(Bloomberg) -- Shell Plc is launching a strategic review of its European domestic energy unit, a significant pivot after the business proved a weak spot for the oil major during the energy crisis.

The company had harbored ambitions to become a major household electricity supplier as part of the transition to cleaner energy, but has told employees it’s reviewing the business in the UK, Netherlands and Germany. European power and gas retailers have been under stress in the past year as prices soared following Russia’s invasion of Ukraine. 

The review is one of the first announcements under Shell’s new Chief Executive Officer Wael Sawan. The fact that he is considering withdrawing from the tumultuous and low-margin home energy business, at a time when the company is racking up record profits pumping oil and gas underscores the challenge he faces delivering on pledges to curb carbon emissions while maintaining payouts to shareholders.

Shell said in a statement that the review was in line with those plans to decarbonize. Its shares rose 0.4% to 2,341.5 pence in London.

Shell entered the UK and German home energy businesses when it announced the acquisition of First Utility in 2017. The move was meant to position Shell more centrally in the electricity market, forging a new connection to customers who will use an increasing amount of power in the coming decades as they plug in EVs at home instead of filling up the tank at one of Shell’s petrol stations. 

Yet retail energy supply has become a tough business in Europe as surging wholesale prices upended hedging strategies and forced politicians to stump up billions of euros to shield customers. In Britain in particular, margins have shrunk to almost nothing with suppliers selling energy to households on regulator-capped tariffs.

Shell’s power and gas retail unit in the UK required £1.2 billion ($1.5 billion) of financial backing from its parent company last year to weather intense volatility in energy markets. The year before it lost £100 million, according to a filing. 

“If Shell were to exit the UK retail electricity business it would be positive for shareholders,” said Biraj Borkhataria, an analyst at RBC Capital Markets. “This is a low margin business that is never likely to be scalable enough to be meaningful for Shell. Better to focus on strategic growth priorities like LNG.”

No decisions have yet been made and the review will take a number of months, a company spokesperson said in an emailed statement. Shell’s wholesale and business-focused energy supply activities won’t be affected, nor will its home retail units in the US and Australia, the company said.

(Updates with background in fifth paragraph)

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