Oil and Gas Companies Embrace Renewable Energy Mergers as a Pathway to Transformation

Oil and Gas Companies Turning to Renewable Energy Through Cross-Industry Mergers and Acquisitions

In the context of accelerating global energy transition, the traditional oil and gas industry is facing significant challenges. The proportion of fossil fuel consumption has fallen below 80% for the first time, with decarbonization and sustainable development becoming core issues. To respond to policy pressures and changes in market demand, oil and gas companies are accelerating their entry into the renewable energy sector through mergers and acquisitions, forming a business model driven by both “traditional energy” and “new energy”. This article analyzes the motivations, pathways, challenges, and trends of the oil and gas industry’s crossover into renewable energy, drawing on global merger and acquisition case studies.

Motivations for Oil and Gas Industry’s Crossover into Renewable Energy

The urgency of energy transition has increased, making collaboration between oil and gas and renewable energy an important pathway. As resource constraints, environmental pressures, and diversified energy demands become more pronounced, development models primarily based on fossil fuels like coal and oil face systemic challenges. In this context, the energy system is accelerating its shift toward a “diverse and collaborative” model.

Fossil fuels have played an irreplaceable role in supporting industrialization. However, their limitations are forcing deep transformations in the energy system. On one hand, the high carbon attributes of fossil fuels have led to an exponential increase in greenhouse gas emissions. According to the World Meteorological Organization‘s Global Climate Status Report released in March this year, carbon dioxide concentrations in the atmosphere have reached the highest levels in 800,000 years, accelerating the melting of glaciers and sea ice, which contributed to 2024 being the hottest year on record. On the other hand, the uneven geographical distribution of fossil fuels intertwined with the global political and economic landscape has exacerbated energy security risks. The International Energy Agency indicates that over 75% of the world’s oil and gas resources are concentrated in a few regions, such as the Middle East and Russia, making the energy supply chain significantly more vulnerable. Under the dual constraints of environmental capacity and energy security, transitioning to renewable energy has become an inevitable choice for sustainable development.

Despite their limitations, fossil fuels have high energy density, stable and reliable supply, and mature technology. Achieving “complete replacement” in the short term still faces dual challenges of technology and cost. Notably, the oil and gas industry and renewable energy exhibit clear synergies in technology, data, and supply chain aspects, allowing for effective capitalization on each other’s strengths through deep integration. For example, geothermal development processes—comprising subsurface assessments, modeling, drilling, and surface operations—are highly similar to upstream oil and gas operations. According to the IEA, about 67% of the technology and resource elements of conventional geothermal projects overlap with the oil and gas industry, and this figure exceeds 75% in the enhanced geothermal systems (EGS) sector. The deep interconnection of oil and gas resources with renewable energy in terms of technical pathways and industrial ecology offers feasible solutions for energy structure adjustment and low-carbon transition.

Factors driving oil and gas companies to gradually cross into renewable energy include both passive and active elements. On the passive side, global carbon emission control policies are being reinforced. The international community is becoming increasingly cautious about fossil fuel usage, with the implementation of new policy tools like the European Union’s Carbon Border Adjustment Mechanism (CBAM), which directly raises the costs associated with fossil fuel use. Meanwhile, financing policies are increasingly favoring renewable energy, leading oil and gas companies to face rising market entry and financing costs. In this context, transitioning has become a necessary option for oil and gas companies to survive and thrive in the new energy landscape.

On the active side, the economic viability of renewable energy has significantly improved. Data from the International Renewable Energy Agency (IRENA) shows that in the past decade, the average levelized cost of electricity for global wind and solar projects has fallen by over 60% and 80%, respectively. Bloomberg New Energy Finance predicts that renewable energy technology costs will decrease by 2% to 11% this year and will continue to decline by 22% to 49% by 2035. The internal rate of return (IRR) for renewable energy projects is becoming increasingly comparable to that of oil and gas projects. Furthermore, governments worldwide are implementing green energy quota systems and renewable energy subsidies, creating favorable market conditions and policy environments.

Mergers and Acquisitions as Key Strategy

Mergers and acquisitions (M&A) have become a crucial approach for oil and gas companies to enter the renewable energy sector. In the face of multiple challenges to fossil fuel development, the rapid rise of renewable energy presents new opportunities for the energy industry. Oil and gas companies have keenly identified strategic opportunities in the energy transition process, proactively crossing into renewable energy, with M&A being a vital pathway to seize these opportunities.

On one hand, compared to the traditional model of project investment requiring multiple layers of approval and starting from scratch, M&A allows companies to quickly engage in specific fields, rapidly expand their scale, and significantly shorten the time needed to cultivate new business areas. On the other hand, M&A involving equity transactions offers advantages such as smooth exit channels and diversified investment risks, providing flexibility to adjust strategies early in the transaction process, thereby better controlling the pace and risks of transformation. For example, sovereign wealth funds in the Middle East are acquiring high-quality assets globally in offshore wind and energy storage, leveraging multi-energy collaborative strategies to take control during the energy transition process. TotalEnergies sold its climate risk investment division, TotalEnergies Ventures, in 2023 to flexibly adjust and optimize its investment portfolio.

Investment Trends in the Global Renewable Energy Market

Since 2020, investments in renewable energy have accelerated, with funding for renewable energy surpassing that for fossil fuels for the first time in 2023. According to Bloomberg New Energy Finance’s report on Investment Trends in Energy Transition 2025, global low-carbon energy investment is expected to reach a record $21 trillion in 2024, although the growth rate is slowing, dropping from 24% to 29% in 2020 to 11%. The IEA previously predicted that to meet the goals of the Paris Agreement, an average annual investment of $4.5 trillion in clean energy is required before 2030, indicating a significant investment gap remains.

Development across sub-sectors of renewable energy has exhibited uneven characteristics. Data from Bloomberg New Energy Finance shows that from 2010 to 2024, the cumulative installed capacity of global solar power increased from 9.7 GW to 1,080.3 GW, while wind energy capacity rose from 151.1 GW to 1,100.7 GW. Countries and regions with active technological innovation, such as China, the EU, the United States, and Japan, have driven growth in renewable energy generation capacity, with China contributing over 40% of the global increase in solar power. However, the cumulative installed capacity of geothermal power globally has only increased from 2.2 GW to 7.8 GW due to high resource exploration costs and uneven regional distribution. Technologies such as tidal energy and hydrogen are still in the exploratory stage, resulting in relatively low global installed capacities.

The global renewable energy M&A market has continued to expand, particularly with significant growth after 2020. In 2022, the global renewable energy M&A market reached a record high, with transaction amounts hitting $115.9 billion, roughly double that of 2020, reflecting increasing investor interest and input in the renewable energy sector. The synchronization of global oil and gas M&A with renewable energy M&A has gradually differentiated, indicating continued progress in energy transition. Prior to 2020, oil and gas and renewable energy M&A were both driven by macroeconomic conditions, with transaction numbers and amounts fluctuating in tandem. After 2020, the acceleration of energy transition and external shocks led to a significant decline in oil and gas M&A, while renewable energy M&A surged and peaked, showing clear differentiation. In 2023, oil and gas M&A rebounded against the trend, primarily due to geopolitical conflicts in Europe leading to sustained high international oil prices. After improvements in cash flow, oil and gas companies initiated a wave of mergers in North American shale oil, aiming to control core assets with low costs and low carbon emissions to extend the lifecycle of their oil and gas businesses, as demonstrated by Chevron’s acquisition of Hess Corporation and ExxonMobil’s acquisition of Pioneer Natural Resources. The short-term fluctuations in the oil and gas M&A market reflect the strategy of U.S. oil and gas companies to focus on traditional energy while selectively transitioning, which has limited impact on global energy transition.

In the short term, investments by oil and gas companies in renewable energy are suppressed but will continue to progress steadily with a focus on key minerals, energy storage, and carbon capture, utilization, and storage (CCUS). By 2025, some countries plan to eliminate tax incentives for clean energy, shifting policies to promote traditional energy development. Western energy companies like Shell and BP have reduced renewable energy spending after a decline in first-quarter profits, while increasing investments in oil and gas. However, the investments by oil and gas companies in renewable energy will not undergo a “cliff-like” adjustment but will rather present a pattern of consolidating traditional energy while selectively breaking through into new energy.

Proactive Layout of Oil and Gas Capital

In 2010, the first wave of renewable energy development emerged globally, with countries introducing subsidy policies, prompting oil and gas companies to begin small-scale explorations through M&A in wind and solar projects. However, at that time, the high costs and uncertain commercial prospects of renewable energy technologies hindered subsequent growth. In 2016, the Paris Agreement took effect, and the global climate governance framework was established, leading oil and gas companies to attempt to re-enter the renewable energy sector through M&A. However, due to fluctuations in oil prices, companies prioritized funding for traditional businesses, resulting in limited M&A scale. In 2021, oil and gas companies ignited a wave of cross-industry mergers driven by the recovery of international oil prices, which provided more abundant funding support. Concurrently, advancements in renewable energy technology and decreasing costs made investments increasingly attractive, further accelerating cross-industry M&A.

Due to their forward-looking awareness and resource integration advantages, oil and gas companies initiated their layouts ahead of the overall peak of renewable energy mergers and acquisitions. As leaders in the traditional energy sector, oil and gas companies have a more pressing need for energy transition, being more sensitive to policy trends and energy substitution trends. To maintain their industry position, they must seize opportunities in the new energy sector ahead of others. Additionally, oil and gas companies possess the financial resources and collaborative capabilities across the industry chain, enabling them to quickly capitalize on M&A opportunities and create a “time difference” advantage.

The wind and solar industries have become focal points for cross-industry M&A due to their high technological maturity and significant market demand. In terms of scale data on oil and gas companies’ M&A activities in renewable energy, wind power leads with $72.2 billion, followed by solar power generation ($43.1 billion) and solar equipment manufacturing ($39.5 billion). Although the scales of geothermal power generation ($12.9 billion) and biomass and waste-to-energy generation ($9.5 billion) are smaller than those of the core wind and solar sectors, they still hold their own in their respective niches. Fields like hydrogen production remain in the early stages of development, with scale effects yet to be fully realized.

Cross-Industry M&A as a Value Growth Point for Oil and Gas Companies

Amid the wave of low-carbon transitions, oil and gas companies are rapidly laying out core assets in the renewable energy sector through strategic M&A. Data from the IEA indicates that the proportion of renewable energy assets among the top ten global oil and gas companies has increased from 8% in 2020 to 19% in 2024, with expectations of reaching 25% by 2030. The cross-industry M&A of oil and gas companies has become a significant driving force for transformation and development in the energy sector.

M&A Strategies

While international oil and gas companies are accelerating their energy transition, there are still differences in their paths and strategies. European oil companies are adopting more aggressive energy transition strategies, building diversified renewable energy portfolios. Companies like BP, Shell, and TotalEnergies are accelerating their layout in solar, onshore and offshore wind, hydrogen, and energy storage through high-frequency M&A transactions, with renewable energy project target returns being over 5% lower than traditional businesses. From 2000 to 2024, the number of renewable energy M&A transactions completed by these three companies alone accounted for 11.6% of the total M&A in renewable energy among global oil and gas companies, with the transaction amount making up as much as 34.98% of the total.

In contrast, U.S. oil companies are taking a more cautious approach to energy transition, focusing on investment and M&A to achieve decarbonization upgrades in high-carbon businesses. U.S. energy giants like ExxonMobil, Chevron, and ConocoPhillips have been increasing investments and acquisitions in key areas such as CCUS and supply chain decarbonization. For instance, in 2024, ExxonMobil acquired CCUS solution developer Denbury for $4.9 billion, strengthening its infrastructure advantages in carbon dioxide transport and storage, laying the groundwork for scaling up CCUS projects. This investment and acquisition strategy centered on decarbonization technologies such as CCUS allows for better utilization of the oil and gas industry’s advantages in geological exploration and engineering operations, while also accelerating the low-carbon transition of existing businesses, opening up new value growth points in energy transformation.

Management Practices

From the strategic practices of crossing into renewable energy, oil and gas companies are increasingly recognizing the importance of renewable business. This includes establishing dedicated renewable energy business units and raising the management level of these units to enhance decision-making authority and expand management scope. On one hand, this shortens decision-making chains, enabling quick responses to market demands driven by technological iterations and gaining competitive advantages in new business areas. On the other hand, having independent business units helps concentrate resources, allowing for rapid enhancement of market competitiveness through specialized operations. For example, BP formed a Gas and Low Carbon Energy division in early 2020 to integrate its dispersed energy teams and develop decarbonization technologies, hydrogen, and CCUS. In April 2024, BP simplified its four business units into three, including Gas and Low Carbon Energy, with core management functions increasing from four to six, including strategy and sustainability.

Eni established its Natural Resources and Energy Evolution divisions in June 2020. The Natural Resources division focuses on oil and gas production, natural gas midstream, and CCUS, while the Energy Evolution division focuses on power and refining businesses to provide low-carbon energy product portfolios to end customers. In July 2023, Shell simplified its four business units into three, merging its renewable energy and energy solutions businesses with downstream operations, creating a new downstream and energy solutions division encompassing hydrogen, CCUS commercialization, and carbon trading. TotalEnergies established its Natural Gas, Renewable Energy, and Power department in 2017 to explore collaborative development potentials, continuously investing in energy storage, solar power, and energy management technologies through its venture capital arm. ExxonMobil’s Low Carbon Solutions department, established in 2021, has become central to its recent strategic transition, primarily focusing on CCS, lithium batteries, renewable materials, hydrogen, and ammonia. Chevron emphasizes integrating CCS with existing business development, predominantly managing renewable energy operations through its venture capital fund.

Cross-Industry Challenges

Balancing energy security with low-carbon transition goals is a core challenge. Amid unfavorable global economic growth expectations, increased market volatility, and ongoing supply chain disruptions, the investment heat in the renewable energy sector has cooled somewhat. As the strategic value of transition fuels like natural gas becomes more apparent, market interest in them is gradually recovering. Data from the IEA shows that while the scale of renewable energy applications continues to expand, the dominant position of fossil fuels in the global energy structure remains unchanged, and the task of energy transition remains daunting.

The regional uneven development of renewable energy will affect the achievement of overall goals. Currently, renewable energy investments exhibit a clear regional concentration, with developed economies and China accounting for 85% of global investment, while investment from other developing countries remains relatively low. This regional investment imbalance not only constrains the energy transition processes in developing countries but also impacts the flow of capital for global low-carbon transition. Due to the immature investment environment for renewable energy in emerging markets and developing economies, international capital tends to flow toward developed economies with stable policies and sound infrastructure, further widening the gap in renewable energy technology, industry scale, and emission reduction capabilities across different regions.

Capital flows in the global renewable energy sector exhibit a localized cycle characteristic, influencing the overall advancement of energy transition. From the perspective of funding flows in cross-industry M&A, the capital sources for renewable energy projects in various regions have a strong local attribute, particularly in developing countries. For instance, in China, over 90% of funding for renewable energy projects comes from domestic sources, with limited capital allocated to overseas markets.

The uncertainty of renewable energy technologies poses a key bottleneck for oil and gas companies entering the renewable sector. First, renewable energy technologies are highly influenced by environmental conditions, leading to unstable performance. Companies may be concerned about high maintenance costs and the complexity of integrating with existing energy networks, making decision-making more cautious. Second, the long-term reliability and comprehensive performance metrics of renewable energy technologies still need validation, and project return rates could affect the overall return levels of companies, causing some renewable energy projects to struggle to launch.

Forecasting Trends in the Renewable Energy M&A Market

1. Policies and Technologies Driving Further M&A Activity: In the short term, with declining interest rates and decreasing technology costs, the “counter-cyclical” nature of renewable energy M&A will become more pronounced. In the long term, carbon neutrality goals and ESG (Environmental, Social, and Governance) investments are reshaping capital flow patterns, making renewable energy M&A a core engine for global economic transformation. Although some international oil and gas companies have recently slowed their activities in renewable energy, even divesting non-core assets, this is essentially a strategic shift toward technology-intensive fields. Leveraging their experience in capital market operations, international oil and gas companies can integrate resources through M&A during periods of technological breakthroughs, repositioning themselves in the energy transition landscape. In the future, the capital operation model of “contraction – focus – re-expansion” will continue to drive increased activity in the renewable energy M&A market.
2. Regional Barriers and Geopolitical Synergies in Global Layout: Driven by the dual motivations of renewable energy technology attributes and energy security strategies, some countries have categorized renewable energy as a key area for foreign investment reviews, resulting in regional barriers for cross-border M&A. For instance, the U.S. Committee on Foreign Investment maintains a high level of vigilance toward Chinese mergers and acquisitions, with some industries requiring local content rates for project components to be no less than 60%. Southeast Asian countries impose restrictions on foreign investment in power grid assets, permitting only light asset models such as technology collaborations to enter. In contrast, regions such as the Middle East and China are adopting more open foreign investment policies, providing new opportunities for inter-regional cooperation. According to predictions from the IEA, technological, capital, and resource complementarities among regions such as China-ASEAN, EU-North Africa, and Middle East-South Asia will become core drivers of global renewable energy expansion. In this context, renewable energy M&A will also exhibit significant regional characteristics: the China-ASEAN technology corridor will accelerate the integration of photovoltaic production capacity based on the Regional Comprehensive Economic Partnership (RCEP) rules, while the EU-North Africa energy community will support cross-border grid interconnection through “green agreement” funding. The capital chain between the Middle East and South Asia will optimize resource allocation through sovereign fund and technology cooperation. The IEA predicts that by 2030, these three regional cooperations will contribute to 72% of the global renewable energy installed capacity increment, marking a new stage of “geopolitical technological synergy” in the M&A market.
3. Diversification of M&A Participants with Technology-Focused Deals Dominating the Market: Companies from the Middle East are rapidly entering the scene, further diversifying the participants in cross-industry M&A. Sovereign wealth funds and oil companies in the Middle East are accelerating their energy transition layouts through flexible acquisitions. The Saudi Public Investment Fund (PIF) plans to invest $500 billion by 2030 to build a localized renewable energy supply chain, aiming for 75% self-supply of critical components. Middle Eastern and Chinese companies are likely to become significant players in multinational acquisitions in the renewable energy sector. Technology-focused M&A will dominate the market, with activities characterized by technology upgrades and digital empowerment. Acquisition targets will shift from traditional power generation assets to technology-intensive fields, with energy storage technologies becoming critical for stabilizing energy output. Digital technologies can optimize monitoring, scheduling, and operation and maintenance of renewable energy projects, helping companies achieve intelligent management of energy assets and lower operational costs.