Oil Company Profit and Solar Panel Diversification
What is the deal with oil companies? They are making record profits now that filling up your SUV for the week costs a small fortune. Assuming the U.S. government does nothing to reign in gas prices (a likely prospect) and continues to protect the tax-payer provided subsidies for oil industries, what are these companies doing with all the profits?
One thing is for sure, the oil companies continue to buy more and more crude oil with the majority of their profits. The rest they most likely stuff into their supposedly skimpy wallets. The oil companies are addicted to the usual routine of doing things. They would rather buy up every last drop of an unsustainable resource rather than invest in existing alternative energy systems that are certified to work. What are these oil companies planning on doing when the oil is gone? Will they shift their entire operation 12 months before the oil pumps finally grind to a halt?
To digress a little bit, the reason we all talk about oil is transportation and energy. The documentary title WHO KILLED THE ELECTRIC CAR? indicates that electricity can provide transportation as well as being the main form of energy consumed in the world. Given the obvious planetary health benefits of electricity versus fossil fuel combustion, why has the world not shifted to a low-carbon electricity economy already?
In an effort to be productive, the rest of this post will focus on a business proposal for oil companies.
Title: Electricity More Profitable Than Oil
Oil companies will continue to make steady profit selling oil. The problems with this business model are twofold: you must continue to buy crude oil at higher and higher prices (as supply dwindles) and you incur rising public relations problems as you pass those costs along to consumers. The oil companies argue that their profit margins are actually quite low compared to most industries, but that doesn’t matter to most people when they see total dollar profits in the tens of billions of dollars.
The solution: Use oil industry profits to invest in solar, wind and hydro power plants (where environmentally feasible). Why is this a good idea? People will always purchase electricity; in fact, electricity usage is rising as we all connect to more and more gadgets in our homes and offices. 20 years ago, for example, it was still uncommon to have a computer in your home or office; today, many people have two or three, often running 24/7. The Northeast blackout of several years ago illustrates the capacity problems our country faces, and the electric companies are not building new power plants fast enough (and when they do, they’re often coal-based). But there are many ways to produce electricity. After the initial investment, solar panels will produce electricity for 20 or more years with next to zero maintenance cost.
As an example, and using extremely primitive math; imagine that an oil company has $1,000,000 profit and chooses to invest this money in the installation of a commercial solar panel array that produces electricity for use on the common grid. This electricity would be sold at wholesale rates to the local electric company, and you would then reap the benefits of solar energy without any changes to the way you receive electricity. Depending on government subsidies for alternative energy and the area of the world where the project is, the solar panel investment will become solvent in anywhere from 1-3 years. The remaining years of operation for this solar panel array is 17-19 years. Any electricity profits generated during this period will be 99% profit, with the single percentage point going towards maintenance of the solar plant.
Some oil companies, such as BP [www.bp.com], are already doing this profitably in certain parts of the world. But it is still a tiny part of their overall business. It needs to grow.
The oil company (or what used to be an oil company) does not have to buy more crude to maintain its revenue stream. In fact, as the exponentially growing profit from selling electricity increases, more and more money can be poured into building more solar power plants in a rising number of local communities. In addition, because electricity needs to be generated close to where it is sold (unlike oil), more jobs and money will flow into the local economy, which in turn will improve the quality of living and the amount of disposable income available to economic interests in the region. As people become more affluent, they will correspondingly desire to consume more electricity, effectively driving even greater profit to the reformed oil company. Also, hiring people from the local economy to work in the solar power plants will improve the PR outlook of the company, further improving the lot of the company and other other affiliated companies they may also own.
What do you think? Is this humble blog author off the rocker? What do you think about oil companies? Are they doing the right thing? Are there other strategies that would be profitable and hopefully environmental enough for the oil companies to pursue?