Who has the better intangible assets? Fossil Fuels or Alternative Energy

When you think of energy, you might point to the overhead power cables bouncing down the street or plugging in your computer. You know, “tangible” things.

Up until about a decade ago, pretty much every piece of energy-producing infrastructure used fossil fuels to make electricity. Giant machines took in tons of coal, oil or gas and burned them underneath vats of water to generate steam. That steam then drove turbines to push electricity into your home or business. It all worked well, but it was a dirty process.

More sustainable alternative energy sources such as wind, ocean tides or the sun have since been added to the grid in greater quantities. Presently, about 11% of all primary electricity generation in the world is sourced from “renewables,” according to the International Energy Agency (IEA), an official body.

Both types of energy generation sources rely primarily on tangible assets to make electricity, like turbines and power stations. But where they differ is in their intangible assets.

Let’s start by looking at the fossil fuel sector.

Of the 12 types of intangible assets recognised by EverEdge, fossil fuel companies have at least seven major examples: 1) relationships, 2) confidential information, 3) industry expertise, 4) approvals and certifications, 5) invention, 6) brand and 7) data.

• Relationships: One word – OPEC. Well, it’s not really a single word. It stands for the Organization of Petroleum Exporting Countries. If the members decide to produce less oil, they can squeeze the global market in a few days. That’s the sort of relationship any company would dream of having.
• Confidential Information: How much oil, coal or natural gas is there left in the world? No one really knows. But fossil fuel companies likely have a better grasp on this information than even the best spy agencies. Knowing something important that others don’t know can be a huge market advantage.
• Industry Expertise: If, like the Beverly Hillbillies, a geyser of oil suddenly shot out of your backyard, would you know anything about capturing the oil? And what about how to sell it? Of course not. Every oil field on the planet would just be a big, black pile of goo without the specific skills of the people involved with fossil fuel extraction and refining companies.
• Approvals and Certifications: Most of the public is aligned against fossil fuel companies, which means it’s tough for them to achieve political support for mining and extraction. So, fossil fuel companies have skipped over politics and lobbied directly for entire laws to be written in their favour. This process often makes their approvals and licenses safe from political whims.
• Invention and Design: The ability to reach down hundreds of meters under the ocean surface, search for patches of natural gas, bring those resources up to a refining plant and then deliver the finished fuel to customers – all within a timely window – requires serious technology (and the skills to operate it, see Industry Expertise above).
• Brand: Politically, fossil fuel brands tend to have a hard time in the public eye. Yet, the ExxonMobil brand, for example, is still seen as an incredibly safe and reliable investment opportunity in the wider corporate world. Saudi Aramco is also the backbone of Saudi Arabia’s GDP and millions of people rely on the company for their livelihood.
• Software and Data: The fossil fuel industry is split between the “upstream” (producers) and the “downstream” (retail). Few industries have a better overview of a country’s energy usage than downstream oil companies. If energy is the lifeblood of a nation, then these fossil fuel companies understand in incredible detail what makes a country tick.

What are the intangible assets of alternative energy companies?

At a high level, we can identify at least eight in this sector: 1) relationships, 2) industry expertise, 3) approvals and certifications, 4) invention, 5) brand, 6) content, 7) data and 8) confidential information.

• Relationships: Some companies – not too many currently – are run by founders who are deep believers in environmentalism. Such companies are perfectly comfortable spending precious cash to use more expensive alternative energy sources. This global ideological support group is a remarkable intangible asset for operators.
• Industry Expertise: If nuclear energy is included as a version of alternative energy, the skills to operate a nuclear reactor are finely tuned. Also, knowing how to safely dispose of spent nuclear fuel rods is a complex task that could have terrible consequences for human life if any part of the process is performed incorrectly.
• Approvals and Certifications: It seems like every government has spread out the regulatory red carpet for alternative energy companies. While proper precautions are still taken by officials and agencies, these days it is far easier for wind, tidal or solar companies to set up operations than it is for oil companies to gain a new licence.
• Invention and Design: As alternative energy technology increases in complexity, little tweaks to energy storage and generation can translate into huge market advantages. A photovoltaic array that can capture an extra few percentage points more of sunlight, for instance, would be an innovation that could land a company contracts worth hundreds of millions of dollars.
• Brand: “Green” is no longer the colour of envy. It is the international symbol of saving the polar bears. Alternative energy firms are natively “green” from the first day of operation. They can plug directly into a global marketing campaign – often funded by governments – that promotes sustainability without having to spend $1 on their own marketing.
• Content: Further to the above, hundreds of big-budget movies championing alternative energy – or demonising fossil fuel energy – were created over the last few years. Not to mention the thousands of books with the same messages. More positive media is produced every day. Alternative energy companies can leverage that content.
• Software and Data: Top-quality data about the availability and intensity of sun, wind, geothermal, hydro, wave, tidal and biomass energy at a given location help investors, policymakers and operators make better decisions about where to put their alternative energy systems.
• Confidential Information: In 2021, Siemens Energy was sued by GE for allegedly stealing trade secrets in 2019 which it then used to help rig the bidding process for contracts with the Virginia state government. Alternative energy companies often hold plenty of proprietary technologies, some of which are protected by patents while others are trade secrets.

The point of placing these two sectors side-by-side is not to create competition. It is to highlight how intangible assets are essential for both the established player and the disruptor.

The real question is: how might companies in these sectors better leverage their intangible assets? Answering that question will also help businesses in completely different sectors (both incumbents and up-and-comers) rethink their strategies for success as well.

An immediate example would be to consider the vast data sets both sectors generate, including energy usage, the best ways to gather energy and even when the wind might blow! Such valuable data not only acts as a competitive edge, it can also become a new revenue stream.

Likewise, as companies and consumers move towards ‘cleaner’ energy sources, this creates an opportunity for alternative energy companies – and those that use them – to build brand equity, which will add to the overall valuation of the business.

For example, energy retailers that are further along the renewable energy journey can build deeper customer loyalty by making it easier for them to see how much of their daily energy use comes from renewable sources. This extra clarity would help make alternative energy become more of a “normal” option, rather than letting people see it as the “different” choice.

In the same way, fossil fuel businesses have struggled to highlight the many positive dynamics of their services as well. Oil especially is likely to be used for as long as humans exist on this planet – and for good reason. Operators should find engaging ways to explain how and why their services are still so integral to the modern world.

In any industry, drilling down to understand the underlying assets driving your competitive edge is critical. But it’s just the first step. The real trick is coming up with clever ways to make those intangible assets work for you – either in your own hands or by licensing the valuable data, innovations or brand.