Taking the Point on Renewable Energy

Wednesday, October 14, 2009

Who will lead the transformation of the world’s energy supply from fossil fuels to renewable energy?

One might suggest that the current group of fossil fuel providers change their focus from depletable fuels to a different form of energy. However, this makeover seems highly unlikely.

Oil and gas companies define themselves as providers of crude oil, natural gas, refined products and petrochemicals. An examination of the mission statements indicates that none of the majors sees themselves in the broader perspective of an energy producer. The national oil companies are even more emphatic in limiting their scope.

The core technologies are different. The basic technologies of the oil and gas industry are not readily transferable to renewable energy. At the core of oil and gas supply is the extraction or removal of mineral deposits and the conversion of them into useful products. The conversion process may be regarded as a necessary product quality enhancement rather than a significant processing step. This is especially true in the natural gas value chain. Renewable energy requires manufacturing (wind turbines and solar panels) which use mechanical and electrical engineering skills. These skills are not the emphasis of oil companies recruiting efforts.

Wall Street expectations minimize strategic thinking. The short-term focus forced upon public companies by investors, limits long-term research and development. A dollar spent on solar energy research is one less dollar that the company can use in its core business of finding and producing oil and gas. Wall Street is not going to reward this effort. Oil and gas companies are valued on the basis expanding their reserve base at the lowest possible cost.

The executive orientation is limited to better utilization of core competencies within the scope of their mission. The industry is focused on process improvement and not on new product development. [See blog "Bad Information on Good Morning America" that addressed the R&D issue in more detail]. Senior executives concentrate on those areas where the company has succeeded in past (distinctive competencies) and stay within their comfort zone. There are few rewards for strategic and innovative thinking outside the realm of the mission. What executive is going to wager his current position on an outcome twenty or thirty years in the future?

The question is now who will step up and become the champion of renewable energy? If the computer industry is any indication, the solution is more likely to originate in the garage than in the boardroom.

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