gas companies are relooking at their clean energy bets. This trend has picked up in the sector as a bulk of the ESG pressure is now off"

ESG means using environmental, societal and governance factors to assess the sustainability of firms. The world's largest asset manager Blackrock, once a key proponent of ESG, has now changed course and rejected 93 percent of the social and climate proposals it faced, according to its 2023 Investment Stewardship Report. Mutual fund giant Vanguard has also followed suit. In August, S&P Global Inc decided to not publish ESG scores with its credit ratings based on investor feedback and lack of consensus on the approach to assess the long-term financial impact of ESG metrics.

Meanwhile, US-based ExxonMobil recently announced a $5 billion deal to acquire carbon management player Denver Resources which has caught the attention of its peers. It has stayed away from the renewable energy space, unlike Shell and BP.

According to the third person mentioned above, "as far as the renewable energy segment is concerned, the challenge from the new global top brass of Shell to the India team is to become self-sufficient, generate their own capital and create assets from scratch."

"The process to reorganize themselves internally into a development entity and an asset ownership entity which sells and monetizes assets was initiated sometime back. They may retain part stake in the Sprng Energy platform and not exit completely. The focus on gas is a lot more now in India, " the third person elaborated.

All three persons above spoke to Moneycontrol on the condition of anonymity.

In response to a detailed email query from Moneycontrol, a Shell spokesperson said, "There is no strategic review of the Sprng Energy group. As stated at Capital Markets Day in June, we are working to grow our renewables portfolio as part of an integrated power business in the key market of India. We continue to develop new projects while exploring partnering opportunities with investors who want to deploy capital on de-risked operational assets, with Shell retaining a stake in such assets. This focus on capital discipline will enable Shell to further accelerate growth of our renewables portfolio.”

On July 13 , 2023, Bloomberg first reported that Shell was exploring options for its global renewable power operations, including a potential stake sale to international investors.

Wael Sawan was named as Shell's new global CEO in January and his elevation has ushered in a regime focused on higher shareholder returns, cutting costs, more spends towards oil and gas and selective renewable energy bets. Nakul Raheja is the Country Head of Shell Energy India.

Pune based Sprng Energy supplies solar and wind power to electricity distribution companies in India. According to the April 2022 announcement on its sale, " Its portfolio consists of 2.9 gigawatts-peak (GWp) of assets (2.1 GWp operating and 0.8 GWp contracted) with a further 7.5 GWp of renewable energy projects in the pipeline."

(This article has been updated with a response from Shell)