An employee in front of oil barrels at Royal Dutch Shell’s lubricants-blending plant in the town of Torzhok, Russia. Picture: REUTERS
An employee in front of oil barrels at Royal Dutch Shell’s lubricants-blending plant in the town of Torzhok, Russia. Picture: REUTERS

London — The world may be leaning too heavily on electrification as a means to decarbonise its energy mix, according to the head of Royal Dutch Shell.

“A lot of people think that with green electricity everything can be solved. It can’t,” Shell CEO Ben van Beurden said in an interview with Bloomberg Green.

While the coronavirus pandemic could dent long-term demand for fossil fuels, formidable challenges remain to both decarbonising the existing power sector and increasing electricity access for billions of people who remain in energy poverty, he said.

“At the moment, the end-use of electricity for energy is less than 20%,” Van Beurden said. “To triple that in a growing energy system, particularly in developing countries, is an unbelievable challenge that people trivialise.”

Even if we somehow discover how to supply two-thirds of world’s energy demands with clean electricity, it won’t cut out all emissions, he said. “You still have 30%-40% left that can’t be electrified, because it’s technologically not viable or possible.”

Shell plans to invest in the power segment “quite heavily” for the next decade, Van Beurden said. The company plans to invest, on average, $2bn-$3bn each year in new energies from 2021 onwards. Last year, the Anglo-Dutch major bought French offshore wind developer Eolfi as part of its expansion into renewable power.

But it lost out to Japan’s Mitsubishi and Chubu Electric Power, which outbid it to buy Dutch utility Eneco.

While some questioned if Shell was willing to pay up for its expansion in renewables, the company said the outcome demonstrated it’s a disciplined investor that won’t compromise its long-term objectives.

It will take years for Shell to build a profitable power business, Van Beurden said, due to returns being under pressure while infrastructure is being built. The CEO expects profits from the sector “at the end of the decade when we hopefully have a mature business”.

Van Beurden reiterated the company’s ambition to build a green utility business that will deliver 8% to 12% annual returns. But he acknowledged Shell’s electricity portfolio is still in its infancy and so it will be some time before profits flow. “There’s a lot of investment going on, development costs, and so on. It will take some time before this comes to an equilibrium.”

Bloomberg