Barron’s Avi Salzman outlines how renewable energy can pay off for big oil.
- This year we have seen a noticeable shift of big oil companies investing in low-carbon energy.
- These investments, while good for the planet, are hurting big oil’s stocks because of how they are valued.
- A fix for oil companies, one economist argues, is to spin off the renewable part of their business into their own companies once they reach scale.
“The key problem is this: Renewable energy companies are often valued on their expected future earnings. Solar development firms, for instance, often report annual losses but receive lofty valuations from investors because of expectations that their current investments will pay off in the future.
Oil companies, however, are valued on their ability to pay their dividends in the near term. Their cash flows this year and next are of paramount importance to investors.”
Read the full article here.
The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.
