PARIS/LONDON (Reuters) – France’s Total <TOTF.PA> on Wednesday said it would hike its annual investments in renewable energy and electricity by 50% as it cuts its reliance on oil, emulating European rivals in a bid to become a major low-carbon power producer.
Faced with gloomy long-term prospects for oil demand, Total has been accelerating a push into alternative sources of revenue, with a particular focus on providing electricity and expanding its renewable energy business.
The French group, which slashed its annual spending to $12 billion from $15 billion as it grapples with the fallout from the coronavirus pandemic, said growth would also come from its gas production over the coming years.
“Diversifying activities… increases resilience and offsets oil price volatility,” Chairman and Chief Executive Patrick Pouyanne said in a webcast presentation, as the group outlined targets at its 2020 investor day.
The shift by Total, which said it wanted to be one of the top five renewable power producers in the world, echoes plans by rivals including Royal Dutch Shell <RDSa.L> and BP<BP.L> to sharply reduce emissions and boost their clean energy businesses.
Total, which has so far maintained its dividend payouts while some rivals have cut theirs, said it would grow investments in renewables and electricity to $3 billion a year by 2030 from $2 billion now.
Its overall spending budget will remain under $12 billion in 2021 – a highly uncertain year, according to Pouyanne – before increasing to between $13 and $16 billion a year between 2022 and 2025 as oil prices are expected to recover to up to $60 a barrel, he said.
The group aims to have 35 gigawatts (GW) in gross renewable energy production capacity by 2025, up from a previous target of 25GW, and said 70% of that was already accounted for, including through projects still under construction.
It is aiming for returns of over 10% on renewable investments, a target deemed ambitious by many analysts compared to the 6 to 8% returns at established producers in the segment.
Pouyanne said the target could be achieved through sales of stakes in projects to outside partners, known as farm downs.
Total shares were up 4.18% at 1414 GMT.
COST CUTS
Top oil companies have come under heavy pressure from investors and activists in recent years to align with the 2015 Paris climate agreement to limit global warming.
While Europe’s main players have outlined plans to cut emissions, reduce their reliance on oil and gas and boost renewables, U.S. rivals Exxon Mobil <XOM.N> and Chevron <CVX.N> have largely stuck to their traditional businesses.
Shell announced plans to cut up to 9,000 jobs as part of a major overhaul on Wednesday, while BP also plans to cut around 10,000 jobs.
Pouyanne said Total, on track for $1 billion in savings this year, would focus cost cuts on its operations rather than layoffs, though he added the company could reduce staffing at its head office.
(Reporting by Sarah White and Benjamin Mallet in Paris, and Shadia Nasralla and Ron Bousso in London, editing by Louise Heavens and Emelia Sithole-Matarise)
