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Shell sees 'signficant' potential in electricity, but investing 'with care'

London — Shell sees potential for its fledgling electricity business to become "significant" in the future -- sitting alongside oil, gas and chemicals as a core business segment -- but the company plans to take a cautious approach to spending in the near future, CEO Ben van Beurden said Tuesday.

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Speaking Tuesday at Shell's management day in London, van Beurden said the traditional utility business model was changing, bringing more risk and complexity, but also the potential for higher returns.

But, van Beurden said, the returns Shell achieves will drive the pace of growth in the power sector.

"We will plan our steps carefully and we are investing with care. We have to prove the investment case before we scale up this business," he said.

"We cannot get ahead of ourselves. We have to see if we can prove these business hypotheses," he said.

Van Beurden said Shell plans to spend $2-3 billion per year on new energies from 2021 to 2025, up from a total spend of just $1.6 billion since it created its new energies business segment in 2016.

INVESTMENT CRITERIA

Speaking later Tuesday to analysts, Shell's head of integrated gas Maarten Wetselaar said that the rampup in spending would be subject to several criteria.

"First, that business must demonstrate that it is on a path to be self-funding before 2030," Wetselaar said.

"Secondly, our investments must meet certain financial milestones that we establish for every investment. And last -- and as we have said many times before -- it must deliver returns in the 8% to 12% range. All these three conditions will need to be met for us to scale up," he said.

Wetselaar also said trading would be at the heart of its integrated approach to electricity as the company looks to be "asset-light" in the power sector.

"We will be involved in generating electricity with assets where this adds portfolio value and where the returns meet our criteria, but always with a preference to be asset-light and buy the balance of the power from other producers," he said.

Shell CFO Jessica Uhl added that gas-fired power generation assets could form part of Shell's power strategy in the future, but that owning CCGT assets was "not a priority.""There may be CCGT in there," Uhl said, pointing instead to Shell's existing portfolio of wind and solar power generation assets, including in the Netherlands and the US.

SMART SOLUTIONS

Wetselaar said Shell's core markets for electricity supply were in Northwest Europe, the US and Australia, countries where Shell's customers want "low-carbon alternatives.""Beyond these markets, we may be involved in select markets where the opportunity makes sense," he said.

Shell is also looking to expand into other areas of the power value chain, including in smart battery storage systems and electric vehicle charging in Europe and the US.

"Now we are looking to stitch these together, for example, by offering our Shell energy customers energy solutions to charge an electrical vehicle along major highways and at various charging points in addition to providing them with 100% renewable electricity and offer them a solar battery in the process," Wetselaar said.

--Stuart Elliott, stuart.elliott@spglobal.com

--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com