Shell plc ( SHEL Quick Quote SHEL - Free Report) is actively seeking partners for its renewable assets in India, specifically those held by Sprng Energy, a company that was acquired from Actis for $1.55 billion in August 2022. The move took place at a time when Shell is under pressure from climate-focused investors to reduce its emissions and invest more in renewables. However, Shell's CEO Wael Sawan said that he plans to double down on oil and gas operations in order to boost profits. Why Invest in India?
Sprng Energy is involved in the development and supply of solar and wind power to electricity distribution companies in India. Shell's investment in Sprng Energy is a strategic move to gain access to a large and growing market for renewable energy, with abundant renewable energy resources and a supportive government policy environment. India is viewed as a significant growth market in the power sector over the coming decades.
A Strategic Vision
Shell's forward-thinking strategy involves expanding its renewable energy portfolio and exploring partnerships with investors interested in capitalizing on de-risked operational assets. In such partnerships, Shell intends to retain a stake, aligning its interests with the growth potential of these assets.
The Bigger Picture
This move aligns with Shell's broader plans under the leadership of Sawan, aimed to enhance the company's performance and returns. It involves a two-pronged approach — a continued commitment to oil and gas operations, and a selective scaling back of certain investments in renewables.
Shell has undergone significant transformations in recent months to realign its business operations. Notable actions include the sale of its U.K. power retail business, strategic reviews of two refineries in Singapore and Germany, and disengagement from several low-carbon projects. These decisions, while rationalized within Shell's overall strategy, have not been without controversy.
Sawan's strategy, which emphasizes the growth of traditional fossil fuel operations, has raised concerns among climate-focused investors and environmental advocates. The departure of Thomas Brostrom, Shell's head of renewable generation, in June, further highlighted the challenges faced by a company navigating the delicate balance between conventional energy sources and renewables.
The Path Forward
In the face of these challenges, SHEL remains steadfast in its commitment to sustainability and energy transition. The quest for renewable energy partners in India underscores the company's dedication to building a diverse and resilient energy portfolio.
Implications for Shell and India
Shell's move to seek partners for its Indian renewable energy assets has several implications for both the company and the country.
For Shell, it is a way to reduce financial risk and increase its chances of success in the Indian renewable energy market. India is a major growth market for renewables, but it is also a complex and challenging one. By partnering with other investors, Shell can reduce its own risk and increase the chances of success.
For India, Shell's move is a sign of the country's growing attractiveness to foreign investors in the renewable energy sector. India aims to achieve 500 GW of installed renewable energy capacity by 2030, and foreign investors are playing an increasingly important role in helping the country achieve this goal.
Shell's move to seek partners for its Indian renewable assets is a significant development. It shows that the company is serious about boosting profits and focusing on capital discipline. It also shows that Shell is willing to divest from renewable energy projects that are not core to its business.
It is unclear how the company’s decision to seek partners for its Indian renewable assets will impact its overall climate strategy. However, it is facing increasing pressure to balance its commitment to renewable energy with its need to boost profit.
Zacks Rank and Key Picks
Currently, SHEL carries a Zacks Rank #3 (Hold).
Some better-ranked stocks for investors interested in the
energy sector are CVR Energy ( CVI Quick Quote CVI - Free Report) and USA Compression Partners ( USAC Quick Quote USAC - Free Report) , both sporting a Zacks Rank #1 (Strong Buy), and Archrock ( AROC Quick Quote AROC - Free Report) , carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
CVR Energy is valued at $3.40 billion. In the past year, its shares have risen 32.2%.
CVI currently pays a dividend of $2 per share or 5.92% on an annual basis. Its payout ratio currently sits at 30% of earnings.
USA Compression Partners is worth approximately $2.19 billion. USAC currently pays a dividend of $2.10 per unit or 9.42% on an annual basis.
The company offers natural gas compression services to oil companies and independent producers, processors, gatherers, and natural gas and crude oil transporters. It also operates stations.
Archrock is valued at around $1.92 billion. It delivered an average earnings surprise of 15.08% for the last four quarters and its current dividend yield is 5.06%.
Archrock is a provider of natural gas contract compression services and aftermarket services of compression equipment.