Energy convergence is a rapidly growing macro trend within the Energy Sector. What is “energy convergence”? Historically, the vast majority of our energy needs have been supplied by hydrocarbons (e.g. oil & gas and coal). Now, and as we move forward, there is an accelerated shift to a more assorted supply of energy sources (e.g. solar, wind, and geothermal to name a few). As a result, businesses are focused on merging traditional forms of energy sources and business models with clean energy sources and new business strategies. The energy convergence trend at its core is centered on the global initiative to lower carbon emissions. Many businesses are participating in the energy convergence trend in an effort to (i) make energy more sustainable and affordable, (ii) appease investor and consumer demand for cleaner energy, (iii) ease geopolitical instability as countries compete for scarce resources and (iv) participate in emerging markets with potentially attractive new revenue stream opportunities. While many energy experts have been predicting this convergence for a number of years, most did not anticipate the rapid pace at which it is occurring.
Companies in the Energy Sector around the world are participating in the energy convergence trend in a number of ways, but perhaps the two most obvious examples are:
- Traditional energy companies are allocating significant capital and making meaningful investments in renewables companies and/or lower carbon emitting businesses, all in an effort to reduce their carbon emissions. Additionally, traditional energy companies and financial investors view the global initiative to reduce carbon emissions as an opportunity to invest in new and emerging markets where the business models of traditional energy companies will position them well to make investments in related, lower carbon emitting businesses.
- Traditional energy companies are changing their business models. With the addition of non-traditional investments, traditional energy companies have discovered that the historical long-range planning, capital investments and business plans of the past do not work for the more diverse energy supplies of today. Companies are attempting to process large volumes of data to help them understand how best to adjust their business planning. A result of this is the emergence of a number of joint ventures between traditional energy companies and renewable energy companies, thereby allowing traditional energy companies with the benefit of business practices and knowledge of renewables businesses.
There has never been a more exciting time within the Energy Sector. What is emerging is a diverse energy system where traditional hydrocarbons will continue to play a significant role, but with an accelerated emphasis on “clean” energy supplies. It is impossible to ignore the sector’s increase in participation in energy convergence efforts, and Foley & Lardner LLP has the broad range of legal expertise and experience needed to help facilitate your needs to further your energy convergence efforts, or assist you in entering this dynamic market for the first time.