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RIL's foray into renewables-II: What kinds of IRRs are possible?
Jul 25: What are the returns going to be like for big majors when they divert their resources to renewables?
8The returns range from 7% to 10%.
8A model (details are carried here) shows a return of 7% for offshore wind, 9% for onshore wind and 10% for solar PV under base-case assumptions
8This is around half the 18% the oil & gas majors could make on their next generation of upstream growth projects; a weighted average of the 22% from future drilling onshore North America and 14% on conventional pre-FID projects (both modelled at US$65/bbl).
8Returns will be lower however if oil prices stay low. Moreover the higher IRR takes into account returns from M&A, which provide a much higher kickback.
8Within this pool of upstream investments, there are also much low return investments.
8These lower return projects are typically risky, being sensitive to movements in commodity prices.
8The all-in returns for wind and solar stack up against this lower returning subset.
8The point is eventually the prospective returns from renewables are not materially lower than the upstream average on a full cost basis.
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