(Bloomberg) — When a few hundred Royal Dutch Shell Plc shareholders piled into a Methodist church in Westminster for their 2018 annual meeting, they got a lot more than the usual free sandwiches and PowerPoint slides.

As half a dozen pensioner activists hogged the microphones to warn of the dangers of fossil fuels and the merits of renewables, Chief Executive Officer Ben van Beurden gave them a lesson on the risks of Big Oil embracing clean energy.

Turning to Chief Financial Officer Jessica Uhl, he asked her to tell the crowd how she began her career at the company some 15 years ago.

My first job at Shell was “winding down” Shell Solar, she responded.

That venture, a good-faith effort to diversify into renewables, had been losing money hand over fist. Solar power wasn’t the issue — the industry that harnesses electricity from the sun has experienced phenomenal growth since then. The problem was the oil giant’s inability to successfully manage such a different business.

Yet Shell, as a matter of long-term survival in a world where ever-tighter carbon constraints seem inevitable, is still trying. It plans to spend as much as $2 billion a year, up to 8 percent of total investment, to craft an electricity business.

This ambition, one of the hallmarks of Van Beurden’s tenure as CEO, throws up two big problems.

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First, trying to guess what such a venture would look like soon becomes dizzying. Should Shell be serving the owners of electric cars, erecting wind turbines and solar farms, or installing gigantic battery packs to store renewable energy?

Second, do investors even want it? For some, Shell developing a world-class power business akin to its oil division would be like McDonald’s Corp. becoming the globe’s foremost purveyor of health food. It’s already got a clientele, and they want Big Macs.

Power Grab

Regardless of the doubts, Shell’s appetite for electricity is hearty, with a Dutch utility called Eneco NV becoming its latest acquisition target. Maarten Wetselaar, head of the “New Energies” division, told a Dutch newspaper in January that the power company was a model of what Shell aspired to build.

Eneco does dozens of things. It has an app that automates the charging of electric vehicles, allowing customers to top up when prices are lowest. It provides wind power that fuels the Dutch train network. It sends renewable power to ice cream and peanut butter factories. It also built a gigantic battery with car-maker Mitsubishi Corp., which helps the grid cope with the surplus power generated on the sunniest or windiest days.

In Shell’s view, each line of business could be great. It can build things as well, or better, than anybody. What it doesn’t know how to do, it can pay to find out. Owning a clean-energy utility also gets cantankerous fossil fuel critics off of Shell’s back, providing it a set of green credentials today and an answer for how it will cope with the possibility of stagnating oil demand tomorrow.

Skeptical Investors

Shareholders aren’t quite so convinced. Many privately confide they’re worried about whether Big Oil wastes money when it ventures outside its core business. Legal & General Investment Management Ltd., one of Shell’s largest investors, has said it is “skeptical” whether oil majors can reinvent themselves, without referring to any individual company.

“There are clearly areas within the new energy system where oil companies have an advantage and it makes sense to deploy capital – but we do not think large scale renewable power generation is one of them,” said Nick Stansbury, a fund manager at Legal & General. “In our view the most shareholder-friendly option is to make a commitment now to a managed decline.”

Oil has been good for investors. While the price of a barrel of crude has swung from $10 to $147.50 a barrel over the past century, Shell hasn’t cut its dividend since the second World War. The dividend from a B share of Shell stock trading in London, yields more than five times as much as a U.K. 10-year gilt.

In a single quarter in 2018, Shell produced more than 160 million barrels of oil, realizing an average price of $60 a barrel. The value of that asset, almost $10 billion, exceeds that of motorcycle maker Harley-Davidson Inc. And oil is only two-thirds of what it produces — there’s also a huge natural gas business.

Between 2007 and 2017 Shell shareholders got a more than 150 percent total return on their investment, according to data compiled by Bloomberg. Over the same period, utilities across the world delivered an average return of 1 percent, according to research from consultant McKinsey & Co Inc.

It isn’t clear that oil companies are going to start to see that dynamic change in the near-future, possibly weakening the incentive to redistribute lots of capital over to selling electrons, according to Meredith Annex, an analyst at BloombergNEF.

“We don’t see the scalable economic opportunity that would warrant a significant investment at this time” in electricity, Pat Yarrington, chief financial officer of Chevron Corp., the second-largest U.S. oil and gas company, said in an interview last year. “We want to have good returns to our shareholders.”

Shell argues that’s the wrong way to think about it. By its account, government mandated decarbonization will cause the entire energy system to be taken apart and rebuilt, with huge growth in electric vehicles, solar panels, batteries and all of the kit required to connect them.

Mark Gainsborough, Shell’s executive vice president for New Energies said the utilities business, outside the heavily regulated “wires” segment, has returns similar to oil and gas. He estimates that the company will be able to generate returns of between 8 percent and 12 percent at some point, though he wouldn’t specify when.

“All of these technologies and solutions exist, but offering all of these things as a package doesn’t,” said Tom Heggarty, a senior solar analyst at consultant Wood Mackenzie Ltd. “There are not many companies with the balance sheet that would make all the investments that you need to do that, and that seems to be the way that Shell is going.”

Company New Energy Capex in 2020 New Energy Capex/Total Capex Shell $1.5 billion 5% Total SA $480 million 3% BP Plc $500 million 3% Eni SpA EUR300 million 4% Equinor ASA $750 million 6% Source: JPMorgan Chase & Co. data from Sept. 2018
The lucrative oil business could give Shell enough money to make that dream a reality. It bought the seventh-largest British power company in 2017 just so it could experiment with business models.

The ability to spend a further $2 billion a year on electricity could give Shell a powerful advantage against giants like Siemens AG in the car-charging business, or Alphabet Inc. in connected-home technologies. Yet history is also littered with companies that tried and failed to adapt to changing times — Eastman Kodak Co., Blockbuster Entertainment Corp., the Dutch East India Company — and Shell managers acknowledge the long odds they face.

“When we first started ‘New Energies’ two and a half years ago, there was, I’d say, quite a bit of skepticism,” said Gainsborough. But people once felt that way about gas, “and of course now that we’ve got a big position in gas, everybody is super happy about it.”

It’s safe to bet that oil majors can profitably serve their markets for decades to come, even if demand for fossil fuels does start to shrink in 10 to 20 years as some predict. But ambitious executives tend to want the value of their companies to increase, rather than decline.

For Shell, long-term growth may have to come in the form of an electron, no matter if it’s a long shot.