Total Defines Path to Higher Power Returns

While its European major rivals are backing off renewables, TotalEnergies is scaling up fast in green electricity, building an integrated power business that could become a cash engine toward the end of the decade. The French major has sharpened its understanding of power markets over the past year to develop a model that will borrow from its oil and gas playbook to deliver higher-return green electrons than traditional power investments. The company has hinted, however, that the prospects may have dimmed for some transition technologies. Despite question marks over the profitability and returns from green power, Total is now targeting a minimum 12% return on average capital employed (ROACE) from integrated power — similar to upstream ROACE at $60 per barrel. Its approach — combining intermittent renewable assets with flexible generation, and strong trading and marketing capabilities — aims to capture value from volatile power markets. Farm-downs will be used to bolster returns, although deals could prove challenging amid rising interest rates and material costs. Total expects a supportive power price environment based on International Energy Agency projections for demand growth through 2030 and power supply constraints. The firm’s integrated power arm is targeting over 100 terawatt hours of generation by 2030 and will account for $4 billion of its $14-$18 billion of annual capital spending. HSBC analysts reckon Total’s low-carbon business should turn free cash flow positive by 2030, representing over 20% of earnings and becoming “a material business in its own right.”