Spain's Repsol was the first major oil company to commit to an emissions target of net zero by 2050 and has since set out to prove that its bold departure can be turned into a profitable reality.

Chief executive Josu Jon Imaz helped start the push 12 years ago when, as head of Repsol’s new energy business, he moved into the market for electric vehicle charging.

Repsol has today allocated up to €6.5 billion ($7.33 billion) to low-carbon projects between 2021 and 2025, representing 35% of total investments, with 45% of its capital to be employed for these purposes by 2030.

As part of this strategy, the company is targeting an installed renewable electricity generation capacity of 6 gigawatts by 2025 and 20 GW by 2030.

Repsol's near-term goals include ending the year with 1.7 GW of installed renewable capacity and another 4.7 GW in high-visibility projects under construction.

Wind and solar investments in Iberia have led the way, with Repsol accounting for 20% of all wind power installed in Spain last year.

The company’s international pursuits include a joint venture signed with Ibereolica Renovables in Chile in 2020 and the acquisition this year of a 40% stake in US-based renewables developer Hecate Energy.

US milestone

This month saw a milestone with the development launch of two projects — the first since the Hecate acquisition — that will supply close to 40 megawatts of power at the Jicarilla reservation in the state of New Mexico, Imaz told Upstream on the sidelines of the recent World Petroleum Congress event in Houston.

Hecate has an extensive portfolio of renewable projects in the US, with close to 3 GW of capacity sold so far, and Repsol has an option to acquire the remaining 60% of the company in three years.

“This is the beginning of our renewables journey in the USA,” beamed Imaz.

Upstream expertise

Decarbonising hydrocarbons also forms a plank of Repsol's strategy, and the company aims to start up a flagship carbon capture and storage in 2027 at Sakakemang, Indonesia's largest gas discovery in years, targeting 2 million tonnes per annum of carbon dioxide.

Repsol will also apply its upstream expertise to new geothermal projects in the Canary Islands, Imaz said.

Last July, the company announced ambitious targets for renewable hydrogen generation, and aims to reach a capacity of 552 MW equivalent in 2025 and 1.9 GW in 2030.

Repsol also is investing in industrial complexes adapted to use waste from different sources as raw materials to be converted into sustainable fuels and materials.

The aim is to re-use 3 million tpa of waste to mitigate more than 7 million tpa of CO2 by 2030, with extensive analysis of waste and technologies to ensure production of advanced biofuels and circular petrochemical materials.

Circular route

Like others, Imaz urges a holistic view in which the decarbonisation of liquids remains an important part of the business.

"Electrification will not be a solution for many years for important sectors like aviation, shipping, steel mills, tire manufacturing and paper mills," he said.

We should not be too quick to write off the combustion engine, he believes: "Increasing reliance on the electric vehicle is sometimes a way to sweep CO2 under the carpet, like sending these emissions to the Chinese mining sector or to the fabrication of batteries."

One paradox of the energy transition is that the world is likely to need more plastics in the future, he said.

"So, we have to try to reduce the footprint of these plastics, and the concept of circular economy — the use of these plastics and waste to decarbonise liquids — will be one of the best alternatives we could have."

Start small, think big

Imaz is confident about his company's ability to make money out of renewables.

"We like to start small, but with the ambition to grow, because acquiring these assets in operation is the easiest way to destroy shareholder value. You can't build value by paying multiples if you are competing with big pensions funds," he said.

"We start from the beginning, taking on the risk of the project, development, construction, operation and, maintenance."

This pipeline strategy gave Repsol handsome payoff recently with the sale of a 49% minority stake in Northern Spain's 335 MW Delta wind farm to Pontegadea, the family investment vehicle owned by Amancio Ortega, billionaire founder of the parent company of the Zara clothing empire.

The transaction reaped Repsol a return of around 1.5 of the value of the €320 million investment laid out just one year earlier

"This is the strategy... after the project is de-risked, we will look to sell 45 to 49% to an investment fund to increase profitability, but we always retain above 51% and go on operating the asset," Imaz told Upstream. "It's starting to work."

Lofty ambition

Repsol's decarbonisation moves — which began with a 2012 agreement with trade unions on reducing emissions across the company's installations — have matured into commitments that today include a 28% reduction in the carbon intensity indicator by 2025 and 55% in 2040.

The company has pledged an emission reduction target of 55% from operated assets and 30% of net emissions by 2030, plus a target of reducing methane emissions intensity to 0.20% in 2025.

The net zero target, announced in 2019, was set for 2050.

Repsol has applied an internal carbon price to all new investments, set at $70 per tonne in 2025 and $100 per tonne in 2030 for the European Union and $60 per tonne in 2025 for the rest of the world.

Don't demonise

Despite all these ambitions, Imaz was among the speakers at last week’s WPC to warn against frogmarching the business world into energy transition at the risk of "negatively impacting the next generation’s chances of experiencing economic well-being and growth".

“We cannot demonise oil and gas, because in the coming years we need to guarantee production in a responsible way, and that means having a framework to finance operations for the coming decades,” he said.